Note 16 Equity-Based Compensation

As of December 31, 2013, Zebra had a general equity-based compensation plan and a stock purchase plan under which shares of our common stock were available for future grants and sales, and which are described below.

On May 19, 2011, Zebra’s stockholders approved the 2011 Zebra Technologies Corporation Long Term Incentive Plan (the 2011 Plan), which included authorization for issuance of awards of 5,500,000 shares under the 2011 Plan. The 2011 Plan became effective immediately and superseded the 2006 Incentive Compensation Plan (the 2006 Plan), the 1997 Stock Option Plan (the 1997 Plan) and the 2002 Non-Employee Director Stock Option Plan (the 2002 Director Plan), except that the prior plans will remain in effect with respect to awards granted under the prior plans until such awards have been exercised, forfeited, cancelled, expired or otherwise terminated in accordance with the terms of such grants. The types of awards available under the 2011 Plan are incentive stock options, nonqualified stock options, stock appreciation rights (SARs), restricted stock, performance shares and units and performance-based cash bonuses. Employees, directors and consultants of Zebra and its subsidiaries are eligible to participate in the 2011 Plan. The Compensation Committee of the Board of Directors administers the plan. As of December 31, 2013, 4,212,339 shares were available for grant under the plan, and options for 691,874 shares were outstanding under the 2011 Plan.

The options and SARs granted under the 2011 Plan have an exercise or grant price equal to the closing market price of Zebra’s stock on the date of grant. Options and SAR’s generally vest over a four or five-year period. These awards expire on the earlier of (a) ten years following the grant date, (b) immediately if the employee is terminated for cause, (c) ninety days after termination of employment if the employee is terminated involuntarily other than for cause, (d) thirty days after termination of employment if the employee voluntarily terminates his or her employment, or (e) one year after termination of employment if the employee’s employment terminates due to death, disability, or retirement.

Zebra’s time-vested restricted stock grants consist of restricted stock awards (RSA’s) and performance share awards (PSA’s). The following table shows the number of shares of time-vested restricted stock granted in 2013 and the vesting schedules of the restricted stock awards that were granted under the Plan to certain executive officers and other members of management.


Vesting period	RSA’s		PSA’s		Total
At grant		18,095		112,028		130,123
After three years of service		149,420		75,766		225,186

Total		167,515		187,794		355,309

These RSA’s will vest at each vesting date if the employee remains employed by Zebra throughout the applicable time period, but will vest in whole or in part (as set forth in each Restricted Stock Agreement) before the end of the each vesting period in the event of death, disability, resignation for good reason, a change in control (as defined in the 2011 Plan), or termination by Zebra other than for Cause, as defined in the Restricted Stock Agreement entered into by Zebra with each employee who was granted restricted stock. The restricted stock is forfeited in certain situations specified in the Restricted Stock Agreement, including, if the employee’s employment is terminated by Zebra for Cause or if the employee resigns for other than good reason. Zebra’s restricted stock awards are expensed over the vesting period of the related award, which is typically three to five years. However, some recent awards vested upon grant. Compensation cost is calculated as the market date fair value on grant date multiplied by the number of shares granted.

The 2006 Plan was superseded by the 2011 Plan. As of December 31, 2013, options and SARs for 1,111,435 shares were outstanding and exercisable under the 2006 Plan. These options and SARs expire on the earlier of (a) ten years following the grant date, or (b) immediately if the employee is terminated for cause, (c) ninety days after termination of employment if the employee is terminated involuntarily other than for cause, (d) thirty days after termination of employment if the employee voluntarily terminates his or her employment, or (e) one year after termination of employment if the employee’s employment terminates due to death, disability, or retirement.

The 1997 Plan was superseded by the 2006 Plan. As of December 31, 2013, options for 471,990 shares were outstanding and exercisable under the 1997 Plan. These options terms are the same as noted in the paragraph above in the 2006 Plan.

