Note 16 — Stock Plans

Share-based incentive awards are provided to employees under the terms of the Company’s equity incentive compensation plans (the “Plans”). During 2010 the Company’s Board of Directors approved the 2010 Stock Incentive Plan (as amended to date, the “2010 Plan”), which replaced the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The Plans are administered by the Compensation Committee of the Board of Directors. The Company’s employees, non-employee directors, and consultants are eligible to receive awards under the 2010 Plan, which can include non-qualified stock options, incentive stock options, restricted share awards (“RSAs”), restricted share units (“RSUs”), share appreciation rights, dividend equivalent rights or any combination thereof. The Company typically settles awards under the Plans with newly issued shares. All Plans, with the exception of acquired companies’ stock plans, have been approved by the Company’s shareholders.

The Board of Directors granted equity awards to certain employees in connection with the Company’s acquisition of ALD during fiscal year 2013 (Refer to Note 5, “Business Combinations” for additional information on the acquisition). The equity awards were granted under the Company’s 2013 Inducement Stock Incentive Plan (the “Inducement Plan”), which the Board of Directors adopted to facilitate the granting of equity awards as an inducement to these employees to commence employment with the Company. The Company issued 124,500 stock option shares and 87,000 RSUs under this plan. The stock options will vest over a three year period and have a 10-year term, and the RSUs will vest over a two or four year period. As of December 31, 2013, the Inducement Plan was merged into the 2010 Plan and is considered an inactive plan with no further shares available for grant. As of December 31, 2014, there are 124,500 option shares and 82,700 RSUs outstanding under the Inducement Plan.

The Company is authorized to issue up to 6.8 million shares under the 2010 Plan, including additional shares authorized under a 2013 plan amendment approved by shareholders. Option awards are generally granted with an exercise price equal to the closing price of the Company’s common stock on the trading day prior to the date of grant; option awards generally vest over a three year period and have a seven or ten year term. RSAs and RSUs generally vest over one to five years. Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the 2010 Plan. As of December 31, 2014, there are 1.9 million option shares and 0.4 million RSUs outstanding under the 2010 Plan.

The 2000 Plan was approved by the Company’s Board of Directors and shareholders in fiscal year 2000 and was replaced by the 2010 Plan. Therefore, no additional awards are made under this plan. Stock awards granted pursuant to the 2000 Plan expire after seven years and generally vest over a two to five year period. As of December 31, 2014, there are 0.4 million option shares outstanding under the 2000 Plan.

Shares Reserved for Future Issuance

At December 31, 2014, the Company has 4.9 million shares reserved to cover exercises of outstanding stock options, vesting of RSUs, and additional grants under the 2010 Plan.

Share-Based Compensation

The Company recognized share-based compensation in the following line items in the Consolidated Statements of Operations for the periods indicated:

	Year ended December 31,
	2014			2013			2012
				(in thousands)
Cost of sales	$	2,456		$	1,446		$	1,467
Selling, general, and administrative	11,859			8,339			9,677
Research and development	4,498			3,347			2,709
Share-based compensation expense before tax	18,813			13,132			13,853
Income tax benefit	(6,011		)	(4,367		)	(4,849		)
Net share-based compensation expense	$	12,802		$	8,765		$	9,004

The Company capitalized an insignificant amount of share-based compensation into inventory for the years ended December 31, 2014, 2013, and 2012.

The following table summarizes information about unrecognized share-based compensation costs at December 31, 2014:

	Unrecognized		Weighted
	Share-Based		Average Period
	Compensation		Expected to be
	Costs		Recognized
	(in thousands)		(in years)
Stock option awards	$	9,939	2.0
Restricted stock units	9,980		2.5
Restricted stock awards	17,501		2.8
Performance share units	2,855		3.3
Performance share awards	152		0.4
Total unrecognized share-based compensation cost	$	40,427	2.5

Stock Option Awards

Stock options are awards issued to employees that entitle the holder to purchase shares of the Company’s stock at a fixed price. At December 31, 2014, options outstanding that have vested and are expected to vest were as follows:

				Weighted
	Number	Weighted		Average	Aggregate
	of	Average		Remaining	Intrinsic
	Shares	Exercise Price		Contractual Life	Value
	(in thousands)			(in years)	(in thousands)
Vested	1,409	$	30.76	5.2	$	10,127
Expected to vest	903	$	32.93	7.7	2,091
Total	2,312	$	31.61	6.2	$	12,218

Outstanding options expected to vest are net of estimated future forfeitures. The aggregate intrinsic value represents the difference between the option exercise price and $34.88, the closing price of the Company’s common stock on December 31, 2014, the last trading day of the Company’s fiscal year as reported on The NASDAQ Stock Market for all in-the-money options.

