Note 15 — Stock Plans

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

In 2013, the Board of Directors granted equity awards to certain employees under the Company’s 2013 Inducement Stock Incentive Plan (the “Inducement Plan”). The Company issued 124,500 stock option shares and 87,000 RSUs under this plan. Stock options under this plan vest over a three year period and have a 10-year term, and RSUs under this plan vest over a two or four year period. At 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. At December 31, 2016, there are 77,500 option shares and 5,200 RSUs outstanding under the Inducement Plan.

The Company is authorized to issue up to 10.6 million shares under the 2010 Plan, including additional shares authorized under plan amendments approved by shareholders in 2016 and 2013. Option awards are 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. At December 31, 2016, there are 1.5 million option shares and 0.6 million RSUs and PSUs outstanding under the 2010 Plan.

During 2016 the Company’s Board of Directors approved the 2016 Employee Stock Purchase Plan (the “ESPP Plan”). The Company is authorized to issue up to 750,000 shares under the 2016 ESPP Plan. Under the ESPP Plan, substantially all employees in the U.S. may purchase the Company’s common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of the Company’s common stock at the beginning or end of each six-month Offer Period, as defined in the ESPP Plan, and subject to certain limits. The ESPP Plan was approved by the Company’s shareholders.

Shares Reserved for Future Issuance

At December 31, 2016, the Company has 6.3 million shares reserved to cover exercises of outstanding stock options, vesting of RSUs, and additional grants under the 2010 Plan. At December 31, 2016, the Company has 0.7 million shares reserved to cover future issuances under the ESPP 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:

	For the year ended December 31,
	2016		2015		2014
	(in thousands)
Cost of sales	$	1,956	$	2,495	$	2,456
Research and development	3,324		4,031		4,498
Selling, general, and administrative	10,433		11,474		11,859

Total	$	15,713	$	18,000	$	18,813

The Company did not realize any tax benefits associated with share-based compensation for the years ended December 31, 2016, 2015, and 2014, due to the full valuation allowance on its U.S. deferred tax assets. See Note 17, “Income Taxes” for additional information. The Company capitalized an insignificant amount of share-based compensation into inventory for the years ended December 31, 2016, 2015, and 2014.

Unrecognized share-based compensation costs at December 31, 2016 are summarized below:

	Unrecognized		Weighted
	Share-Based		Average Period
	Compensation		Expected to be
	Costs		Recognized
	(in thousands)		(in years)
Stock option awards	$	660	0.6
Restricted stock units	3,034		2.0
Restricted stock awards	20,669		2.7
Performance share units	4,556		2.5

Total unrecognized share-based compensation cost	$	28,919	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, 2016, options outstanding that have vested and are expected to vest are as follows:

						Weighted
	Number		Weighted			Average		Aggregate
	of		Average			Remaining		Intrinsic
	Shares		Exercise Price			Contractual Life		Value
		(in thousands)					(in years)		(in thousands)
Vested		1,449		$	35.39		4.9		$	39
Expected to vest		127		32.79			5.1		—

Total		1,576		$	35.18		4.9		$	39

The aggregate intrinsic value represents the difference between the option exercise price and $29.15, the closing price of the Company’s common stock on December 30, 2016, the last trading day of the Company’s fiscal year as reported on The NASDAQ Stock Market.

Additional information with respect to stock option activity:

				Weighted
	Number of			Average
	Shares			Exercise Price
		(in thousands)
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
Granted		17			30.22
Exercised		(192	)		12.95
Expired or forfeited		(152	)		38.15

Outstanding at December 31, 2015		2,064			32.91
Granted		—			—
Exercised		(194	)		12.18
Expired or forfeited		(294	)		34.44

Outstanding at December 31, 2016		1,576			$	35.18

The following table summarizes stock option information at December 31, 2016:

	Options Outstanding							Options Exercisable
			Weighted										Weighted
			Average		Weighted					Aggregate			Average		Weighted
Range of			Remaining		Average					Intrinsic			Remaining		Average
Exercise Prices	Shares		Contractual Life		Exercise Price			Shares		Value			Contractual Life		Exercise Price
	(in thousands)		(in years)					(in thousands)		(in thousands)			(in years)
$20.00 – $30.00		32		5.8		$	28.18		29		$	39		5.9		$	28.04
$30.01 – $40.00		1,336		5.1		33.09			1,212		—			5.1		33.12
$40.01 – $50.00		73		2.7		45.93			73		—			2.7		45.96
$50.01 – $60.00		135		4.4		51.70			135		—			4.4		51.70

		1,576		4.9		$	35.18		1,449		$	39		4.9		$	35.39

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. No options were granted in 2016. 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 2015 and 2014 were based on estimates at the date of grant as follows:

	Year ended December 31,
	2015		2014
Weighted average fair value	$	10.58	$	11.58
Dividend yield	0%		0%
Expected volatility factor(1)	44%		44%
Risk-free interest rate(2)	1.18%		1.19%
Expected life (in years)(3)	3.9		3.9

(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 options.

(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 outstanding 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,
	2016		2015		2014
	(in thousands)
Cash received from options exercised	$	494	$	2,233	$	12,056
Intrinsic value of options exercised	$	1,165	$	2,089	$	8,390

RSAs, RSUs, PSAs, PSUs

RSAs are stock awards issued to employees that are subject to specified restrictions and a risk of forfeiture. RSUs are stock awards issued to employees that entitle the holder to receive shares of common stock as the awards vest. PSAs and PSUs are awards that result in a payment to a grantee in shares of common stock if certain performance goals and vesting criteria are achieved. These awards typically vest over one to five years and vesting is subject to the grantee’s continued service with the Company and, in the case of performance awards, meeting the performance condition. 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.

The following table summarizes the activity of these awards:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
	(in thousands)
Outstanding - December 31, 2013		1,158			$	34.93
Granted		395			34.18
Released		(183	)		38.65
Forfeited		(133	)		33.66

Outstanding - December 31, 2014		1,237			34.27
Granted		672			30.33
Released		(389	)		35.65
Forfeited		(122	)		34.46

Outstanding - December 31, 2015		1,398				31.97
Granted		1,166			17.59
Released		(349	)		32.73
Forfeited		(266	)		27.31

Outstanding - December 31, 2016		1,949			$	23.85

For performance awards, the final number of shares earned will vary depending on the achievement of the actual results relative to the performance targets. Each performance award is included in the table above at the grant date target share amount until the end of the performance period (if not previously forfeited). The total fair value of shares that vested during the years ended December 31, 2016, 2015, and 2014 was $7.5 million, $9.6 million, and $6.2 million, respectively.

Employee Stock Purchase Plan

The Company received cash proceeds of $1.2 million and issued 83,000 shares under the ESPP Plan for the year ended December 31, 2016. The weighted average estimated values of employee purchase rights as well as the weighted average assumptions that were used in calculating such values during fiscal year 2016 were based on estimates at the date of grant as follows:

	Year ended December 31,
	2016
Weighted average fair value	$	4.45
Dividend yield	0%
Expected volatility factor(1)	43%
Risk-free interest rate(2)	0.35%
Expected life (in years)(3)	0.5

(1)

(2)

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

(3)

The expected life is the length of time, in years, that the purchase rights will be outstanding.