Stock Award Plans and Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock Award Plans and Stock-Based Compensation

Stock Award Plans and Stock-Based Compensation

Note 12.  Stock Award Plans and Stock-Based Compensation

2000 Stock Plan

        The Company maintains the Axcelis Technologies, Inc. 2000 Stock Plan (the "2000 Plan"), a stock award and incentive plan which permits the issuance of options, stock appreciation rights, restricted stock, restricted stock units, and performance awards to selected employees, directors and consultants of the Company. The 2000 Plan originally reserved 18.5 million shares of common stock for future grant, which amount was subsequently increased to 33.2 million shares of common stock. The 2000 Plan expires in 2012. At December 31, 2011, there were 7.3 million shares of common stock available for future grant. At December 31, 2011, stock awards outstanding under the 2000 Plan included stock options, restricted stock and restricted stock units.

        Expiration of non-qualified stock options or stock appreciation rights is based on award agreements. Non-qualified stock options typically expire ten years from date of grant, but, if approved by the Board of Directors, may have a stated term in excess of ten years. Incentive stock option awards expire ten years from the date of grant. Generally, options granted to employees terminate upon termination of employment. Under the terms of the 2000 Plan, the exercise price, determined by the Board of Directors, may not be less than the fair market value of a share of the Company's common stock on the date of grant. Stock options granted to employees generally vest over a period of four years, while stock options granted to non-employee members of the Company's Board of Directors generally vest over a period of 6 months and, once vested, are not affected by the director's termination of service to the Company. The Company settles stock option exercises with newly issued common shares.

        Generally, unvested restricted stock and restricted stock unit awards expire upon termination of service to the Company. Restricted stock or restricted stock unit awards granted to employees generally vest over a period of four years, while restricted stock or restricted stock units granted to members of the Company's Board of Directors generally vest over a period of six months. The Company plans to settle restricted stock units upon vesting with newly issued common shares.

        Under the 2000 Plan, fair market value is defined as the closing price of a share of the common stock on the Nasdaq Global Select Market as of any applicable date, as long as the Company's shares are traded on such exchange.

Grant-Date Fair Value

        For the purpose of valuing stock options, the Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. The fair values of options granted were calculated using the following estimated weighted-average assumptions:

	Years ended December 31,
	2011			2010			2009
Weighted-average expected volatility		97.8	%		97.8	%		76.5	%
Weighted-average expected term (in years)		6.1			6.2			5.5
Risk-free interest rate		1.1–2.4	%		1.5–2.0	%		2.1–2.6	%
Expected dividend yield		0	%		0	%		0	%

        Expected volatility—The Company is responsible for estimating volatility and has considered a number of factors when estimating volatility. The Company's method of estimating expected volatility for all stock options granted relies on a combination of historical and implied volatility. The Company believes that this blended volatility results in a more accurate estimate of the grant-date fair value of employee stock options because it more appropriately reflects the market's current expectations of future volatility.

        Expected term—Weighted average expected term was calculated using a forward looking lattice model of the Company's stock price incorporating a suboptimal exercise factor and a projected post-vest forfeiture rate.

        Risk-free interest rate—The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term assumption is used as the risk-free interest rate.

        Expected dividend yield—Expected dividend yield was not considered in the option pricing formula since the Company does not pay dividends and has no current plans to do so in the future.

Stock-Based Compensation Expense

        The Company estimates the fair value of stock options using the Black-Scholes valuation model. The fair value of the Company's restricted stock and restricted stock units is calculated based upon the fair market value of the Company's stock at the date of grant.

        The Company uses the straight-line attribution method to recognize expense for stock-based awards such that the expense associated with awards is evenly recognized throughout the period.

        The amount of stock-based compensation recognized is based on the value of the portion of the awards that are ultimately expected to vest. The Company estimates forfeitures at the time of grant and revises them, 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 stock-based award. The Company currently expects, based on a historical analysis, a forfeiture rate of 5% per year, including executive officer awards.

        The Company recognized stock-based compensation expense of $4.7 million, $4.1 million and $4.7 million for the years ended December 31, 2011, 2010 and 2009, respectively. For 2011, 2010 and 2009, the Company primarily used stock options in its annual share-based payment program.

        The benefits of tax deductions in excess of recognized compensation cost is reported as a financing cash flow, rather than as an operating cash flow. Because the Company does not recognize the benefit of tax deductions in excess of recognized compensation cost due to its cumulative net operating loss position, this had no impact on the Company's consolidated statement of cash flows as of and for the years ended December 31, 2011, 2010 and 2009.

