Share - Based Compensation Plans | 16. SHARE-BASED COMPENSATION PLANS The following table presents the effects of stock-based compensation expense related to stock-based awards to employees and non-employees in our consolidated statements of operations during the periods presented (in thousands): Fiscal Years 2015 2014 2013 Cost of revenue $ 1,949 $ 1,771 $ 1,068 Research and development 5,447 2,818 1,739 Selling, general and administrative 12,039 6,688 3,649 Total $ 19,435 $ 11,277 $ 6,456 Amounts presented above included share-based compensation expense in 2015, 2014 and 2013 related to employees terminated in conjunction with the Automotive divestiture in August 2015 of $0.4 million, $0.3 million and $0.1 million, respectively. We have three equity incentive plans: the Amended and Restated 2009 Stock Incentive Plan (2009 Plan), the 2012 Omnibus Incentive Plan (2012 Plan) and the 2012 Employee Stock Purchase Plan (ESPP). Upon the closing of the IPO, all shares that were reserved under the 2009 Plan but not awarded were assumed by the 2012 Plan. No additional awards will be made under the 2009 Plan. Under the 2012 Plan, we have the ability to issue incentive stock options (ISOs), non-statutory stock options (NSOs), performance-based non-statutory stock options, stock appreciation rights, restricted stock (RSAs), restricted stock units (RSUs), performance-based stock units (PRSUs), performance shares, and other equity-based awards to employees, directors and outside consultants. The ISOs and NSOs must be granted at a price per share not less than the fair value of our common stock on the date of grant. Options granted to date primarily vest over a four-year period with 25% vesting at the end of one year and the remaining vesting monthly thereafter. Certain of the share-based awards granted and outstanding as of October 2, 2015, are subject to accelerated vesting upon a sale of the Company or similar changes in control. Options granted generally have a term of 7 to 10 years. As of October 2, 2015, we had 9.0 million shares available for future grants under the 2012 Plan. Stock Options A summary of stock option activity for fiscal year 2015 is as follows (in thousands, except per share amounts): Number of Shares Weighted-Average Weighted- Aggregate Options outstanding — October 3, 2014 948 $ 11.72 6.6 $ 10,015 Granted 255 33.60 Exercised (288 ) 9.08 Forfeited, canceled or expired (26 ) 27.11 Options outstanding — October 2, 2015 889 $ 18.4 6.19 $ 10,574 Options vested and expected to vest — October 2, 2015 889 $ 18.4 6.19 $ 10,574 Options exercisable — October 2, 2015 644 $ 12.63 6.03 $ 10,574 Aggregate intrinsic value represents the difference between our closing stock price on October 2, 2015, and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was $7.1 million, $7.6 million and $8.4 million for fiscal year 2015, 2014 and 2013, respectively. In April 2015 and May 2015, the Company granted 225,000 performance-based stock options for shares of common stock with an aggregate grant date fair value of $2.0 million that are subject to vesting based on a service and individual performance targets. The Company used the Black-Scholes valuation model for estimating the fair value on the date of grant of $10.35 and $10.12 per option share, respectively. The fair value of stock option awards is affected by valuation assumptions, including volatility, the Company’s stock price, expected term of the option, risk-free interest rate and expected dividends. The weighted-average assumptions used for calculating the fair value of stock options granted is as follows: Risk-free interest rate 1.2 % Expected term (years) 4.0 Expected volatility 36.2 % Expected dividends — % The performance-based stock options described above will vest and become exercisable in full if certain pre-established revenue and non-GAAP gross margin targets are met or exceeded in any period of four consecutive fiscal quarters completed during the term of the options. The stock options have a term of seven years, assuming continued employment with or services to the Company, and have an average exercise price of $34.06 and equal to the closing price of the Company’s common stock on the date of grant. In September 2015, we granted 30,000 stock option awards, with an exercise price of $29.80, under the 2012 stock compensation plan with a grant date fair value of $0.4 million that are subject to vesting only upon the closing market price of the Company’s underlying public stock being equal to or in excess of $63.60 per share for a period of not less than three consecutive trading days. These stock options fair value of $12.38 was estimated using a Monte Carlo simulation model based on the market conditions vesting condition. Compensation cost is recognized on a straight-line basis over the estimated service period of approximately three years, expiring in September 2022. In April 2014, we granted 405,000 options to purchase common stock with a grant date fair value of $3.5 million that are subject to vesting only upon the market price of the Company’s underlying public stock closing at or above $32.55 per share within ten years of the grant date. Due to the market condition upon which vesting is based, the fair value of the awards was estimated using a Monte Carlo simulation model. Compensation cost is recognized regardless of the number of awards that are earned based on the market condition. Compensation cost is recognized on a straight-line basis over the estimated service period of three years. In the event that the Company’s common stock achieves the target price of $32.55 per share prior to the end of the estimated service period, any remaining unamortized compensation cost will be recognized. During the second fiscal quarter