Stock-Based Employee Compensation

Equity Incentive Programs

The Company currently issues awards under two equity-based plans in order to provide additional incentive and retention to directors and employees who are considered to be essential to the long-range success of the Company. These plans are further described below.

2008 GigPeak Equity Incentive Plan (2008 Plan)

On April 4, 2017, as a result of the acquisition of GigPeak, the Company assumed the 2008 Plan, including outstanding and unvested RSUs of GigPeak that converted into the Company's RSUs covering 0.3 million shares of IDT's common stock and GigPeak shares reserved for future issuance under the 2008 Plan which converted into 0.5 million shares of IDT's common stock reserved for issuance under the 2008 Plan. As of July 2, 2017, there were 0.4 million shares available for future grant under the 2008 Plan.

2004 Equity Plan (2004 Plan)

In September 2004, the Company’s stockholders approved the 2004 Plan. On July 21, 2010, the Board of Directors of the Company approved an amendment to the Company’s 2004 Plan to increase the number of shares of common stock reserved for issuance thereunder from 28,500,000 shares to 36,800,000 shares (an increase of 8,300,000 shares), provided, however, that the aggregate number of common shares available for issuance under the 2004 Plan is reduced by 1.74 shares for each common share delivered in settlement of any full value award, which are awards other than stock options and stock appreciation rights, that are granted under the 2004 Plan on or after September 23, 2010. On September 23, 2010, the stockholders of the Company approved the proposed amendment described above, which also includes certain other changes to the 2004 Plan, including an extension of the term of the 2004 Plan. Options granted by the Company under the 2004 Plan generally expire seven years from the date of grant and generally vest over a four -year period from the date of grant, with one-quarter of the shares of common stock vesting on the 1 year anniversary of the grant date and the remaining shares vesting monthly for the 36 months thereafter. The exercise price of the options granted by the Company under the 2004 Plan shall not be less than 100% of the fair market value for a common share subject to such option on the date the option is granted. Full value awards made under the 2004 Plan shall become vested over a period of not less than 3 years (or, if vesting is performance-based, over a period of not less than one year) following the date such award is made; provided, however, that full value awards that result in the issuance of an aggregate of up to 5% of common stock available under the 2004 Plan may be granted to any one or more participants without respect to such minimum vesting provisions. As of July 2, 2017, there were 5.7 million shares available for future grant under the 2004 Plan.

Compensation Expense

The following table summarizes stock-based compensation expense by line items appearing in the Company’s Condensed Consolidated Statements of Operations:



	Three Months Ended
(in thousands)	July 2, 2017		July 3, 2016
Cost of revenue	$	632	$	779
Research and development	5,963		4,308
Selling, general and administrative	5,225		5,428
Total stock-based compensation expense	$	11,820	$	10,515

The amount of stock-based compensation that was capitalized during the periods presented above was not material.

Stock Options

The following is a summary of the Company's stock option activity and related weighted average exercise prices for each category:



	Three Months Ended July 2, 2017
(shares in thousands)	Shares		Price
Beginning stock options outstanding	1,374		$	13.01
Exercised (1)	(89	)	7.09
Canceled	(9	)	24.60
Ending stock options outstanding	1,276		$	13.35
Ending stock options exercisable	985		$	11.94


(1)	Upon exercise, the Company issues new shares of common stock.

As of July 2, 2017, the unrecognized compensation cost related to nonvested stock options, net of estimated forfeitures, was $0.5 million and will be recognized over a weighted-average period of 0.75 years.

As of July 2, 2017, stock options vested and expected to vest totaled approximately 1.3 million with a weighted-average exercise price of $13.21 and a weighted-average remaining contractual life of 3.50 years. The aggregate intrinsic value was approximately $15.7 million.

As of July 2, 2017, fully vested stock options totaled approximately 1.0 million with a weighted-average exercise price of $11.94 and a weighted-average remaining contractual life of 3.24 years. The aggregate intrinsic value was approximately $13.7 million.

Restricted Stock Units (RSUs)

RSUs granted by the Company under the 2004 Plan generally vest over a four-year period from the grant date with one-fourth of RSUs vesting on each one-year anniversary. As of July 2, 2017, 4.6 million and 0.3 million RSU awards were outstanding under the 2004 Plan and the 2008 Plan, respectively.

The following table summarizes the Company's RSU activity and related weighted-average exercise prices for each category for the three months ended July 2, 2017:



	Three Months Ended July 2, 2017
(shares in thousands)	Shares		Weighted-average grant date fair value per share
Beginning RSUs outstanding	3,843		$	18.88
Assumed from GigPeak acquisition	328		23.62
Granted	2,030		23.83
Released	(1,137	)	16.65
Forfeited	(137	)	21.21
Ending RSUs outstanding	4,927		$	21.69

As of July 2, 2017, RSUs expected to vest totaled approximately 4.1 million with a weighted-average remaining contract life of 1.72 years. The aggregate intrinsic value was approximately $104.5 million.

As of July 2, 2017, the unrecognized compensation cost related to RSUs granted under the Company’s equity incentive plan was approximately $58.3 million, net of estimated forfeitures, and is expected to be recognized over a weighted-average period of 1.84 years.