The 2002 Director Plan was superseded by the 2006 Plan. As of December 31, 2013, options for 80,000 shares were outstanding and exercisable under the 2002 Director Plan. Unless otherwise provided in an option agreement, options granted under the 2002 Director Plan become exercisable in five equal increments beginning on the date of the grant and continuing on each of the four anniversaries thereafter. All such options expire on the earlier of (a) ten years following the grant date, (b) the first anniversary of the termination date of the non-employee director’s directorship for any reason other than the termination of the non-employee director’s directorship by Zebra’s stockholders for cause, or resignation for cause, in each case as defined in the option agreement.

In connection with Zebra’s acquisition of WhereNet, Zebra assumed existing unvested stock options exercisable for shares of WhereNet’s common stock and converted them into options exercisable for Zebra common stock. These converted options have exercise prices and vesting dates based on their previous terms and all of these options that are outstanding are fully vested. As of December 31, 2013, outstanding WhereNet options were exercisable into 3,262 shares of Zebra Class A Common Stock.

On May 19, 2011 Zebra’s stockholders adopted the 2011 Employee Stock Purchase Plan (which replaced the 2001 Stock Purchase plan) under which employees who work a minimum of 20 hours per week may elect to withhold up to 10% of their cash compensation through regular payroll deductions to purchase shares of Class A Common Stock from Zebra over a period not to exceed 12 months at a purchase price per share which is equal to the lesser of: (1) 95% of the fair market value of the shares as of the date of the grant, or (2) 95% of the fair market value of the shares as of the date of purchase. Stock purchase plan expense for the year ended December 31, 2013 was $224,000. Stock purchase plan expense for the year ended December 31, 2012 was $242,000 and for the year ended December 31, 2011 was $321,000.

For purposes of calculating the compensation cost, the fair value is estimated on the date of grant using a binomial model. Volatility is based on an average of the implied volatility in the open market and the annualized volatility of Zebra’s stock prices over our entire stock history. Stock option grants in the table below include both stock options, all of which were non-qualified, and stock appreciation rights (SAR) that will be settled in Zebra stock. The following table shows the weighted-average assumptions used for grants of SARs as well as the fair value of the grants based on those assumptions:


	2013	2012	2011

Expected dividend yield	0%	0%	0%
Forfeiture rate	10.31%	10.21%	11.50%
Volatility	32.00%	35.90%	35.33%
Risk free interest rate	.82%	.94%	2.01%
- Range of interest rates	0.02% - 1.78%	0.07% - 1.95%	0.01% - 3.18%
Expected weighted-average life	5.42 years	5.48 years	5.42 years
Fair value of SARs granted	$4,528,000	$5,533,000	$5,495,000
Weighted-average grant date fair value of options and SARs granted (per underlying share)	$13.86	$12.84	$14.29

The forfeiture rate is based on the historical annualized forfeiture rate, which is consistent with prior year rates. This rate includes only pre-vesting forfeitures. Volatility is based on an average of the implied volatility in the open market and the annualized volatility of Zebra’s stock prices over our entire stock history. The risk free interest rate used is the implied yield currently available from the U.S. Treasury zero-coupon yield curve over the contractual term of the options. The expected weighted-average life is based on historical exercise behavior, which combines the average life of the options that have already been exercised or cancelled with the exercise life of all unexercised options. The exercise life of unexercised options assumes that the option will be exercised at the midpoint of the vesting date and the full contractual term. These assumptions are consistent with the assumptions used in prior years.

Stock option activity for the years ended December 31, 2013, 2012, and 2011, was as follows:


	2013					2012					2011
Options	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
Outstanding at beginning of year		1,531,844		$	41.69		1,702,650		$	40.43		2,340,959		$	37.35
Granted		0			0		0			0		0			0
Exercised		(543,922	)		39.54		(148,802	)		27.02		(490,715	)		26.63
Forfeited		0			0		(1,663	)		36.36		(63,714	)		32.29
Expired		(32,145	)		45.81		(20,341	)		43.63		(83,880	)		40.76
Outstanding at end of year		955,777		$	42.78		1,531,844		$	41.69		1,702,650		$	40.43
Exercisable at end of year		955,777		$	42.78		1,527,814		$	41.75		1,589,096		$	40.84
Intrinsic value of exercised options	$	4,300,000				$	1,700,000				$	6,400,000

There were no stock options granted in 2013, 2012 or 2011.

