STOCKHOLDERS’ EQUITY

Share-Based Compensation

The components of the Company's share-based compensation expense are summarized below:



	Years Ended
	December 31, 2015			December 31, 2014			December 31, 2013
	(in thousands)
Employee stock options	$	44		$	186		$	1,644
Employee stock purchase plan	2,381			2,803			2,858
Restricted stock units	49,365			56,842			37,952
Net amounts (capitalized in) released from inventory	(398		)	(152		)	670
	$	51,392		$	59,679		$	43,124

The accounting standard on share-based compensation requires the gross benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. The future realizability of tax benefits related to share-based compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company reported gross excess tax benefits of $1.6 million, $1.6 million and $2.3 million in the years ended December 31, 2015, 2014 and 2013, respectively.

There was no significant non-employee share-based compensation expense for the years ended December 31, 2015, 2014 and 2013.

The following table summarizes share-based compensation, net of amount capitalized in (released from) inventory, included in operating results:



	Years Ended
	December 31, 2015			December 31, 2014			December 31, 2013
	(in thousands)
Cost of revenue	$	5,900		$	6,356		$	5,889
Research and development	14,172			17,569			14,852
Selling, general and administrative	31,320			35,754			22,383
Total share-based compensation expense, before income taxes	51,392			59,679			43,124
Tax benefit	(11,144		)	(11,423		)	(7,707		)
Total share-based compensation expense, net of income taxes	$	40,248		$	48,256		$	35,417

Stock Options, Restricted Stock Units and Employee Stock Purchase Plan

In May 2005, Atmel’s stockholders initially approved Atmel’s 2005 Stock Plan (as amended, the “2005 Stock Plan”). On May 9, 2013, Atmel's stockholders approved an amendment to the 2005 Stock Plan to increase the number of shares allocated to the 2005 Stock Plan by 25.0 million shares. As of December 31, 2015, 158.0 million shares had been authorized for issuance under the 2005 Stock Plan, and 7.7 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, 2012	6,148		6,675		$1.68-$10.01	$	4.33
Additional shares approved for issuance	25,000
Restricted stock units issued	(7,922	)	—		—	—
Plan adjustment for restricted stock units issued	(4,563	)	—		—	—
Restricted stock units cancelled	2,084		—		—	—
Plan adjustment for restricted stock units cancelled	1,388		—		—	—
2014 Plan - Performance-based restricted stock units issued	(1,048	)	—		—	—
Plan adjustment for 2014 performance-based restricted stock units issued	(597	)	—		—	—
2011 Plan - Performance-based restricted stock units cancelled	422		—		—	—
Plan adjustment for 2011 performance-based restricted stock units cancelled	257		—		—	—
Options cancelled/expired/forfeited	76		(76	)	$1.77-$7.12	$	4.95
Options exercised	—		(2,964	)	$1.68-$7.12	$	4.12
Balances, December 31, 2013	21,245		3,635		$2.13-$10.01	$	4.50
Restricted stock units issued	(6,675	)	—		—	—
Plan adjustment for restricted stock units issued	(3,805	)	—		—	—
Restricted stock units cancelled	1,696		—		—	—
Plan adjustment for restricted stock units cancelled	1,029		—		—	—
Performance-based restricted stock units issued	(2,673	)	—		—	—
Plan adjustment for performance-based restricted stock units issued	(1,523	)	—		—	—
Performance-based restricted stock units cancelled	2,682		—		—	—
Plan adjustment for performance-based restricted stock units cancelled	1,631		—		—	—
Options cancelled/expired/forfeited	4		(4	)	$4.92-$7.25	$	5.63
Options exercised	—		(572	)	$2.65-$7.25	$	4.09
Balances, December 31, 2014	13,611		3,059		$2.13-$10.01	$	4.57
Restricted stock units issued	(5,216	)	—		—	—
Plan adjustment for restricted stock units issued	(2,973	)	—		—	—
Restricted stock units cancelled	1,386		—		—	—
Plan adjustment for restricted stock units cancelled	799		—		—	—
Performance-based restricted stock units issued	(170	)	—		—	—
Plan adjustment for performance-based restricted stock units issued	(97	)	—		—	—
Performance-based restricted stock units cancelled	248		—		—	—
Plan adjustment for performance-based restricted stock units cancelled	141		—		—	—
Options cancelled/expired/forfeited	5		(5	)	$3.26-$6.28	$	4.30
Options exercised	—		(687	)	$2.13-$6.28	$	4.16
Balances, December 31, 2015	7,734		2,367		$3.24-$10.01	$	4.70
Options vested and expected to vest at December 31, 2015			2,367		$3.24-$10.01	$	4.70
Options exercisable at December 31, 2015			2,365		$3.24-$10.01	$	4.70

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, provide for a numerical limit of 1.61 shares, and restricted stock units (including performance-based restricted stock units), or stock purchase rights issued prior to May 18, 2011 but on or after May 14, 2008, provided for a numerical limit of 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 is based upon the same ratio as they were issued and will again become available for issuance.

