NOTE 5. Stock-Based Compensation

The Company has two stock-based compensation plans. Neither of the Company’s stock-based awards under these plans are classified as liabilities. The Company recorded stock-based compensation expense for the three and nine months ended September 26, 2015 and September 27, 2014 as follows:


	Three Months Ended				Nine Months Ended
	September 26,		September 27,		September 26,		September 27,
(in thousands)	2015		2014		2015		2014
Cost of revenues	$	266	$	226	$	803	$	681
Research and development, net		2,266		1,990		7,510		6,540
Selling, general and administrative		2,658		3,012		9,681		9,113
Total	$	5,190	$	5,228	$	17,994	$	16,334

The Company received cash of $37.0 million related to the issuance of common stock during the nine months ended September 26, 2015 (September 27, 2014 - $17.9 million).

Equity Award Plans

The Company issues its equity awards under the provisions of its equity plans. Stock options are granted with an exercise price equal to the closing market price of the Company’s common stock at the grant date. The options generally expire within 10 years and vest over four years.

Activity under the option plans during the nine months ended September 26, 2015 was as follows:


	Number of options	Weighted average exercise price per share		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Outstanding, December 27, 2014	18,316,720	$	7.53	4.41	$	32,598,999
Granted	847,892	$	6.73
Exercised	(4,017,595)	$	6.66
Forfeited	(136,344)	$	6.55
Expired	(1,025,118)	$	9.48
Outstanding, September 26, 2015	13,985,555	$	7.60	4.27	$	2,734,065
Vested and expected to vest, September 26, 2015	13,731,955	$	7.62	4.18	$	2,722,645
Exercisable, September 26, 2015	12,046,856	$	7.75	3.53	$	2,509,015

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock for the options that were in-the-money at September 26, 2015. Total forfeitures recorded amounted to $0.7 million and $1.8 million during the nine months ended September 26, 2015, and September 27, 2014, respectively.

The fair value of the Company’s stock option awards granted to employees is estimated using a lattice-binomial valuation model. This model considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option. The model requires the input of highly subjective assumptions including the expected stock price volatility and expected life.

The Company’s estimates of expected volatilities are based on a weighted historical and market-based implied volatility. The Company uses historical data to estimate option exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is based on historical activity and represents the period of time that granted options are expected to be outstanding. The risk-free rate for periods within the expected life of the stock option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair values of the Company’s stock option awards were calculated for expense recognition using an estimated forfeiture rate, assuming no expected dividends and using the following weighted average assumptions:


	Nine Months Ended
	September 26,	September 27,
	2015	2014
Expected life (years)	5.9	5.8
Expected volatility	30%	33%
Risk-free interest rate	1.8%	1.8%

The weighted average grant-date fair value per stock options granted during the nine months ended September 26, 2015 was $2.11 (September 27, 2014 - $2.29). The total intrinsic value of stock options exercised during the nine months ended September 26, 2015 was $9.6 million (September 27, 2014 - $2.3 million).

As of September 26, 2015, there was $3.5 million of total unrecognized compensation costs related to unvested stock options granted under the plans, which is expected to be recognized over an average period of 2.9 years.

Restricted Stock Units

The Company has various stock award plans that allow for the issuance of Restricted Stock Units (“RSUs”) to employees and directors.

On February 25, 2015, the Company made its annual grant of RSU awards to Executives based on the second performance-based program tied to Non-GAAP operating income targets for 2015-2017. The total fair value of these 2015 grants was estimated at $3.8 million and will be recognized as compensation expense over the award’s vesting terms, with 34% vesting on February 25, 2016, 33% on February 25, 2017 and 33% vesting on February 25, 2018. On August 25, 2015, the Company made its annual grant of RSU awards to Executives. The performance metric applicable to the RSUs granted under the first program remain based on the degree of achievement of Total Shareholder Return (“TSR”) relative to Global Industry Classification Standards (“GICS’) Semiconductor Companies (8-Digit) for the Performance Period (July 1, 2015 - June 30, 2017). The total estimated $1.5 million fair value of these 2015 awards will be recognized as compensation expense over the award’s vesting terms, with 50% vesting on August 25, 2017 and 50% vesting on August 25, 2018.

A summary of RSU activity during the nine months ended September 26, 2015 is as follows:


	Restricted Stock Units	Weighted Average Remaining Contractual Term (years)			Aggregate intrinsic value
Unvested units at December 27, 2014	7,368,529		1.73	$	67,200,984
Awarded	3,492,249		-		—
Released	(2,242,344)		-		—
Forfeited	(712,317)		-		—
Unvested units at September 26, 2015	7,906,117		1.83	$	50,361,965
Restricted Stock Units expected to vest at September 26, 2015	6,784,932		1.73	$	43,220,018

The intrinsic value of RSUs vested during the nine months ended September 26, 2015 was $14.9 million. As of September 26, 2015, total unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested RSUs was $41.0 million, which is expected to be recognized over the next 2.8 years.

Employee Stock Purchase Plan (“ESPP”)

The Company’s 2011 Employee Stock Purchase Plan (the “2011 Plan”) was approved by stockholders at the 2010 Annual Meeting. The 2011 Plan became effective on February 11, 2011. Up to 12,000,000 shares of our Common Stock have been initially reserved for issuance under the 2011 Plan. At the Company’s 2015 annual stockholders meeting, the stockholders approved an increase of 7,000,000 shares of Common Stock to the 2011 Plan.

During the nine months ended September 26, 2015, 1,727,159 shares were issued under the 2011 Plan at a weighted average price of $5.91 per share. As of September 26, 2015, 2,653,049 shares were available for future issuance under the 2011 Plan compared to 4,380,208 as at December 27, 2014. The valuation inputs utilized to determine the grant date fair value per ESPP award granted were as follows:


	Nine Months Ended
	September 26,	September 27,
	2015	2014
Expected life (years)	0.5	0.5
Expected volatility	34%	35%
Risk-free interest rate	0.2%	0.1%

The weighted average grant date fair value per ESPP award granted during the first nine months of 2015 was $1.93. The total intrinsic value of ESPP shares issued during the first nine months of 2015 was $3.7 million. As of September 26, 2015, total unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested ESPP awards was $1.1 million which is expected to be recognized over the next four months.