STOCK-BASED COMPENSATION

2014

Equity Incentive Plan (the

“2014

Plan”)

The Board of Directors adopted the

2014

Plan in

April 2013,

and the stockholders approved it in

June 2013.

October 2014,

the Board of Directors approved certain amendments to the

2014

Plan. The

2014

Plan, as amended, became effective on

November 13, 2014

and provides for the issuance of up to

5.5

million shares. The

2014

Plan will expire on

November 13, 2024.

As of

March 31, 2019,

1.6

million shares remained available for future issuance under the

2014

Plan.

Stock-Based Compensation Expense

The Company recognized stock-based compensation expenses as follows (in thousands):

	Three Months Ended March 31,
	2019		2018
Cost of revenue	$	531	$	433
Research and development		4,429		3,995
Selling, general and administrative		11,050		10,602
Total stock-based compensation expense	$	16,010	$	15,030
Tax benefit related to stock-based compensation	$	838	$	1,131

Restricted Stock Units

(“RSUs”)

The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market and performance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include service conditions which require continued employment with the Company.

A summary of RSU activity is presented in the table below (in thousands, except per-share amounts):

	Time-Based RSUs					PSUs and MPSUs					MSUs					Total
	Number of Shares			Weighted- Average Grant Date Fair Value Per Share		Number of Shares			Weighted- Average Grant Date Fair Value Per Share		Number of Shares			Weighted- Average Grant Date Fair Value Per Share		Number of Shares			Weighted- Average Grant Date Fair Value Per Share
Outstanding at January 1, 2019		240		$	95.38		2,174		$	61.61		2,219		$	35.69		4,633		$	50.94
Granted		26		$	130.67		311	(1)	$	107.14		-		$	-		337		$	108.93
Vested		(33	)	$	77.83		(400	)	$	56.71		(81	)	$	23.57		(514	)	$	52.86
Forfeited		(2	)	$	89.22		-		$	-		(1	)	$	68.48		(3	)	$	83.26
Outstanding at March 31, 2019		231		$	101.91		2,085		$	69.34		2,137		$	36.14		4,453		$	55.09

_____________

(

)

Amount reflects the number of PSUs and MPSUs that

may

ultimately be earned based on management’s probability assessment of the achievement of performance conditions at each reporting period. In addition, MPSUs are subject to the achievement of market conditions.

The intrinsic value related to vested RSUs was

$57.7

million and

$49.5

million for the

three

months ended

March 31, 2019

and

2018,

respectively. As of

March 31, 2019,

the total intrinsic value of all outstanding RSUs was

$559.8

million, based on the closing stock price of

$135.49.

As of

March 31, 2019,

unamortized compensation expense related to all outstanding RSUs was

$145.2

million with a weighted-average remaining recognition period of approximately

3.5

years.

Cash proceeds from vested PSUs with a purchase price totaled

$10.4

million and

$7.8

million for the

three

months ended

March 31, 2019

and

2018,

respectively.

Time-Based RSUs:

For the

three

months ended

March 31, 2019,

the Compensation Committee granted

26,000

RSUs with service conditions to non-executive employees and non-employee directors. The RSUs vest over

four

years for employees and

one

year for directors, subject to continued service with the Company.

2019

PSUs:

February 2019,

the Compensation Committee granted

151,000

PSUs to the executive officers, which represent a target number of shares to be earned based on the Company’s average

two

-year (

2019

and

2020

) revenue growth rate compared against the analog industry’s average

two

-year revenue growth rate as published by the Semiconductor Industry Association (

“2019

Executive PSUs”). The maximum number of shares that an executive officer can earn is

300%

of the target number of the

2019

Executive PSUs.

50%

of the

2019

Executive PSUs will vest in the

first

quarter of

2021

if the pre-determined performance goals are met during the performance period. The remaining

2019

Executive PSUs will vest over the following

two

years on a quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the

2019

Executive PSUs is

$46.6

million.

The

2019

Executive PSUs contain a purchase price feature, which requires the employees to pay the Company

$30

per share upon vesting of the shares. Shares that do

not

vest will

not

be subject to the purchase price payment. The Company determined the grant date fair value of the

2019

Executive PSUs using the Black-Scholes model with the following assumptions: stock price of

$130.67,

expected term of

2.6

years, expected volatility of

29.0%

and risk-free interest rate of

2.5%.

ployee Stock Purchase Plan (“ESPP”)

For the

three

months ended

March 31, 2019

and

2018,

14,000

and

18,000

shares, respectively, were issued under the ESPP. As of

March 31, 2019,

4.5

million shares were available for future issuance.

The intrinsic value of the shares issued was

$0.3

million and

$0.5

million for the

three

months ended

March 31, 2019

and

2018,

respectively. As of

March 31, 2019,

the unamortized expense was

$0.4

million, which will be recognized through the

third

quarter of

2019.

The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Three Months Ended March 31,
	2019			2018
Expected term (in years)		0.5			0.5
Expected volatility		37.3	%		28.2	%
Risk-free interest rate		2.5	%		1.8	%
Dividend yield		1.2	%		1.0	%

Cash proceeds from the shares issued under the ESPP were

$1.6

million for both the

three

months ended

March 31, 2019

and

2018.