STOCKHOLDERS’ EQUITY

Share-Based Compensation

The following table summarizes share-based compensation, net of the amount capitalized in inventory, included in operating results:



	Three Months Ended						Nine Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
	(in thousands)
Cost of revenue	$	1,560		$	1,605		$	4,357		$	4,892
Research and development	3,418			4,632			10,569			13,744
Selling, general and administrative	7,741			8,680			24,017			27,176
Total share-based compensation expense, before income taxes	12,719			14,917			38,943			45,812
Tax benefit	(2,884		)	(3,760		)	(8,557		)	(10,005		)
Total share-based compensation expense, net of income taxes	$	9,835		$	11,157		$	30,386		$	35,807

Restricted Stock Units, Employee Stock Purchase Plan and Stock Options

In May 2005, Atmel’s stockholders approved Atmel’s 2005 Stock Plan (as amended, the “2005 Stock Plan”). As of September 30, 2015, 158.0 million shares had been cumulatively authorized for issuance under the 2005 Stock Plan, and 7.9 million shares remained available for issuance without giving effect to any adjustment that may be required by the terms of the 2005 Stock Plan in respect of shares underlying restricted stock or restricted stock units. Under the 2005 Stock Plan, Atmel may issue common stock directly, grant options to purchase common stock or grant restricted stock units payable in common stock to employees, consultants and directors of Atmel. Restricted stock units generally vest on a quarterly basis over a service period of up to four years from the grant date, although restricted stock unit grants to newly-hired employees generally have a one-year cliff vest equal to one-quarter of the total grant. Options, which generally vest over four years, are granted at fair market value on the date of the grant and generally expire ten years from that date.

Activity under Atmel’s 2005 Stock Plan is set forth below:



			Outstanding Options				Weighted-
					Exercise		Average
	Available for Grant		Number of Options		Price per Share		Exercise Price per Share
	(in thousands, except for per share data)
Balances, December 31, 2014	13,611		3,059		$2.13-$10.01		$	4.57
Restricted stock units issued	(479	)	—		—		—
Plan adjustment for restricted stock units issued	(273	)	—		—		—
Restricted stock units cancelled	363		—		—		—
Plan adjustment for restricted stock units cancelled	210		—		—		—
Performance-based restricted stock units cancelled	253		—		—		—
Plan adjustment for performance-based restricted stock units cancelled	144		—		—		—
Options cancelled/expired/forfeited	2		(2	)	$	3.26	$	3.26
Options exercised	—		(198	)	$2.66-$6.28		$	3.51
Balances, March 31, 2015	13,831		2,859		$2.13-$10.01		$	4.65
Restricted stock units issued	(446	)	—		—		—
Plan adjustment for restricted stock units issued	(254	)	—		—		—
Restricted stock units cancelled	432		—		—		—
Plan adjustment for restricted stock units cancelled	250		—		—		—
Performance-based restricted stock units cancelled	87		—		—		—
Plan adjustment for performance-based restricted stock units cancelled	50		—		—		—
Options cancelled/expired/forfeited	—		—		—		$	—
Options exercised	—		(387	)	$2.13-$6.28		$	4.53
Balances, June 30, 2015	13,950		2,472		$2.13-$10.01		$	4.67
Restricted stock units issued	(4,204	)
Plan adjustment for restricted stock units issued	(2,396	)
Restricted stock units cancelled	306
Plan adjustment for restricted stock units cancelled	176
Performance-based restricted stock units cancelled	24
Plan adjustment for performance-based restricted stock units cancelled	14
Options cancelled/expired/forfeited	3		(3	)	$4.36-$6.28		$	5.00
Options exercised	—		(63	)	$2.13-$6.28		$	3.81
Balances, September 30, 2015	7,873		2,406		$3.24-$10.01		$	4.69
Options vested and expected to vest at September 30, 2015			2,406		$3.24-$10.01		$	4.69
Options exercisable at September 30, 2015			2,400		$3.24-$10.01		$	4.69

Restricted stock units are granted from the pool of options available for grant. Every share underlying restricted stock, restricted stock units (including performance-based restricted stock units), or stock purchase rights issued on or after May 9, 2013 is counted against the numerical limit for options available for grant as 1.57 shares, as reflected in the table above in the line items for "Plan adjustments", except that restricted stock units (including performance-based restricted stock units), or stock purchase rights issued prior to May 9, 2013 but on or after May 18, 2011, are counted against the numerical limit for options available for grant as 1.61 shares, and restricted stock units (including performance-based restricted stock units), or stock purchase rights issued prior to May 18, 2011 and on or after May 14, 2008, are counted against the numerical limit for options available for grants as 1.78 shares. If shares issued pursuant to any restricted stock, restricted stock unit, and stock purchase right agreements are cancelled, forfeited or repurchased by the Company, the number of shares returned to the 2005 Stock Plan will be multiplied by the same ratios above under which such shares were issued and become available for issuance.

