SHAREHOLDERS’ EQUITY AND EQUITY COMPENSATION

Capital Stock and Equity Compensation Awards

Under the Rogers Corporation 2009 Long-Term Equity Compensation Plan, we may grant stock options to officers, directors, and other key employees at exercise prices that are at least equal to the fair market value of our stock on the date of grant. Under our older plans, stock options to officers, directors, and other key employees could be granted at exercise prices that were as low as 50% of the fair market value of our stock as of the date of grant. However, in terms of these older plans, virtually all such options were granted at exercise prices equal to the fair market value of our stock as of the date of grant. Stock options granted to employees in the United States generally become exercisable over a four-year period from the grant date and expire ten years after such grant.

We award each non-management director deferred stock units, which permit non-management directors to receive, at a later date, one share of Rogers stock for each deferred stock unit with no payment of any consideration by the director at the time the shares are received. For director stock options, the exercise price was equal to the fair market value of our stock as of the grant date, were immediately exercisable, and expire ten years after the date of grant. Our 2005 Equity Compensation Plan and our 2009 Long-Term Equity Compensation Plan also permit the granting of restricted stock units and certain other forms of equity awards to officers and other key employees, although no new equity awards have been made pursuant to the 2005 plan since shareholder approval of our 2009 Long-Term Equity Compensation Plan.

Shares of capital stock reserved for possible future issuance were as follows:



	As of December 31,
	2016	2015
Shares reserved for issuance under the stock acquisition program ⁽¹⁾	120,883	120,883
Shares reserved for issuance under outstanding stock options and restricted stock unit awards	659,302	641,265
Additional shares reserved for issuance under Rogers Corporation 2009 Long-Term Equity Compensation Plan	892,163	1,078,291
Shares reserved for issuance under the Rogers Employee Savings and Investment Plan ⁽²⁾	169,044	169,044
Shares reserved for issuance under the Rogers Corporation Global Stock Ownership Plan for Employees	133,113	153,357
Deferred compensation to be paid in stock, including deferred stock units	22,752	37,207
Total	1,997,257	2,200,047


⁽¹⁾	As of December 31, 2016, the Company no longer offers capital stock under the stock acquisition program.


⁽²⁾	As of December 31, 2016, the Company no longer offers its capital stock as an investment option under the Rogers Employee Savings and Investment Plan.

Each outstanding share of Rogers capital stock has attached to it a stock purchase right. One stock purchase right entitles the holder to buy one share of Rogers capital stock at an exercise price of $240.00 per share. The rights become exercisable only under certain circumstances related to a person or group acquiring or offering to acquire a substantial block of Rogers capital stock. In certain circumstances, holders may acquire Rogers stock, or in some cases the stock of an acquiring entity, with a value equal to twice the exercise price. The rights expire on March 30, 2017, but may be exchanged or redeemed earlier. If such rights are redeemed, the redemption price would be $0.01 per right.

Stock Options

Stock options have been granted under various equity compensation plans. While we may grant options to employees that become exercisable at different times or within different periods, we have generally granted options to employees that vest and become exercisable in one-third increments on the second, third and fourth anniversaries of the grant dates. The maximum contractual term for all options is normally ten years. We use the Black-Scholes option-pricing model to calculate the grant-date fair value of an option. We have not granted any stock options since the first quarter of 2012.

In most cases, we recognize expense using the straight-line attribution method for stock option grants. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. We currently expect, based on an analysis of our historical forfeitures, an annual forfeiture rate of approximately 3% and applied that rate to the grants issued. This assumption will be reviewed periodically and the rate will be adjusted as necessary based on these reviews. Ultimately, the actual expense recognized over the vesting period will only be for those options that vest.

Our employee stock option agreements contain a retirement provision, which results in the vesting of any unvested options immediately upon retirement. This provision affects the timing of option expense recognition for options meeting the criteria for retirement. We recognize compensation expense over the period from the date of grant to the date retirement eligibility is met, if it is shorter than the required service period, or upon grant if the employee is eligible for retirement on that date.

As of December 31, 2016, there was no unrecognized compensation cost related to unvested stock option awards.