Performance-Based Stock Units

In fiscal 2013, the Compensation Committee of the Board of Directors of IDT approved the Company's Key Talent Incentive Plan (the "Incentive Plan"). The Incentive Plan provides for the grant of performance-based stock units under the 2004 Plan which vest and convert into one share of the Company's common stock based on the level of achievement of pre-established performance goals during a specified performance period. The initial performance period under the Incentive Plan is the Company's fourth quarter of fiscal 2013 through the fourth quarter of fiscal 2016 for which performance goals relate to cumulative revenue targets for a specific product group. The performance-based stock units that were granted under the Incentive Plan have vested in the first quarter of fiscal 2017 based on actual achievement of the performance goals, and the expense associated with that had been fully recognized as of July 3, 2016.

Market-Based Stock Units

In May 2017, under the 2004 Plan, the Company granted approximately 0.3 million shares of RSUs with both market-based and performance-based conditions to a group of executive-level employees. These equity awards vest and convert into shares of the Company’s common stock based on the achievement of the Company’s relative total shareholder return, with a revenue growth multiplier, over the performance period of 3 years. The earned stock units will vest in three equal installments, with the first installment of vesting to occur on May 15, 2018, the second to occur on May 15, 2019, and the third to occur on May 15, 2020.

In June 2016, under the 2004 Plan, the Company granted approximately 0.3 million shares of RSUs with a market-based condition to a group of executive-level employees. These equity awards vest and convert into shares of the Company’s common stock based on the achievement of the Company’s relative total shareholder return over the performance period of 2 years. The earned market-based stock units will vest in two equal installments, with the first installment of vesting to occur on June 15, 2018, and the second to occur on June 15, 2019.

In June 2015, under the 2004 Plan, the Company granted approximately 0.2 million shares of RSUs with a market-based condition to a group of executive-level employees. These equity awards vest and convert into shares of the Company’s common stock based on the achievement of the Company’s relative total shareholder return over the performance period of 2 years. The earned market-based stock units will vest in two equal installments, with the first installment of vesting occurred on June 15, 2017, and the second to occur on June 15, 2018.

In June 2014, under the 2004 Plan, the Company granted approximately 0.5 million shares of RSUs with a market-based condition to a group of executive-level employees. These equity awards vest and convert into shares of the Company’s common stock based on the achievement of the Company’s relative total shareholder return over the performance period of 2 years. The earned market-based stock units will vest in two equal installments, with the first installment of vesting occurred on June 15, 2016, and the second occurred on June 15, 2017.

The fair value of each market-based stock unit award was estimated on the date of grant using a Monte Carlo simulation model that uses the assumptions noted in the table below. The Company uses historical data to estimate employee termination within the valuation model. The expected term in years was derived from the output of the valuation model and represents the period of time that restricted stock units granted are expected to be outstanding.

The following weighted average assumptions were used to calculate the fair value of the market-based equity award using a Monte Carlo simulation model:



	May 15, 2017			June 15, 2016			June 15, 2015			June 15, 2014
Estimated fair value	$	27.65		$	28.01		$	33.08		$	21.00
Expected volatility	43.36		%	46.90		%	41.22		%	34.6		%
Expected term (in years)	2.88			1.80			1.80			1.80
Risk-free interest rate	1.47		%	0.70		%	0.65		%	0.38		%

As of July 2, 2017, the total market-based stock units outstanding were approximately 0.7 million.

As of July 2, 2017, market-based stock units vested and expected to vest totaled approximately 0.6 million with a weighted-average remaining contract life of 1.52 years. The aggregate intrinsic value was approximately $15.9 million.

As of July 2, 2017, the unrecognized compensation cost related to market-based stock units granted under the Company’s equity incentive plans was approximately $11.6 million, net of estimated forfeitures, and is expected to be recognized over a weighted-average period of 1.57 years.

2009 Employee Stock Purchase Plan (2009 ESPP)

On June 18, 2009, the Board approved implementation of the 2009 Employee Stock Purchase Plan (2009 ESPP) and authorized the reservation and issuance of up to 9.0 million shares of the Company's common stock, subject to stockholder approval. On September 17, 2009, the Company's stockholders approved the plan at the 2009 Annual Meeting of Stockholders. The 2009 ESPP is intended to be implemented in successive quarterly purchase periods commencing on the first day of each fiscal quarter of the Company. In order to maintain its qualified status under Section 423 of the Internal Revenue Code, the 2009 ESPP imposes certain restrictions, including the limitation that no employee is permitted to participate in the 2009 ESPP if the rights of such employee to purchase common stock of the Company under the 2009 ESPP and all similar purchase plans of the Company or its subsidiaries would accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined at the time the right is granted) for each calendar year. At the 2012 annual meeting of stockholders on September 13, 2012, the Company's stockholders approved an additional 5.0 million. The number of shares of common stock reserved for issuance thereunder increased from 9.0 million shares to 14.0 million shares.

Activity under the Company's ESPP for the three months ended July 2, 2017 is summarized in the following table:



(in thousands, except per share amounts)
Number of shares issued	140
Average issuance price	$	20.12
Number of shares available as of July 2, 2017	3,124