Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.6.0.2
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation and Employee Benefit Plans
Stock-Based Compensation and Employee Benefit Plans
Common Stock
At December 31, 2016, the Company had 500 million authorized shares of Class A common stock and 500 million authorized shares of Class B common stock. Holders of the Company’s Class A and Class B common stock have identical voting rights, except that holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to ten votes per share with respect to transactions that would result in a change of control of the Company or that relate to the Company’s equity incentive plans. In addition, holders of Class B common stock have the exclusive right to elect two members of the Company’s Board of Directors, each referred to as a Class B Director. The shares of Class B common stock are not publicly traded. Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock and in most instances automatically converts upon sale or other transfer. On March 29, 2017, each share of the Company’s then outstanding Class A common stock and Class B common stock will convert automatically into a single class of common stock pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation. Following the conversion, each share of common stock will be entitled to one vote per share and otherwise have the same designations, rights, powers and preferences as the Class A common stock prior to the conversion. In addition, holders of the common stock will vote as a single class of stock on any matter that is submitted to a vote of stockholders.
Employee Benefit Plans
At December 31, 2016, the Company had stock-based compensation awards outstanding under the following plans: the 2004 Stock Plan, the 2010 Equity Incentive Plan, as amended, or 2010 Plan, and the 2010 Employee Stock Purchase Plan, or ESPP, as well as the following former Entropic plans: the RF Magic 2000 Incentive Stock Plan, the 2001 Stock Option Plan, the 2007 Equity Incentive Plan, the 2007 Non-Employee Director's Plan and the 2012 Inducement Award Plan. All current stock awards are issued under the 2010 Plan and ESPP.
2010 Equity Incentive Plan
The 2010 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards, and other forms of equity compensation, or collectively, stock awards. The aggregate number of shares of Class A common stock that may be issued pursuant to stock awards under the 2010 Plan will increase by any shares subject to stock options or other awards granted under the 2004 Stock Plan that expire or otherwise terminate without having been exercised in full and shares issued pursuant to awards granted under the 2004 Stock Plan that are forfeited to or repurchased by the Company. In addition, the number of shares of common stock reserved for issuance will automatically increase on the first day of each fiscal year, equal to the lesser of: 2,583,311 shares of the Company’s Class A common stock; four percent (4%) of the outstanding shares of the Company’s Class A common stock and Class B common stock on the last day of the immediately preceding fiscal year; or such lesser amount as the Company’s board of directors may determine. Options granted will generally vest over a four year period and the term can be from seven to ten years. As of December 31, 2016, the number of shares reserved for issuance under the 2010 Plan is 10,689,175 shares.
2010 Employee Stock Purchase Plan
The ESPP authorizes the issuance of shares of the Company’s Class A common stock pursuant to purchase rights granted to the Company’s employees. The number of shares of the Company’s common stock reserved for issuance will automatically increase on the first day of each fiscal year, equal to the least of: 968,741 shares of the Company’s Class A common stock; one and a quarter percent (1.25%) of the outstanding shares of the Company’s Class A common stock and Class B common stock on the first day of the fiscal year; or such lesser amount as may be determined by the Company's board of directors or a committee appointed by the Company's board of directors to administer the ESPP. The ESPP is implemented through a series of offerings of purchase rights to eligible employees. Under the ESPP, the Company may specify offerings with a duration of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of the Company’s common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. Generally, all regular employees, including executive officers, employed by the Company may participate in the ESPP and may contribute up to 15% of their earnings for the purchase of the Company’s common stock under the ESPP. Unless otherwise determined by the Company’s board of directors, Class A common stock will be purchased for accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85% of the fair market value of a share of the Company’s Class A common stock on the first date of an offering or (b) 85% of the fair market value of a share of the Company’s Class A common stock on the date of purchase. As of December 31, 2016, the number of shares of common stock reserved for issuance under the ESPP is 967,545 shares.
Employee Incentive Bonus
In April 2012, the Company's compensation committee amended its Executive Incentive Bonus Plan to, among other things, permit the settlement of awards under the plan in the form of shares of its Class A common stock. In May 2013, the Company's compensation committee amended its Executive Incentive Bonus Plan to permit the settlement of awards under the plan in any combination of cash or shares of its Class A common stock. Additionally, the Company settles a majority of bonus awards for all other employees in Class A common stock. When awards under the Executive Incentive Bonus Plan are settled in Class A common stock issued under the 2010 Equity Incentive Plan, the number of shares issuable to plan participants is determined based on the closing sales price of the Company's Class A common stock as determined in trading on the New York Stock Exchange on the date approved by the Board of Directors. In August 2016, the Company issued 0.2 million freely-tradable shares of its Class A common stock in settlement of bonus awards to employees, including executives, for the January 1, 2016 to June 30, 2016 performance period. In May 2016, the Company issued 0.2 million shares of its Class A common stock in settlement of bonus awards to employees, including executives, for the July 1, 2015 to December 31, 2015 performance period. In August 2015, the Company issued 0.3 million freely-tradable shares of our Class A common stock in settlement of bonus awards to employees, including executives, for the January 1, 2015 to June 30, 2015 performance period. In May 2015, the Company issued 0.2 million freely-tradable shares of our Class A common stock in settlement of bonus awards to employees, including executives, for the fiscal 2014 performance period. At December 31, 2016, an accrual of $3.8 million was recorded for bonus awards for employees for the July 1, 2016 to December 31, 2016 performance period, which the Company intends to settle in shares of its Class A common stock to be issued under its 2010 Equity Incentive Plan, as amended, with the number of shares issuable to plan participants determined based on the closing sales price of the Company’s Class A common stock as determined in trading on the New York Stock Exchange at a date to be determined. The Company's compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.
Stock-Based Compensation
Stock-based compensation expense is classified in the consolidated statements of operations based on the department to which the related employee reports. The Company recognized stock-based compensation in the statements of operations as follows:
 