The first quarter of 2016 was the final quarter in which we recognized stock based compensation expense related to previously issued stock option grants, and the amount of such expense recorded in 2016 was de minimis. We recognized $0.2 million and $0.3 million of compensation expense related to stock options for the years ended December 31, 2015 and 2014, respectively.

A summary of the activity under our stock option plans as of December 31, 2016 and changes during the year then ended, is presented below:



	Options Outstanding		Weighted- Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Options outstanding at December 31, 2015	212,038		$	40.47	3.2	2,557,193
Options exercised	(95,113	)	43.56
Options forfeited	(350	)	44.32
Options outstanding at December 31, 2016	116,575		37.76		3.2	4,552,580
Options exercisable at December 31, 2016	116,575		37.76		3.2	4,552,580
Options vested at December 31, 2016	116,575		37.76		3.2	4,552,580

During the years ended December 31, 2016 and 2015, the total intrinsic value of options exercised (i.e., the difference between the market price at time of exercise and the price paid by the individual to exercise the options) was $2.1 million and $6.7 million, respectively. The total amount of cash received from the exercise of these options was $4.1 million and $7.0 million, respectively. The total grant-date fair value of stock options that vested during 2016 was de minimis and in 2015 was $0.2 million.

A summary of the activity under our stock option plans for the fiscal years ended 2016, 2015 and 2014, is presented below:



	2016				2015				2014
	Options Outstanding		Weighted- Average Exercise Price Per Share		Options Outstanding		Weighted- Average Exercise Price Per Share		Options Outstanding		Weighted- Average Exercise Price Per Share
Outstanding at beginning of year	212,038		$	40.47	393,347		$	40.72	893,139		$	43.23
Options exercised	(95,113	)	43.56		(178,759	)	40.90		(476,793	)	44.60
Options forfeited	(350	)	44.32		(2,550	)	40.09		(22,999	)	57.07
Outstanding at year-end	116,575		37.76		212,038		40.47		393,347		40.72
Options exercisable at year-end	116,575				204,394				364,770

Performance-Based Restricted Stock Units

We currently have performance-based restricted stock unit awards from 2014, 2015 and 2016 outstanding. These awards generally cliff vest at the end of a three year measurement period. With respect to the 2015 and 2016 awards, however, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed during the vesting period. Participants are eligible to be awarded shares ranging from 0% to 200% of the original award amount, based on certain defined performance measures. Compensation expense is recognized using the straight line method over the vesting period, unless the employee has an accelerated vesting schedule.

The 2014 and 2015 awards have two measurement criteria on which the final payout of each award is based - (i) the three year return on invested capital (ROIC) compared to that of a specified group of peer companies, and (ii) the three year total shareholder return (TSR) on the performance of our capital stock as compared to that of a specified group of peer companies. The 2016 awards have one measurement criteria, the three year total shareholder return (TSR) on the performance of our capital stock as compared to that of a specified group of peer companies. In accordance with the applicable accounting literature, the ROIC portion of the award is considered a performance condition. As such, the fair value of the ROIC portion is determined based on the market value of the underlying stock price at the grant date with cumulative compensation expense recognized to date being increased or decreased based on changes in the forecasted pay out percentage at the end of each reporting period. The TSR portion of the award is considered a market condition. As such, the fair value of this award was determined on the date of grant using a Monte Carlo simulation valuation model with related compensation expense fixed on the grant date and expensed on a straight-line basis over the life of the awards that ultimately vest with no changes for the final projected payout of the award.

Below were the assumptions used in the Monte Carlo calculation:



	2016		2015
Expected volatility	29.6	%	28.2	%
Expected term (in years)	3		3
Risk-free interest rate	0.93	%	0.96	%

Expected volatility – In determining expected volatility, we have considered a number of factors, including historical volatility.

Expected term – We use the vesting period of the award to determine the expected term assumption for the Monte Carlo simulation valuation model.

Risk-free interest rate – We use an implied “spot rate” yield on U.S. Treasury Constant Maturity rates as of the grant date for our assumption of the risk-free interest rate.

Expected dividend yield – We do not currently pay dividends on our capital stock; therefore, a dividend yield of 0% was used in the Monte Carlo simulation valuation model.

