SHARE INCENTIVE PLANS

Stock Option Plans

The Company has ten option plans. In connection with the EZchip acquisition, the Company assumed the following EZchip plans: the EZchip Semiconductor Ltd. 2003 Amended and Restated Equity Incentive Plan, the EZchip Semiconductor Ltd. 2007 U.S. Equity Incentive Plan, and the Amended and Restated EZchip Semiconductor Ltd. 2009 Equity Incentive Plan. The Company's other option plans include the 1999 United States Equity Incentive Plan, 1999 Israeli Share Option Plan, 2003 Israeli Share Option Plan (collectively, the "Prior Plans"), the Amended and Restated Global Share (2006) Incentive Plan (the "Global Plan"), the Global Share Incentive Assumption Plan 2010 (the "Assumption Plan"), the Kotura, Inc. Second Amended and Restated 2003 Stock Plan (the "Kotura Plan"), and the IPtronics, Inc. 2013 Restricted Stock Unit Plan (the "IPtronics Plan").

Assumed EZchip restricted stock units

In connection with the acquisition of EZchip, the Company assumed 891,822 unvested EZchip RSUs and converted them into 499,894 Mellanox RSUs using an exchange ratio of 0.56. The aggregate value of the 499,894 Mellanox RSUs was $23.2 million of which $1.0 million related to service prior to the acquisition date and was included in the EZchip purchase price consideration. The remaining fair value of $22.2 million represents post-acquisition share-based compensation expense that will be recognized over the requisite service period of approximately 2.25 years from the date of acquisition. The assumed RSUs retained all applicable terms and vesting periods.

Share option activity

Share option activity under the Company's equity incentive plans in the six months ended June 30, 2016 is set forth below:



	Options Outstanding
	Number of Shares		Weighted Average Exercise Price
Outstanding at December 31, 2015	2,028,595		$	30.81
Options exercised	(198,808	)	$	15.83
Options canceled	(30,982	)	$	83.46
Outstanding at June 30, 2016	1,798,805		$	31.55

The total pretax intrinsic value of options exercised in the six months ended June 30, 2016 and 2015 was $6.5 million and $8.6 million. This intrinsic value represents the difference between the fair market value of the Company's ordinary shares on the date of exercise and the exercise price of each option. Based on the closing price of the Company's ordinary shares of $47.96 on June 30, 2016, the total pretax intrinsic value of options outstanding at June 30, 2016 and December 31, 2015 was $42.9 million and $40.2 million, respectively.

The total pretax intrinsic value of exercisable options at June 30, 2016, was $42.7 million. The total pretax intrinsic value of exercisable options at December 31, 2015 was $39.9 million.

Restricted share unit activity

RSU activity under the Company's equity incentive plans in the six months ended June 30, 2016 is set forth below:



	Restricted Share Units Outstanding
	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested restricted share units at December 31, 2015	2,205,083		$	44.39
Assumed restricted share units from acquisition	499,894		$	46.40
Restricted share units granted	1,784,626		$	48.75
Restricted share units vested	(559,048	)	$	45.07
Restricted share units canceled	(151,259	)	$	45.14
Non-vested restricted share units at June 30, 2016	3,779,296		$	46.58

The weighted average fair value of RSUs granted in the six months ended June 30, 2016 and 2015 was $48.75 and $46.15, respectively.

The total intrinsic value of all outstanding restricted share units as of June 30, 2016 and December 31, 2015 was $181.3 million and $92.9 million, respectively.

Shares reserved for future issuance

The Company had the following ordinary shares reserved for future issuance under its equity incentive plans as of June 30, 2016:



	Number of Shares
Share options outstanding	1,798,805
Restricted share units outstanding	3,779,296
Shares authorized for future issuance	613,647
ESPP shares available for future issuance	4,267,370
Total shares reserved for future issuance as of June 30, 2016	10,459,118

Share-based compensation

The Company accounts for share-based compensation expense based on the estimated fair value of the share equity awards as of the grant dates.

The following weighted average assumptions were used to value ESPP shares issued pursuant to the Company's share incentive plans for the six months ended June 30, 2016 and 2015:



	Six Months Ended June 30,
	2016		2015
Dividend yield	—	%	—	%
Expected volatility	37.6	%	38.1	%
Risk free interest rate	0.50	%	0.09	%
Expected life, years	0.5		0.5

The following table summarizes the distribution of total share-based compensation expense in the unaudited condensed consolidated statements of operations:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(in thousands)
Cost of goods sold	$	671	$	610	$	1,146	$	1,157
Research and development	10,770		7,553		19,922		14,321
Sales and marketing	3,889		2,750		7,537		5,144
General and administrative	2,764		2,373		7,755		4,382
Total share-based compensation expense	$	18,094	$	13,286	$	36,360	$	25,004

At June 30, 2016 there was $143.5 million of total unrecognized share-based compensation costs related to non-vested share-based compensation arrangements. The costs are expected to be recognized over a weighted average period of approximately 2.4 years.