Stock Options

        The following table summarizes the stock option activity for the years ended December 31, 2011, 2010 and 2009:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)					(years)		(in thousands)
Outstanding at December 31, 2008		15,524		$	8.05
Granted		4,555			1.11
Exercised		(66	)		0.68
Canceled		(887	)		1.20
Expired		(1,758	)		9.73
Outstanding at December 31, 2009		17,368			6.43
Granted		5,310			1.61
Exercised		(704	)		0.79
Canceled		(333	)		1.23
Expired		(2,693	)		18.26
Outstanding at December 31, 2010		18,948		$	3.70
Granted		4,662			1.70
Exercised		(372	)		0.77
Canceled		(654	)		1.43
Expired		(1,491	)		12.38
Outstanding at December 31, 2011		21,093		$	2.76		7.01	$	3,112
Exercisable at December 31, 2011		10,205		$	4.13		5.22	$	2,129
Options Vested or Expected to Vest at December 31, 2011(1)		20,284		$	2.81		7.03	$	2,548

(1)

In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.

        Of the options outstanding at December 31, 2011, 2010, and 2009, 10,205, 8,443, and 9,335, respectively, were vested and exercisable with a weighted average exercise price of $4.13, $6.68, and $11.12, respectively. The total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) for the years ended December 31, 2011, 2010 and 2009 was $0.7, $1.2 and $0.8 million, respectively.

        The total fair value of stock options vested during the year ended December 31, 2011 was $3.3 million. As of December 31, 2011, there was $9.5 million of total forfeiture adjusted unrecognized compensation cost related to non-vested stock options granted under the 2000 Plan. That cost is expected to be recognized over a weighted-average period of 2.8 years.

Restricted Stock and Restricted Stock Units

        Restricted stock units ("RSUs") represent the Company's unfunded and unsecured promise to issue shares of the common stock at a future date, subject to the terms of the RSU Award Agreement and the 2000 Plan. The purpose of these awards is to assist in attracting and retaining highly competent employees and directors and to act as an incentive in motivating selected employees and directors to achieve long-term corporate objectives. These RSU awards typically vest over four years for employees and executive officers. The restricted stock awards to directors typically vest over six months. The fair value of restricted stock unit and restricted stock awards is charged to expense ratably over the applicable service period.

        Changes in the Company's non-vested restricted stock and restricted stock units for the years ended December 31, 2011, 2010, and 2009 are as follows:

	Shares/units			Weighted-Average Grant Date Fair Value per Share
	(in thousands)
Outstanding at December 31, 2008		1,612		$	5.94
Vested		(798	)		6.04
Forfeited		(210	)		5.63
Outstanding at December 31, 2009		604		$	5.90
Granted		695			1.72
Vested		(1,052	)		3.30
Forfeited		(19	)		2.94
Outstanding at December 31, 2010		228		$	5.38
Granted		121			2.50
Vested		(196	)		5.81
Forfeited		(2	)		6.01
Outstanding at December 31, 2011		151		$	2.52

        The company's offers a net share settlement program to offset the personal income tax obligations of the employee's restricted stock vesting. Vesting activity above reflects shares vested before net share settlement. As of December 31, 2011, there was $0.3 million of total forfeiture adjusted unrecognized compensation cost related to nonvested restricted stock and restricted stock units, which is expected to be amortized over a weighted average amortization period of 2.99 years.

Employee Stock Purchase Plan

        The Employee Stock Purchase Plan (the "Purchase Plan") provides effectively all Axcelis employees the opportunity to purchase common stock of the Company at less than market prices. Purchases are made through payroll deductions of up to 10% of the employee's salary, subject to certain caps set forth in the Purchase Plan. Employees may purchase Axcelis common stock at 85% of the market value of the Company's common stock on the day the stock is purchased.

        The Purchase Plan is considered compensatory and as such, compensation expense has been recognized based on the benefit of the discounted stock price, amortized to compensation expense over each offering period of six months. Compensation expense for the years ended December 31, 2011, 2010, and 2009 was $0.1 million, $0.1 million, and $0.0 million respectively.

        As of December 31, 2011, there were a total of 2.3 million shares reserved for issuance and available for purchase under the Purchase Plan. There were 0.4, 0.3, and 0.3 million shares purchased under the Purchase Plan for the years ended December 31, 2011, 2010, and 2009 respectively.