A summary of activity under the performance-based restricted stock units plans for the fiscal years ended 2016, 2015 and 2014 is presented below:



	2016				2015				2014
	Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value
Non-vested awards outstanding at beginning of year	107,229		$	66.13	92,437		$	52.75	71,175		$	47.49
Awards granted	84,443		69.01		51,475		78.01		51,850		58.61
Stock issued	(25,397	)	72.68		(20,910	)	41.27		(14,383	)	47.89
Awards forfeited or expired	(14,506	)	104.83		(15,773	)	59.45		(16,205	)	52.71
Non-vested awards outstanding at end of year	151,769		$	89.72	107,229		$	66.13	92,437		$	52.75

We recognized $4.6 million, $3.2 million and $2.3 million of compensation expense related to performance-based restricted stock units for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, there was $5.9 million of total unrecognized compensation cost related to unvested performance-based restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.5 years.

Time-Based Restricted Stock Units

We currently have time-based restricted stock unit grants from 2013, 2014, 2015, and 2016 outstanding. The majority of 2013 grants ratably vest on the first, second and third anniversaries of the original grant date. The 2014, 2015 and 2016 grants all ratably vest on the first, second and third anniversaries of the original grant date. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period. The fair value of the award is determined based on the market value of the underlying stock price at the grant date.



	2016				2015				2014
	Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted-Average Grant Date Fair Value
Non-vested awards outstanding at beginning of year	208,318		$	64.27	238,386		$	53.80	231,026		$	48.54
Awards granted	118,660		51.70		75,160		77.15		93,780		61.70
Stock issued	(60,326	)	64.03		(93,813	)	48.35		(62,378	)	47.19
Awards forfeited or expired	(27,463	)	64.60		(11,415	)	61.32		(24,042	)	51.19
Non-vested awards outstanding at end of year	239,189		$	57.71	208,318		$	64.27	238,386		$	53.80

We recognized $5.6 million, $5.0 million and $3.6 million of compensation expense related to time-based restricted stock units for years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, there was $7.3 million of total unrecognized compensation cost related to unvested time-based restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.4 years.

Deferred Stock Units

We grant deferred stock units to non-management directors. These awards are fully vested on the date of grant and the related shares are generally issued on the 13^th month anniversary of the grant date unless the individual elects to defer the receipt of these shares. Each deferred stock unit results in the issuance of one share of Rogers’ stock. The grant of deferred stock units is typically done annually in the second quarter of each year. The fair value of the award is determined based on the market value of the underlying stock price at the grant date.



	2016				2015				2014
	Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted-Average Grant Date Fair Value
Non-vested awards outstanding at beginning of year	23,950		$	27.22	30,150		$	24.43	31,550		$	26.77
Awards granted	11,900		58.82		10,300		73.79		14,700		58.45
Stock issued	(23,950	)	52.69		(16,500	)	51.20		(16,100	)	60.08
Non-vested awards outstanding at end of year	11,900		$	58.82	23,950		$	27.22	30,150		$	24.43

We recognized compensation expense related to deferred stock units of $0.7 million, $0.8 million and $0.8 million, for the years ended December 31, 2016, 2015 and 2014, respectively.

Employee Stock Purchase Plan

We have an employee stock purchase plan (ESPP) that allows eligible employees to purchase, through payroll deductions, shares of our capital stock at a discount to fair market value. The ESPP has two 6 month offering periods each year, the first beginning in January and ending in June and the second beginning in July and ending in December. The ESPP contains a look-back feature that allows the employee to acquire stock at a 15% discount from the underlying market price at the beginning or end of the applicable period, whichever is lower. We recognize compensation expense on this plan ratably over the offering period based on the fair value of the anticipated number of shares that will be issued at the end of each offering period. Compensation expense is adjusted at the end of each offering period for the actual number of shares issued. Fair value is determined based on two factors: (i) the 15% discount amount on the underlying stock’s market value on the first day of the applicable offering period, and (ii) the fair value of the look-back feature determined by using the Black-Scholes model. We recognized approximately $0.5 million of compensation expense associated with the plan for the years ended December 31, 2016, 2015 and 2014, respectively.