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, 2018, there are 2,000 option shares and no 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, 2018, there are 1.2 million option shares and 0.9 million RSUs and PSUs outstanding under the 2010 Plan.

During 2016, the Company’s Board of Directors approved the 2016 Employee Stock Purchase Plan (“ESPP”). The Company is authorized to issue up to 750,000 shares under the ESPP. Under the ESPP, 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, and subject to certain limits. The ESPP was approved by the Company’s shareholders.

During 2017, in connection with the acquisition of Ultratech, the Company assumed certain restricted stock units (the “Assumed RSUs”) available and outstanding under the Ultratech, Inc. 1993 Stock Option/Stock Issuance Plan, as amended (the “Ultratech Plan”). The Assumed RSUs remain subject to the terms set forth in the award agreement governing the award and the Ultratech Plan, except that the Assumed RSUs relate to shares of Company common stock and the number of restricted stock units was adjusted pursuant to the terms of the acquisition to reflect the difference in the value of a share of Company common stock and a share of Ultratech common stock prior to closing the acquisition. The Assumed RSUs were converted into 338,144 restricted stock units of the Company and generally vest over 50 months. After the acquisition and notwithstanding any other provisions of the Ultratech Plan, no further grants will be made under the Ultratech Plan, and the Company is solely maintaining the Ultratech Plan with respect to the Assumed RSUs. At December 31, 2018, there are 30,200 RSUs outstanding under the Ultratech Plan.

Shares Reserved for Future Issuance

At December 31, 2018, the Company has 4.5 million shares reserved to cover exercises of outstanding stock options, vesting of RSUs, and additional grants under the 2010 Plan. At December 31, 2018, the Company has 0.2 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,
	2018		2017		2016
	(in thousands)
Cost of sales	$	1,885	$	2,505	$	1,956
Research and development		3,611		2,957		3,324
Selling, general, and administrative		9,417		12,851		10,433
Restructuring		1,161		1,880		—
Acquisition costs		—		4,203		—
Total	$	16,074	$	24,396	$	15,713

The Company did not realize any tax benefits associated with share-based compensation for the years ended December 31, 2018, 2017, and 2016 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 immaterial amount of share-based compensation into inventory for the years ended December 31, 2018, 2017, and 2016.

Unrecognized share-based compensation costs at December 31, 2018 are summarized below:


	Unrecognized		Weighted
	Share-Based		Average Period
	Compensation		Expected to be
	Costs		Recognized
	(in thousands)		(in years)
Stock option awards	$	—	—
Restricted stock units		2,466	2.4
Restricted stock awards		19,663	2.6
Performance share units		7,356	2.4
Total unrecognized share-based compensation cost	$	29,485	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, 2018, 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	1,222	$	34.80	3.0	—
Expected to vest	—		—	—	—
Total	1,222		34.80	3.0	—

The aggregate intrinsic value represents the difference between the option exercise price and $7.41, the closing price of the Company’s common stock on December 31, 2018, 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)
Balance - December 31, 2015	2,064	$	32.91
Granted	—		—
Exercised	(194)		12.18
Expired or forfeited	(294)		34.44
Balance - December 31, 2016	1,576		35.18
Granted	—		—
Exercised	(18)		30.03
Expired or forfeited	(164)		37.47
Balance - December 31, 2017	1,394		34.97
Granted	—		—
Exercised	—		—
Expired or forfeited	(172)		36.21
Balance - December 31, 2018	1,222		34.80

The following table summarizes stock option information at December 31, 2018:


	Options Outstanding						Options Exercisable
				Weighted						Weighted
		Aggregate		Average	Weighted			Aggregate		Average	Weighted
		Intrinsic		Remaining	Average			Intrinsic		Remaining	Average
Range of 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)
$20.00 - $30.00	25	$	—	3.6	$	28.13	25	$	—	3.6	$	28.13
$30.01 - $40.00	1,058		—	3.1		32.81	1,058		—	3.1		32.81
$40.01 - $50.00	12		—	1.7		45.57	12		—	1.7		45.57
$50.01 - $60.00	127		—	2.4		51.70	127		—	2.4		51.70
	1,222	$	—	3.0		34.80	1,222	$	—	3.0		34.80

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


	Year ended December 31,
	2018		2017		2016
	(in thousands)
Cash received from options exercised	$	—	$	431	$	494
Intrinsic value of options exercised	$	—	$	51	$	1,165

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 an issuance of shares of common stock to employees if certain performance or market conditions are achieved. All of these awards typically vest over one to five years and vesting is subject to the employee's continued service with the Company and, in the case of performance awards, meeting certain performance or market conditions. 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, or, in the case of performance awards with market conditions, fair value is determined using a Monte Carlo simulation.

The following table summarizes the equity activity of non-vested restricted shares and performance shares:


		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
	(in thousands)
Balance - December 31, 2015	1,398	$	31.97
Granted	1,166		17.59
Vested	(349)		32.73
Forfeited	(266)		27.31
Balance - December 31, 2016	1,949		23.85
Granted	674		29.22
Performance award adjustments	(25)		20.95
Assumed from Ultratech	338		31.75
Vested	(831)		27.67
Forfeited	(225)		26.29
Balance - December 31, 2017	1,880		25.41
Granted	1,257		17.37
Performance award adjustments	(5)		32.67
Vested	(523)		26.39
Forfeited	(391)		24.66
Balance - December 31, 2018	2,218		20.74

The total fair value of shares that vested during the years ended December 31, 2018, 2017, and 2016 was $9.1 million, $22.3 million, and $7.5 million, respectively. For performance awards, the final number of shares earned will vary depending on the achievement of the actual results relative to the performance or market conditions. 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 fair value of performance awards with market conditions is estimated on the date of grant using a Monte Carlo simulation. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive these awards. The weighted average fair value and the assumptions used in calculating such values during fiscal year 2018 for performance awards with market conditions were based on estimates at the date of grant as follows:


	Year ended December 31,
	2018
Weighted average fair value	$	15.58
Dividend yield		0	%
Expected volatility factor(1)		49	%
Risk-free interest rate(2)		2.88	%
Expected life (in years)(3)		3.0

(1)

Expected volatility is measured using historical daily price changes of the Company’s stock over the respective expected term.

(2)

The risk-free rate for periods within the contractual term 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 the awards will be outstanding prior to exercise.

Employee Stock Purchase Plan

For the years ended December 31, 2018, 2017, and 2016 the Company received cash proceeds of $3.1 million, $2.6 million, and $1.2 million, and issued shares of 332,096, 163,000, and 83,000, respectively, under the ESPP Plan. 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 years 2018, 2017, and 2016 were based on estimates at the date of grant as follows:


		Year ended December 31,
	2018			2017			2016
Weighted average fair value	$	4.94		$	7.09		$	4.45
Dividend yield		0	%		0	%		0	%
Expected volatility factor(1)		62	%		36	%		43	%
Risk-free interest rate(2)		1.81	%		0.99	%		0.35	%
Expected life (in years)(3)		0.5			0.5			0.5

(1)

Expected volatility is measured using historical daily price changes of the Company’s stock over the respective expected term.

(2)

The risk-free rate for periods within the contractual term 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 the purchase rights will be outstanding prior to exercise.