In connection with the Company's acquisition of Ozmo in December 2012, the Company assumed Ozmo's equity incentive plan. Excluded from the table above are 0.4 million shares assumed as part of the acquisition of Ozmo. This amount is comprised of 0.3 million restricted stock units, with a weighted average grant date fair value of $6.17 and 0.1 million options, with a weighted average grant date fair value of $0.81. These stock options and restricted stock units remain governed by the terms and conditions of the Ozmo plan. No additional equity is expected to be granted under the Ozmo plan.

In connection with the Company's acquisition of NMI in July 2014, the Company assumed NMI’s equity incentive plan. Excluded from the table above are 0.1 million restricted stock units assumed as part of the acquisition of NMI. These restricted stock units remain governed by the terms and conditions of the NMI plan. No additional equity is expected to be granted under the NMI plan.

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 December 31, 2015.

As of December 31, 2015, there were 7.7 million shares available for issuance under the 2005 Stock Plan, or 4.9 million shares after giving effect to the applicable ratios under the 2005 Stock Plan for issuances of restricted stock units, as described above. The shares assumed as part of the Ozmo and NMI acquisitions were not issued under the 2005 Stock Plan.

Pursuant to the terms of the Merger Agreement, at the Effective Time, each outstanding option to acquire shares of Atmel 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 shares of Atmel common stock otherwise issuable to the option holder upon the exercise of the option, and the net number of shares resulting from the “net exercise” will be converted into the right to receive the Merger Consideration. 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, Microchip or the Surviving Corporation will be converted into equivalent awards in respect of shares of Microchip common stock using a customary exchange ratio. For the performance-based Atmel Units granted with a performance period that ended December 31, 2015 (the “2015 PRSUs”), Atmel’s Board of Directors previously determined, in connection with the Dialog merger and consistent with the terms of the 2015 Plan and information then available, that 57.0% of the target awards should vest contingent upon, and immediately prior to, the occurrence of that merger transaction (which was subsequently reaffirmed by the Board of Directors in connection with the Microchip Merger), with the remaining 2015 PRSUs converted into time-based awards that vest through November 15, 2017. In addition, in connection with the Dialog merger, Atmel’s Board of Directors determined that the Atmel Units granted in August 2015, for which performance criteria had not been established, would be converted, contingent upon the occurrence of that merger transaction (which was subsequently reaffirmed by the Board of Directors in connection with the Microchip Merger), into time-based awards vesting through November 15, 2018.

If Microchip 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, Microchip 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, 2012	21,944		$	8.71
Restricted stock units issued	7,922		$	7.36
Restricted stock units vested	(7,271	)	$	7.30
Restricted stock units cancelled	(2,084	)	$	8.25
Performance-based restricted stock units issued	1,048		$	7.33
Performance-based restricted stock units cancelled	(422	)	$	13.50
Balances, December 31, 2013	21,137		$	8.84
Restricted stock units issued	6,675		$	8.44
Restricted stock units vested	(7,943	)	$	7.80
Restricted stock units cancelled	(1,696	)	$	7.93
Performance-based restricted stock units issued	2,673		$	7.68
Performance-based restricted stock units cancelled	(2,683	)	$	13.30
Balances, December 31, 2014	18,163		$	8.40
Restricted stock units issued	5,216		$	8.23
Restricted stock units vested	(6,644	)	$	8.25
Restricted stock units cancelled	(1,386	)	$	7.82
Performance-based restricted stock units issued	170		$	8.33
Performance-based restricted stock units cancelled	(248	)	$	8.13
Balances, December 31, 2015	15,271		$	8.46

Excluded from the table above are 0.3 million restricted stock units, with a weighted average grant date fair value of $6.17, assumed as part of the acquisition of Ozmo, and 0.1 million restricted stock units, with a weighted average grant date fair value of $8.20 assumed as part of the acquisition of NMI.

For the year ended December 31, 2015, 6.6 million restricted stock units vested, including 2.5 million units withheld for taxes. These vested restricted stock units had a weighted-average grant date fair value of $8.25 per share for the year ended December 31, 2015. The aggregate intrinsic value of vested restricted stock units amounted to $54.5 million, $61.9 million and $53.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, total unearned share-based compensation related to unvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $86.0 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.20 years.

Until restricted stock units are vested, they do not have the voting 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

In August 2015, the Company granted 0.6 million performance-based restricted units applicable for the 2016 performance period. The performance criteria for those performance-based restricted units had not been established prior to the date on which the Company entered into its merger agreement with Dialog. 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.

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 initially recorded performance-based restricted stock units issued under the 2015 Plan based on achievement of the “target” performance metrics. The Company recorded total share-based compensation expense related to the 2015 Plan of $2.7 million and $0.3 million for the years ended December 31, 2015 and 2014, 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.

