Note 13. Stockholders' Equity and Stock-Based Compensation

Stockholders' Equity

Preferred and Common Stock

The authorized capital stock of Nanometrics consists of 47,000,000 shares of common stock, par value $0.001 per share, and 3,000,000 shares of preferred stock, par value $0.001 per share.

Stock Repurchase

On May 29, 2012, the Company's Board of Directors approved a program to repurchase up to $20.0 million of its common stock, referred to as the 2012 program. Stock repurchases under this program may be made through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased is dependent on a variety of factors including price, corporate and regulatory requirements and other market conditions. Shares repurchased and retired for the indicated periods of the applicable repurchase programs with the associated cost of repurchase and amount available for repurchase at the end of the respective periods are as follows (in thousands, except number of shares and weighted average price per share):

	Fiscal Year 2015		Fiscal Year 2014		Fiscal Year 2013
Number of shares of common stock repurchased		111,050		362,633		332,771
Weighted average price per share	$	15.49	$	14.74	$	15.03
Total cost of repurchase	$	1,721	$	5,344	$	5,000
Amount available for repurchase at end of period	$	4,397	$	6,118	$	11,462

$4.4 million remained available for the future repurchase of our common stock under the 2012 program.

Stock Option Plans

The Nanometrics option plans are as follows:

Plan Name	Participants	Shares Authorized
2005 Equity Incentive Plan	Employees, consultants and directors		7,292,594
2002 Non-statutory Stock Option Plan	Employees and consultants		1,200,000
2000 Employee Stock Option Plan	Employees and consultants		2,450,000
2000 Director Stock Option Plan	Non-employee directors		250,000
Accent Optical Technologies, Inc. Stock Incentive Plan	Employees and consultants		205,003

Employee Stock Purchase Plan

Under the 2003 Employee Stock Purchase Plan (“ESPP”), eligible employees are allowed to have salary withholdings of up to 10% of their base compensation to purchase shares of common stock at a price equal to 85% of the lower of the market value of the stock at the beginning or end of each six-month offering period, subject to an annual statutory limitation. At the end of the fiscal year ended December 26, 2015, the Company had 0.3 million shares remaining for issuance under the ESPP. Shares purchased under the ESPP were 125,504 shares, 122,112 shares and 126,068 shares in 2015, 2014 and 2013 at a weighted average price of $13.98, $13.76 and $12.36, respectively.

Stock-based Compensation

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units and employee stock purchases related to the Employee Stock Purchase Plan (collectively “Employee Stock Purchases”) based on estimated fair values. The fair value of share-based payment awards is estimated on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company's consolidated statement of operations.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. As stock-based compensation expense recognized in the consolidated statement of operations for the years ended December 26, 2015, December 27, 2014 and December 28, 2013 is based on awards expected to vest, it has been reduced for estimated forfeitures. ASC 740 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company's estimated forfeiture rates are based on historical forfeiture experience, which the Company believes is the best available information to estimate the future forfeiture rate. Tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options are required to be separately classified in the consolidated statements of cash flows. The Company recognized zero, zero and $0.1 million of excess tax benefit in fiscal years 2015, 2014 and 2013, respectively.

Valuation and Expense Information

The fair value of stock-based awards to employees is calculated using the Black-Scholes option pricing model, which requires subjective assumptions, including future stock price volatility and expected time to exercise. The expected life of options granted were calculated using the simplified method allowed by the SAB 107. The risk-free rates were based on the U.S Treasury rates in effect during the corresponding period of grant. The expected volatility were based on the historical volatility of the Company's stock price. These factors could change in the future, which would affect the stock-based compensation expense in future periods.

The weighted-average fair value of stock-based compensation to employees is based on the single option valuation approach. Forfeitures are estimated and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized over the vesting period of the options. The weighted-average fair value calculations are based on the following average assumptions:

	Fiscal Year 2015			Fiscal Year 2014			Fiscal Year 2013
Stock Options:
Expected life		—		4.6 years			4.5 years
Volatility		—			54.9	%		69.9	%
Risk free interest rate		—			1.54	%		1.05	%
Dividends		—			—			—
Employee Stock Purchase Plan:
Expected life	0.5 years			0.5 years			0.5 years
Volatility		36.9	%		31.2	%		26.8	%
Risk free interest rate		0.12	%		0.54	%		0.11	%
Dividends		—			—			—

Stock Options and Restricted Stock Units (“RSUs”)

On May 24, 2013, the Company approved further amendments to the 2005 Equity Incentive Plan including: increasing the number of shares of common stock authorized by 2.6 million shares, changing the multiplier ratio from 2:1 to 1.7:1 against the plan for each award, other than a stock option or stock appreciation right, and providing the maximum term of stock options to be seven years. All other terms remained the same.

Stock Options

The weighted average fair value per share of the stock options awarded in fiscal years 2014 and 2013 was $8.13 and $8.58, respectively. No stock options were granted in 2015. A summary of activity of stock options in 2015 is as follows:

	Number of Shares Outstanding (Options)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in Thousands)
Options
Outstanding at December 27, 2014		1,382,993		$	13.92		3.41	$	4,108
Exercised		(229,510	)	$	9.65
Granted		—		$	—		-	$	—
Cancelled		(94,012	)	$	16.67
Outstanding at December 26, 2015		1,059,471		$	14.61		2.47	$	1,920
Exercisable at December 26, 2015		926,415		$	14.36		2.15	$	1,879

The aggregate intrinsic value in the above table represents the total pretax intrinsic value, based on the Company’s closing stock price of $15.79 as of December 26, 2015, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during 2015, 2014 and 2013 was $1.6 million, $3.0 million and $2.9 million, respectively. The fair value of options vested during 2015, 2014 and 2013 was $1.5 million, $3.2 million and $3.7 million, respectively.