Additional information with respect to stock option activity was as follows:

			Weighted
	Number of		Average
	Shares		Exercise Price
	(in thousands)
Outstanding at December 31, 2011	2,106		$	25.58
Granted	704		32.55
Exercised	(351	)	15.39
Expired or forfeited	(137	)	35.88
Outstanding at December 31, 2012	2,322		$	28.63
Granted	539		32.68
Exercised	(149	)	14.74
Expired or forfeited	(114	)	35.22
Outstanding at December 31, 2013	2,598		$	29.98
Granted	509		33.05
Exercised	(561	)	23.88
Expired or forfeited	(155	)	36.22
Outstanding at December 31, 2014	2,391		$	31.65

The following table summarizes stock option information at December 31, 2014:

	Options Outstanding						Options Exercisable
				Weighted						Weighted
		Aggregate		Average	Weighted			Aggregate		Average	Weighted
Range of		Intrinsic		Remaining	Average			Intrinsic		Remaining	Average
Exercise Prices	Shares	Value		Contractual Life	Exercise Price		Shares	Value		Contractual Life	Exercise Price
	(in thousands)	(in thousands)		(in years)			(in thousands)	(in thousands)		(in years)
$8.82 – $17.48	386	$	8,769	1.3	$	12.15	386	$	8,769	1.3	$	12.15
$20.80 – $31.45	347	1,626		8.8	30.20		125	616		8.7	29.94
$31.91 – $48.04	1,429	2,000		6.9	34.14		669	742		6.4	34.63
$48.90 – $51.70	229	—		6.4	51.21		229	—		6.4	51.21
	2,391	$	12,395	6.2	$	31.65	1,409	$	10,127	5.2	$	30.76

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards. The weighted average estimated values of employee stock option grants as well as the weighted average assumptions that were used in calculating such values during fiscal years 2014, 2013, and 2012 were based on estimates at the date of grant as follows:

	Year ended December 31,
	2014			2013			2012
Weighted average fair value	$	11.58		$	13.47		$	15.56
Dividend yield	0		%	0		%	0		%
Expected volatility factor(1)	44		%	49		%	59		%
Risk-free interest rate(2)	1.19		%	1.27		%	0.70		%
Expected life(in years)(3)	3.9			4.5			4.5

(1)

Expected volatility is measured using historical daily price changes of the Company’s stock over the respective expected term of the options and the implied volatility derived from the market prices of the Company’s traded opt ions.

(2)

The risk-free rate for periods within the contractual term of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant.

(3)

The expected life is the number of years the Company estimates that options will be out standing prior to exercise. The Company’s computation of expected life was determined using a lattice-based model incorporating historical post vest exercise and employee termination behavior.

The following table summarizes information on options exercised for the periods indicated:

	Year ended December 31,
	2014		2013		2012
			(in thousands)
Cash received from options exercised	$	12,056	$	2,199	$	5,409
Intrinsic value of options exercised	$	8,390	$	2,509	$	6,800

RSAs and RSUs

RSAs are stock awards issued to employees that are subject to specified restrictions and a risk of forfeiture. RSAs entitle holders to dividends. The restrictions typically lapse over one to five years. The fair value of the awards is determined and fixed based on the closing price of the Company’s common stock on the trading day prior to the date of grant. RSUs are stock awards issued to employees that entitle the holder to receive shares of common stock as the awards vest, typically over one to five years. RSUs do not entitle holders to dividends. The fair value of the awards is determined and fixed based on the closing price of the Company’s common stock on the trading day prior to the date of grant reduced by the present value of dividends expected to be paid on the Company’s stock prior to vesting of the RSUs, which is currently assumed to be zero.

The following table summarizes the activity of RSAs and RSUs under the Plans:

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
	(in thousands)
Outstanding at December 31, 2011	618		$	33.61
Granted	324		32.62
Released	(167	)	20.60
Forfeitures	(82	)	34.98
Outstanding at December 31, 2012	693		$	36.11
Granted	798		33.16
Released	(207	)	32.44
Forfeitures	(126	)	34.33
Outstanding at December 31, 2013	1,158		$	34.93
Granted	395		34.18
Released	(183	)	38.65
Forfeitures	(133	)	33.66
Outstanding at December 31, 2014	1,237		$	34.27

Released shares include the impact of restricted stock shares that were cancelled due to elections by employees to cover withholding taxes with such shares. The total fair value of shares that vested during the years ended December 31, 2014, 2013, and 2012 was $6.2 million, $7.9 million, and $5.4 million, respectively.