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 issued 1.0 million shares under the 2014 Plan for the year ended December 31, 2013. The Company recorded total share-based compensation expense related to 2014 Plan of $2.0 million and $2.6 million for the years ended December 31, 2015 and 2014, respectively.

In May 2011, the Company adopted the 2011 Long-Term Performance Based Incentive Plan (the "2011 Plan"), which ended on December 31, 2013. For the year ended December 31, 2013, the Company recognized a share-based compensation credit of $14.5 million, which resulted from finalizing our estimates regarding the achievement of certain performance criteria established under the 2011 Plan and increasing our forfeiture rate estimates for those performance-based restricted stock units.

Stock Option Awards



Options Outstanding					Options Exercisable
Range of Exercise Price ($)	Number Outstanding	Weighted- Average Remaining Contractual Term (years)	Weighted- Average Exercise Price ($)		Number Exercisable	Weighted- Average Exercise Price ($)
(in thousands, except for per share prices and life data)
3.24-3.24	301	2.29	$	3.24	301	$	3.24
3.27-4.20	290	2.69	3.86		290	3.86
4.23-4.37	256	1.34	4.26		254	4.26
4.43-4.70	229	3.65	4.43		229	4.43
4.74-4.74	388	1.62	4.74		388	4.74
4.89-4.92	295	1.00	4.90		295	4.90
4.99-5.73	293	1.88	5.55		293	5.55
5.96-6.11	131	2.69	6.08		131	6.08
6.28-6.28	170	0.96	6.28		170	6.28
10.01-10.01	14	4.87	10.01		14	10.01
	2,367				2,365

Excluded from the table above are 0.1 million options, with a weighted average grant date fair value of $0.81, assumed as part of the acquisition of Ozmo.

The number of options exercisable under Atmel's stock option plans at December 31, 2015, 2014 and 2013 were 2.4 million, 3.0 million and 3.6 million, respectively. For the years ended December 31, 2015, 2014 and 2013, the number of stock options that were forfeited, but were not available for future stock option grants due to the expiration of these shares under the 1986 Stock Plan was not material.

For the years ended December 31, 2015, 2014 and 2013, the number of stock options that were exercised were 0.7 million, 0.6 million and 3.0 million, respectively, which had a total intrinsic value at the date of exercise of $3.2 million, $2.6 million and $9.4 million, respectively, and had an aggregate exercise price of $2.9 million, $2.4 million and $12.2 million, respectively. The aggregate intrinsic value of options vested and expected to vest was $9.3 million and options exercisable was $9.3 million at December 31, 2015.

As of December 31, 2015, total unearned compensation expense related to unvested stock options was immaterial, excluding forfeitures, and is expected to be recognized over a weighted-average period of 0.04 year.

Employee Stock Purchase Plan

Under the 2010 Employee Stock Purchase Plan (“2010 ESPP” ), eligible 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 6-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 time the shares are granted) per calendar year.

There were 1.6 million, 1.7 million and 1.9 million shares purchased under the 2010 ESPP for the years ended December 31, 2015, 2014 and 2013 at an average price per share of $6.79, $6.59 and $5.52, respectively. Of the 25.0 million shares authorized for issuance under the 2010 ESPP, 17.3 million shares were available for issuance at December 31, 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:



	Years Ended
	December 31, 2015		December 31, 2014		December 31, 2013
Risk-free interest rate	0.16	%	0.07	%	0.10	%
Expected life (years)	0.50		0.50		0.50
Expected volatility	33	%	31	%	44	%
Expected dividend yield	1.92	%	—		—

The weighted-average fair value per share under the 2010 ESPP for purchase periods beginning in the years ended December 31, 2015, 2014 and 2013 was $1.50, $1.66 and $1.49, respectively. Cash proceeds from the issuance of shares under the 2010 ESPP were $11.1 million, $11.2 million and $10.6 million for the years ended December 31, 2015, 2014 and 2013, 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

Atmel’s Board of Directors has authorized an aggregate of $1.0 billion of funding for the Company’s common stock repurchase program since 2011. 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 December 31, 2015, $197.1 million remained available for repurchasing common stock under this program. Pursuant to the terms of the Merger Agreement, the Company is not permitted to make further stock repurchases.

During the years ended December 31, 2015, 2014 and 2013, Atmel repurchased 1.4 million, 16.3 million and 12.2 million shares, respectively, of its common stock on the open market at an average repurchase price of $8.27, $8.01 and $7.20 per share, respectively, excluding commission, and subsequently retired those shares. Common stock and additional paid-in capital were reduced by $12.0 million, $130.4 million and $87.8 million, excluding commission, for the years ended December 31, 2015, 2014 and 2013, respectively, as a result of the stock repurchases.

Dividends

The Company paid cash dividends of $0.12 per common share, the aggregate cost of which was $50.2 million for the year ended December 31, 2015.

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