The following table summarizes ranges of outstanding and exercisable options as of December 26, 2015.

	Options Outstanding						Options Exercisable
Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$2.38-$10.46		134,762		0.90	$	7.84		134,762	$	7.8400
$10.83-$11.17		14,156		1.30	$	10.93		14,156	$	1.9279
$11.37-$11.37		114,166		1.89	$	11.37		114,166	$	11.3700
$12.98-$14.8		111,259		2.62	$	13.67		94,579	$	13.6200
$14.88-$15.65		111,967		3.84	$	15.44		78,894	$	15.4300
$15.74-$15.98		161,850		1.81	$	15.91		143,100	$	15.9200
$16.00-$16.50		41,804		4.76	$	16.43		23,190	$	16.4200
$16.70-$16.7		186,434		1.86	$	16.70		186,434	$	16.7000
$16.89-$18.51		123,773		4.22	$	17.82		80,931	$	17.8300
$18.79-$19.84		59,300		2.98	$	19.12		56,203	$	19.1300
$2.38-$19.84		1,059,471		2.47	$	14.61		926,415	$	14.3600

As of December 26, 2015, the total unrecognized compensation costs related to unvested stock options was $0.6 million and is expected to be recognized as an expense over a weighted average remaining amortization period of 1.58 years.

Restricted Stock Units (“RSUs”)

Each RSU counts against the Company’s “2005 Equity Incentive Plan” at a ratio of one and seven tenths shares for each unit granted but represents an amount equal to the fair value of one share of the Company’s common stock. The Company granted 506,459 and 473,600 RSUs during the years ended December 26, 2015 and December 27, 2014, respectively, to key employees with vesting periods up to three years.

A summary of activity for RSUs is as follows:

Summary of activity for RSUs	Number of RSUs			Weighted Average Fair Value
Outstanding RSUs as of December 27, 2014		563,337		$	17.90
Granted		506,459		$	15.62
Released		(237,520	)	$	16.59
Cancelled		(119,033	)	$	16.59
Outstanding RSUs as of December 26, 2015		713,243		$	15.99

As of December 26, 2015, the total unrecognized compensation costs related to RSU's was $6.9 million and is expected to be recognized as an expense over a weighted average remaining amortization period of 1.95 years.

Market-Based Performance Stock Units (“PSUs”)

In March 2015, in addition to granting RSUs that vest on the passage of time only, the Company granted PSUs to an executive. The PSUs will vest in three equal tranches over one, two and three years based on the relative performance of the Company’s stock during those periods, compared to a peer group over the same period. If a target stock price performance is achieved, 40,000 shares of the Company’s common stock will vest, and up to a maximum of 60,000 shares will vest if the maximum stock price performance is achieved for each tranche.

Valuation of PSUs

On the date of grant, the Company estimated the fair value of PSUs using a Monte Carlo simulation model. The assumptions for the valuation of PSUs are summarized as follows:

	2015 Award
Number of PSUs granted and outstanding as of December 26, 2015		40,000
Grant Date Fair Value Per Share	$	18.35
Weighted-average assumptions/inputs:
Expected Divident		—
Range of risk-free interest rates	0.25%-1.1%
Range of expected volatilities for peer group	23%-65%

The number of RSUs granted during fiscal year 2015 was 506,459, which counted as 860,980 shares against the 2005 Equity Incentive Plan. The number of RSUs cancelled during fiscal year 2015 was 119,033, which counted as 202,356 shares against the 2005 Equity Incentive Plan. Each RSU represents an amount equal to the fair value of one share of the Company's common stock.

A summary of activity under the Company’s stock option plans including options and RSUs during fiscal year 2015, 2014 and 2013 and shares available for grant as of the respective period end dates, is as follows:

	Fiscal Year 2015			Fiscal Year 2014			Fiscal Year 2013
Shares available for grant at beginning of fiscal year		2,464,082			2,937,001			1,093,565
Increase in authorized shares		—			—			2,600,000
Options - granted		—			(74,300	)		(430,800	)
Options - cancelled		94,012			191,061			150,459
Options - expired plan shares		(1,800	)		(17,491	)		(53,607	)
RSUs – granted		(860,980	)		(805,120	)		(664,902	)
RSUs – cancelled		202,356			167,404			133,418
RSUs - shares issued to satisfy tax withholding obligations		120,919			65,527			108,868
PSUs – granted		(68,000	)		—			—
Shares available for grant at end of fiscal year		1,950,589			2,464,082			2,937,001

Stock-based Compensation Expense

Stock-based compensation expense for all share-based payment awards made to the Company’s employees and directors pursuant to the employee stock option and employee stock purchase plans by function were as follows (in thousands):

	Fiscal Year 2015		Fiscal Year 2014		Fiscal Year 2013
Cost of products	$	274	$	268	$	207
Cost of service		309		287		278
Research and development		1,036		1,245		1,478
Selling		1,881		1,642		1,894
General and administrative		2,748		3,243		2,919
Restructuring		—		67		898
Total stock-based compensation expense related to employee stock options and employee stock purchases	$	6,248	$	6,752	$	7,674