The table set forth above does not include 0.6 million restricted stock units granted in August 2015 as performance-based restricted units since the performance criteria for those performance-based restricted units had not been established as of September 30, 2015. As of September 30, 2015 and subject to the exclusion referred to in the preceding sentence, there were 7.9 million shares available for issuance under the 2005 Stock Plan, or 5.0 million shares after giving effect to the applicable ratios under the 2005 Stock Plan for issuances of restricted stock units, as described above.

Pursuant to the terms of the Merger Agreement, at the effective time of the merger (the “Effective Time”), each outstanding option to acquire shares of Atmel’s common stock, par value $0.001 per share (the “Common Stock”) will, contingent upon the occurrence of the Effective Time, accelerate and become vested in full and, to the extent not exercised prior to the Effective Time, will be automatically “net exercised” immediately prior to the Effective Time, with the exercise price and applicable withholding taxes paid by withholding of shares of Common Stock otherwise issuable to the option holder upon the exercise of the option. Each outstanding restricted stock unit, deferred stock unit, performance-based restricted stock unit or similar right (each such unit or right, an “Atmel Unit”) that is vested but not yet issued, will be converted into the right to receive the Merger Consideration. In addition, each Atmel Unit that is unvested and held by an employee or other service provider of Atmel who will continue to be employed by or provide services to, Dialog or the Surviving Corporation will be converted into equivalent awards in respect of Dialog Shares using a customary exchange ratio. For the performance-based Atmel Units granted with a performance period that was intended to end December 31, 2015 (the “2015 PRSUs”), Atmel’s board of directors determined that 57.0% of the target awards should vest contingent upon, and immediately prior to, the occurrence of the Effective Time, with the remaining 2015 PRSUs being converted into time-based awards that vest through November 15, 2017. In addition, in connection with the Merger, Atmel’s board of directors determined that the Atmel Units granted in August 2015, for which performance criteria had not been established prior to the date of the Merger Agreement, will be converted, contingent upon the occurrence of the Effective Time, into time-based awards vesting through November 15, 2018.

If Dialog determines that the assumption and conversion of an Atmel Unit would violate, in respect of the holder thereof, the applicable laws of a non-U.S. jurisdiction set forth in the Merger Agreement, Dialog may treat such Atmel Unit in a different manner so long as the holder of such Atmel Unit receives the full value of the Merger Consideration (less applicable withholdings) in cash not later than the vesting date originally applicable to such Atmel Unit.

Restricted Stock Units

Activity related to restricted stock units is set forth below:



	Number of Units		Weighted-Average Grant Date Fair Value
	(in thousands, except for per share data)
Balances, December 31, 2014	18,163		$	8.40
Restricted stock units issued	479		8.45
Restricted stock units vested	(1,898	)	8.43
Restricted stock units cancelled	(363	)	7.71
Performance-based restricted stock units cancelled	(253	)	7.35
Balances, March 31, 2015	16,128		$	8.43
Restricted stock units issued	446		9.45
Restricted stock units vested	(1,483	)	8.53
Restricted stock units cancelled	(432	)	7.59
Performance-based restricted stock units cancelled	(87	)	8.31
Balances, June 30, 2015	14,572		$	8.48
Restricted stock units issued	4,204		8.07
Restricted stock units vested	(1,612	)	4.17
Restricted stock units cancelled	(306	)	8.11
Performance-based restricted stock units cancelled	(24	)	8.23
Balances, September 30, 2015	16,834		$	8.80

As of September 30, 2015, total unearned share-based compensation related to unvested restricted stock units granted (including performance-based restricted stock units) was approximately $99.2 million, including estimated forfeitures, and is expected to be recognized over a weighted-average period of 2.40 years.

Until restricted stock units are vested, they do not have the voting or dividend participation rights of common stock and the shares underlying such restricted stock units are not considered issued and outstanding. Upon vesting of restricted stock units, shares withheld by the Company to pay taxes are retired.

Performance-Based Restricted Stock Units

On December 11, 2014, the Company adopted the Atmel 2015 Long-Term Performance-Based Incentive Plan (the “2015 Plan”), which provides for the grant of performance-based restricted stock units to Company participants. The Company issued 2.6 million shares under the 2015 Plan for the year ended December 31, 2014. The Company records performance-based restricted stock units issued under the 2015 Plan based on achievement of the “target” performance metrics, which will result in a participant being credited with 100% of the performance-based shares awarded to that participant under the 2015 Plan. Achievement at the “maximum” performance metrics will result in a participant being credited with 200% of the performance-based shares awarded to that participant under the 2015 Plan.

Performance metrics for the 2015 Plan are based on the Company’s publicly-reported non-GAAP earnings per share growth rate from 2014 to 2015 (calculated for the fiscal years ended 2014 and 2015, respectively) to the adjusted earnings per share growth rates of companies included within the well-established Philadelphia Semiconductor Sector IndexSM ("SOX Index") during the same period. For purposes of the 2015 Plan, “adjusted earnings per share” for the applicable measurement period for any company included within the SOX Index means that company’s non-GAAP earnings per share, as publicly reported by that company (which, in the case of the Company, will be its non-GAAP earnings per share), adjusted to exclude for the measurement period (to the extent such adjustments are publicly disclosed) each of the following: share-based compensation expense; restructuring and impairment charges (credits); loss (gain) on sale; acquisition and divestiture related expenses; intellectual property related settlement charges; non-cash tax expenses; other non-recurring tax items; to make equivalent comparisons between the Company’s non-GAAP earnings per share and the adjusted earnings per share for other companies included within the SOX Index. The Company recorded total share-based compensation expense related to the 2015 Plan of $0.5 million and $2.0 million in the three and nine months ended September 30, 2015, respectively. For the treatment of those performance-based restricted stock units in connection with the Merger, see "Restricted Stock Units, Employee Stock Purchase Plan and Stock Options" above.