The following table summarizes information about stock options outstanding at December 31, 2013:


	Outstanding	Exercisable
Aggregate intrinsic value	$ 4,201,000	$ 4,201,000
Weighted-average remaining contractual term	2.5 years	2.5 years

SAR activity for the years ended December 31, 2013, 2012, and 2011, was as follows:


	2013					2012					2011
SARs	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
Outstanding at beginning of year		1,535,804			$ 31.66		1,287,724			$ 28.91		1,234,787			$ 23.82
Granted		326,811			46.13		431,040			38.51		387,847			41.14
Exercised		(376,673	)		25.44		(102,972	)		23.83		(95,672	)		22.20
Forfeited		(80,515	)		37.54		(75,978	)		34.10		(238,965	)		25.15
Expired		(2,643	)		33.70		(4,010	)		41.57		(273	)		19.56
Outstanding at end of year		1,402,784			$ 36.36		1,535,804			$ 31.66		1,287,724			$ 28.91
Exercisable at end of year		520,426			$ 30.51		514,787			$ 26.52		305,228			$ 23.27
Intrinsic value of exercised SARs		$ 7,900,000					$ 1,500,000					$ 1,700,000

The terms of the SARs are established under the applicable Plan and the applicable SAR agreement. Once vested, a SAR entitles the holder to receive a payment equal to the difference between the per-share grant price of the SAR and the fair market value of a share of Zebra stock on the date the SAR is exercised, multiplied by the number of shares covered by the SAR. Exercised SARs will be settled in whole shares of Zebra stock, and any fraction of a share will be settled in cash. Vesting of SARs granted in 2013 is as follows: 326,811 SARs vest annually in four equal amounts on each of the first four anniversaries of the grant date. Vesting of SARs granted in 2012 is as follows: 20,155 SARs vested upon grant and 410,885 SARs vest annually in four equal amounts on each of the first four anniversaries of the grant date. All SARs expire 10 years after the grant date.

The following table summarizes information about SARs outstanding at December 31, 2013:

Restricted stock award activity, granted under the 2011 and 2006 Plans, for the years ended December 31, 2013, 2012 and 2011 was as follows:


	2013					2012					2011
Restricted Stock Awards	Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		444,362			$ 35.43		529,880			$ 28.20		594,090			$ 25.51
Granted		167,515			46.17		169,081			38.45		152,636			41.17
Released		(161,976	)		31.28		(235,580	)		21.39		(197,472	)		30.08
Forfeited		(14,524	)		40.79		(19,019	)		34.90		(19,374	)		29.08

Outstanding at end of year		435,377			$ 40.92		444,362			$ 35.43		529,880			$ 28.20

Performance share award activity, granted under the 2011 and 2006 Plans, for the years ended December 31, 2013, 2012 and 2011 was as follows:


	2013					2012					2011
Performance Share Awards	Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		265,829			$ 35.55		306,261			$ 28.58		250,596			$ 25.35
Granted		187,794			35.17		72,470			38.68		62,874			41.47
Released		(253,484	)		27.90		(1,802	)		41.57		(7,209	)		28.79
Forfeited		(4,980	)		41.46		(111,100	)		23.06		0			0.0

Outstanding at end of year		195,159			$ 42.25		265,829			$ 35.55		306,261			$ 28.58

As of December 31, 2013, there was $17,646,000 of unearned compensation cost related to awards granted under Zebra’s equity-based compensation plans, which is expected to be recognized over a weighted-average period of 2.3 years.

The fair value of the purchase rights issued to Zebra employees under the stock purchase plan is estimated using the following weighted-average assumptions for purchase rights granted. Expected lives of three months to one year have been used along with these assumptions.


	2013		2012		2011

Fair market value	$	42.45	$	35.43	$	34.77
Option price	$	40.33	$	33.66	$	33.03
Expected dividend yield		0%		0%		0%
Expected volatility		19%		21%		33%
Risk free interest rate		0.05%		0.07%		0.07%

Outstanding

Exercisable

Aggregate intrinsic value

$ 14,144,000

$ 8,282,000

Weighted-average remaining contractual term