of 2015, the Company’s common stock closed at a price of $34.79 per share, exceeding the target price of $32.55 per share, which resulted in the recognition of approximately $2.5 million of compensation expense during the fiscal year. The weighted-average assumptions used for calculating the fair value of stock options granted during fiscal year 2014, is as follows: Risk-free interest rate 2.71 % Expected term (years) 10 % Expected volatility 42.6 % Expected dividends — % Restricted Stock Awards and Units A summary of restricted stock awards and units activity for fiscal year 2015 is as follows (in thousands): Number of Weighted-Average Aggregate Issued and unvested — October 3, 2014 1,720 2.3 $ 37,200 Granted 821 Vested (704 ) Forfeited, canceled or expired (145 ) Issued and unvested shares — October 2, 2015 1,692 1.4 $ 48,375 Shares expected to vest 1,586 1.3 $ 45,328 As of October 2, 2015, the aggregate intrinsic value of vesting restricted stock units including time-based and performance units was $45.3 million for fiscal year 2015. The total fair value of restricted stock awards and units vesting was $23.3 million, $9.2 million and $3.9 million for the fiscal years 2015, 2014 and 2013, respectively. On April 22, 2015 and May 5, 2015, we issued performance-based RSUs which were divided into three equal tranches with one tranche based on our adjusted earnings per share (EPS) growth during fiscal year 2015, one tranche based on adjusted EPS growth during fiscal years 2015-2016 and one tranche based on adjusted EPS growth during fiscal years 2015-2017. A participant may earn between 0% to 300% of the targeted shares for each tranche based on actual performance, and a straight-line interpolation will be applied for achievement between the specified performance ranges. Once earned, the performance-based RSUs will be settled in shares of the Company’s common stock, assuming continued employment with or services to us through the vest date of May 15 th following each tranches performance criteria being met at period end. A summary of PRSU activity during the fiscal year ended October 2, 2015 is as follows: Non-vested Weighted-Average Unvested shares at October 3, 2014 — Granted 83,954 $ 34.39 Change due to performance condition achievement 251,862 $ 34.39 Vested — Forfeited — Unvested shares at October 2, 2015 335,816 $ 34.39 The total fair value of restricted stock award units with time-based and performance vesting was $7.8 million for the fiscal year ended October 2, 2015. In April 2015, the Company approved an amended and restated Change in Control Plan to exclude certain performance-based options and to increase the percentage by which outstanding performance-based equity awards, other than those specifically excluded) will be deemed earned in the event of a change in control, from 100% of target to 200% of targeted shares. Other share-based awards granted and outstanding as of October 2, 2015, are subject to accelerated vesting upon a sale of the Company or similar changes in control. In conjunction with the Automotive divestiture, the Compensation Committee approved the acceleration of all unvested and outstanding RSU awards for employees who were terminated and accepted employment with the acquiring company effective upon the closing date of the transaction. Accordingly, during the fourth quarter of fiscal year ended October 2, 2015, we recorded additional stock compensation expense related to approximately 20 employees of $1.2 million related to this equity modification to accelerate vesting of unvested shares. As of October 2, 2015, total unrecognized compensation cost, adjusted for estimated forfeitures, related to stock options, restricted stock awards and units including awards with time-based and performance vesting was $37.8 million, which is expected to be recognized over the next 3.4 years. Employee Stock Purchase Plan (ESPP) Concurrently with the IPO in March 2012, the ESPP became effective. The ESPP allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. In administering the ESPP, the board of directors has limited discretion to set the length of the offering periods thereunder. As of October 2, 2015, total unrecognized compensation cost related to the ESPP was not material. In fiscal years 2015 and 2014, approximately 176,000 and 150,000, respectively, of shares of common stock were issued under the ESPP. The 2012 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock available for issuance under the 2012 Plan can be increased on the first day of each fiscal year equal to the lesser of (a) 4.0% of outstanding common stock on a fully diluted basis as of the end of the immediately preceding fiscal year, (b) 1.9 million shares of common stock, and (c) a lesser amount determined by the board of directors; provided, however, that any shares from any increases in previous years that are not actually issued will continue to be available for issuance under the 2012 Plan. The ESPP also contains an “evergreen” provision, pursuant to which the number of shares of common stock available for issuance under the ESPP can be increased on the first day of each fiscal year equal to the lesser of (a) 1.25% of outstanding common stock on a fully diluted basis as of the end of the immediately preceding fiscal year, (b) 550,000 shares of common stock, and (c) a lesser amount determined by the board of directors; provided, however, that any shares from any increases in previous years that are not actually issued will continue to be available for issuance under the ESPP. In fiscal year 2015, pursuant to the evergreen provisions, the number of shares of common stock available for issuance under the 2012 Plan and the ESPP were increased by 1.9 million shares and 550,000 shares, respectively. |