For participants who are included within the 2015 Plan at any time after January 1, 2015, awards will be pro-rated to reflect the actual time a participant has been an employee of, or a service provider to, the Company.

On December 17, 2013, the Company adopted the Atmel 2014 Long-Term Performance-Based Incentive Plan (the “2014 Plan”), which ended on December 31, 2014. The Company recorded total share-based compensation expense related to the 2014 Plan of $0.3 million and $1.7 million in the three and nine months ended September 30, 2015, respectively, and $0.7 million and $2.7 million in the three and nine months ended September 30, 2014, respectively.

In August 2015, the Company granted 0.6 million performance-based restricted units for performance periods that will not commence until 2016. The performance criteria for those performance-based restricted units had not been established as of September 30, 2015. For the treatment of those performance-based restricted stock units in connection with the Merger, see "Restricted Stock Units, Employee Stock Purchase Plan and Stock Options" above.

Employee Stock Purchase Plan

Under the 2010 Employee Stock Purchase Plan (“2010 ESPP”), qualified employees are entitled to purchase shares of Atmel’s common stock at the lower of 85% of the fair market value of the common stock at the date of commencement of the six-month offering period or 85% of the fair market value on the last day of the offering period. Purchases are limited to 10% of an employee’s eligible compensation subject to a maximum annual employee contribution limit of $25,000 of the market value of the shares (determined at the commencement of each of the six month offering period) per calendar year. There were 0.9 million shares purchased under the 2010 ESPP for each of the three months ended September 30, 2015 and 2014 at an average price per share of $6.64 and $6.73, respectively. There were 1.6 million and 1.7 million shares purchased under the 2010 ESPP for each of the nine months ended September 30, 2015 and 2014 at an average price per share of $6.79 and $6.59, respectively. Of the 25.0 million shares authorized for issuance under the 2010 ESPP, 17.3 million shares were available for issuance at September 30, 2015.

The fair value of each purchase under the 2010 ESPP is estimated on the date of the beginning of the offering period using the Black-Scholes option-pricing model. The following assumptions were utilized to determine the fair value of the 2010 ESPP shares:



	Three Months Ended				Nine Months Ended
	September 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Risk-free interest rate	0.24	%	0.06	%	0.16	%	0.07	%
Expected life (years)	0.50		0.50		0.50		0.50
Expected volatility	30	%	30	%	33	%	31	%
Expected dividend yield	1.94	%	—	%	1.92	%	—

The weighted-average fair value per share under the 2010 ESPP for purchase periods beginning in the nine months ended September 30, 2015 and 2014 were $1.50 and $1.65, respectively. Cash proceeds from the issuance of shares under the Company’s 2010 ESPP were $11.1 million and $11.2 million for the nine months ended September 30, 2015 and 2014, respectively.

Pursuant to the terms of the Merger Agreement, the ESPP will be terminated prior to the Effective Time of the Merger.

Common Stock Repurchase Program

Since 2011, Atmel’s Board of Directors has authorized an aggregate of $1.0 billion of funding for the Company’s common stock repurchase program. The repurchase program does not have an expiration date, and the number of shares repurchased and the timing of repurchases are based on the level of the Company’s cash balances, general business and market conditions, regulatory requirements, and other factors, including alternative investment opportunities. As of September 30, 2015, $197.1 million remained available for the repurchase of common stock under this program.

There were no shares repurchased during the three months ended September 2015. During the nine months ended September 30, 2015, Atmel repurchased 1.4 million shares of its common stock in the open market at an average repurchase price of $8.27 per share excluding commission, and subsequently retired those shares. During the three and nine months ended September 30, 2014, Atmel repurchased 2.9 million and 13.4 million shares, respectively, of its common stock in the open market at an average repurchase price of $8.50 and $8.09 per share, respectively, excluding commission, and subsequently retired those shares. Excluding commission, common stock and additional paid-in capital were reduced by $12.0 million for the nine months ended September 30, 2015, and $25.0 million and $108.5 million for the three and nine months ended September 30, 2014, respectively, as a result of the stock repurchases.

Pursuant to the terms of the Merger Agreement, the Company is not permitted to repurchase any further shares of common stock.

Dividends

On September 24, 2015, the Company paid a cash dividend of $0.04 per common share, the aggregate cost of which was $16.8 million. During the nine months ended September 30, 2015, the Company paid cash dividends of $0.12 per common share, the aggregate cost of which was $50.2 million.

Pursuant to the terms of the Merger Agreement, the Company is not permitted to declare or pay any further dividends.