Share-Based Compensation Plans

Our share-based compensation is measured at fair value and expensed over the service period (generally the vesting period). The amount of compensation expense to be recognized is adjusted for an estimated forfeiture rate which is based on historical data. The following table presents share-based compensation expense attributable to stock options and restricted shares:



	For the Year Ended December 31,
	2011		2010		2009
	(In thousands)
Stock options	$	2,025	$	2,473	$	2,577
Restricted shares	2,985		1,042		—
Total share-based compensation expense	$	5,010	$	3,515	$	2,577

The following table presents share-based compensation expense included in the Consolidated Statements of Income:



	For the Year Ended December 31,
	2011		2010		2009
	(In thousands)
Cost of sales	$	31	$	27	$	81
Selling, general and administrative	4,332		3,053		2,097
Research and development	647		435		399
Total share-based compensation expense	$	5,010	$	3,515	$	2,577

Equity Incentive Plans

2007 Equity Incentive Plan. On August 6, 2007, our shareholders approved the 2007 Equity Incentive Plan, (the “2007 Plan”) that provides for the grant of the following types of incentive awards: (i) stock options, (ii) restricted stock, (iii) restricted stock units, (iv) stock appreciation rights, (v) performance units and performance shares and (vi) other stock or cash awards. Those eligible for awards include employees, directors and consultants who provide services to Amkor and its subsidiaries. The effective date of this plan was January 1, 2008, and there were originally 17,000,000 shares of our common stock reserved for issuance under the 2007 Equity Incentive Plan.

2003 Nonstatutory Inducement Grant Stock Plan. On September 9, 2003, we initiated the 2003 Nonstatutory Inducement Grant Stock Plan (the “2003 Plan”). The 2003 Plan generally provides for the grant to employees, directors and consultants of stock options and stock purchase rights and is generally used as an inducement benefit for the purpose of retaining new employees. There is a provision for an annual replenishment to bring the number of shares of common stock reserved for issuance under the plan up to 300,000 as of each January 1.

1998 Director Option Plan. The Director Plan terminated in January 2008. The options granted under the Director Plan were automatic and non-discretionary. Each option granted to a non-employee director vests over a three year period.

1998 Stock Plan. The 1998 Stock Plan terminated in January 2008. The 1998 Stock Plan generally provided for grants to employees, directors and consultants of stock options and stock purchase rights. The options granted vest over a two to five year period.

A summary of the stock plans, the respective plan termination dates and shares available for grant as of December 31, 2011, is shown below:



	2007 Equity	2003
Stock Plans	Incentive Plan	Inducement Plan
Contractual life (years)	10	10
Plan termination date	Board of Directors Discretion	Board of Directors Discretion
Shares available for grant at December 31, 2011 (in thousands)	14,996	444

Stock options

Stock options are generally granted with an exercise price equal to the market price of the stock at the date of grant. Substantially all of the options granted are exercisable pursuant to a two to five year vesting schedule and the term of the options granted is no longer than ten years. Upon option exercise, we may issue new shares of common or treasury stock.

In order to calculate the fair value of stock options at the date of grant, we use the Black-Scholes option pricing model. Expected volatilities are based on historical performance of our stock. We also use historical data to estimate the timing and amount of option exercises and forfeitures within the valuation model. The expected term of the options is based on evaluations of historical and expected future employee exercise behavior and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The following is a summary of all option activity for the year ended December 31, 2011:



	Number of Shares (In thousands)	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2010	7,843	$	10.26
Granted	120	6.46
Exercised	(188)	4.99
Forfeited or expired	(1,723)	11.56
Outstanding at December 31, 2011	6,052	$	9.97	2.95	$	109
Fully vested and expected to vest at December 31, 2011	6,027	$	9.98	2.88	$	109
Exercisable at December 31, 2011	5,648	$	10.10	2.63	$	109

The following assumptions were used to calculate weighted average fair values of the options granted:



	For the Year Ended December 31,
	2011			2010			2009
Expected life (in years)	6.2			6.0			5.9
Risk-free interest rate	2.4		%	3.0		%	2.3		%
Volatility	67		%	71		%	76		%
Dividend yield	—			—			—
Weighted average grant date fair value per option granted	$	4.06		$	5.00		$	2.70

The intrinsic value of options exercised for the years ended December 31, 2011, 2010 and 2009 was $0.4 million, $0.3 million and $0.2 million, respectively. For the years ended December 31, 2011, 2010 and 2009, cash received under all share-based payment arrangements was $0.8 million, $1.0 million and $0.7 million, respectively. There was no tax benefit realized. The related cash receipts are included in financing activities in the accompanying Consolidated Statements of Cash Flows. Total unrecognized compensation expense from stock options, including any forfeiture estimate, was $1.3 million as of December 31, 2011, which is expected to be recognized over a weighted-average period of 1.2 years beginning January 1, 2012. To the extent that the actual forfeiture rate is different than what we have anticipated, the share-based compensation expense related to these options will be different from our expectations.

Restricted Shares

We grant restricted shares to employees under the 2007 Equity Incentive Plan. The restricted shares vest ratably over four years, with 25% of the shares vesting at the end of the first year and the remainder vesting monthly or quarterly thereafter, depending on the grant, such that 100% of the shares will become vested on the fourth anniversary of the award, subject to the recipient’s continued employment with us on the applicable vesting dates. In addition, provided that the restricted shares have not been forfeited earlier, the restricted shares will vest upon the recipient’s death, disability or retirement, or upon a change in control of Amkor. Although ownership of the restricted shares does not transfer to the recipients until the shares have vested, recipients have voting and dividend rights on these shares from the date of grant. The value of the restricted shares is determined based on the fair market value of the underlying shares on the date of the grant and is recognized ratably over the vesting period or to the date on which the recipient becomes retirement eligible, if shorter. Upon vesting of restricted stock awards, we may issue new shares of common or treasury stock.

The Equity Incentive Plan provides that when a recipient’s age plus years of service equals or exceeds 75, the recipient will be eligible to voluntarily retire and become fully vested in their restricted shares upon retirement. Consequently, under federal tax law, when a recipient becomes retirement eligible, the employee is immediately taxable on 100% of their restricted shares whether or not the recipient actually retires. Upon the earlier of retirement eligibility or vesting of the restricted shares, the recipient has a tax liability and pursuant to the recipient’s award agreement, a portion of the restricted shares are withheld to satisfy the recipient’s statutory minimum tax withholding obligations. The shares withheld are accounted for as treasury stock at cost, which is determined by the closing stock price per share on the applicable date of vesting or retirement eligibility.

The following table summarizes our restricted share activity for the year ended December 31, 2011:



	Number of Shares (In thousands)		Weighted Average Grant Date Fair Value (Per Share)
Nonvested at December 31, 2010	372		$	5.96
Awards granted	809		7.70
Awards vested	(372	)	6.82
Awards forfeited	(116	)	7.18
Nonvested at December 31, 2011	693		$	7.33

Awards vested include 197,000 shares for retirement eligible recipients whose restricted shares are treated for accounting and tax purposes as if vested when they meet the retirement eligible date. The fair value of shares vested during 2011 was $2.6 million.

The unrecognized compensation cost, including a forfeiture estimate, was $3.5 million as of December 31, 2011, which is expected to be recognized over a weighted average period of approximately 2.7 years beginning January 1, 2012. To the extent that the actual forfeiture rate is different than what we have anticipated, the share-based compensation expense related to these awards will be different from our expectations.