Years Ended December 31,
 
2016
 
2015
 
2014
 
(in thousands)
Cost of net revenue
$
210

 
$
213

 
$
131

Research and development
14,403

 
13,205

 
9,686

Selling, general and administrative
7,152

 
5,850

 
5,191

 
$
21,765

 
$
19,268

 
$
15,008


The total unrecognized compensation cost related to unvested stock options as of December 31, 2016 was $0.7 million, and the weighted average period over which these equity awards are expected to vest is 0.90 years. The total unrecognized compensation cost related to unvested restricted stock units and restricted stock awards as of December 31, 2016 was $44.1 million, and the weighted average period over which these equity awards are expected to vest is 2.67 years.
Stock Options
The Company uses the Black-Scholes valuation model to calculate the fair value of stock options and employee stock purchase rights granted to employees. Stock-based compensation expense is recognized over the vesting period using the straight-line method.
The fair values of stock options and employee stock purchase rights (related to the Company's ESPP) were estimated at their respective grant date using the following assumptions:
Stock Options
 
Years Ended December 31,
 
2016 (1)
 
2015 (1)
 
2014
Weighted-average grant date fair value per share
N/A
 
N/A
 
$
4.03

Risk-free interest rate
N/A
 
N/A
 
1.70
%
Dividend yield
N/A
 
N/A
 
—
%
Expected life (in years)
N/A
 
N/A
 
4.56

Volatility
N/A
 
N/A
 
51.00
%

__________________
(1)
No options were granted during the years ended December 31, 2016 and 2015.
Cash received from exercise of stock options was $3.6 million, $8.2 million and $0.3 million during the year ended December 31, 2016, 2015 and 2014, respectively. The tax benefit from stock options exercised was $5.7 million, $6.1 million and $0.4 million during the year ended December 31, 2016, 2015 and 2014, respectively.
Employee Stock Purchase Rights
 
Years Ended December 31,
 
2016
 
2015
 
2014
Weighted-average grant date fair value per share
$5.85 - $6.20

 
$2.25 - $5.02

 
$2.03 - $2.47

Risk-free interest rate
0.38 - 0.6%

 
0.09 - 0.33%

 
0.05 - 0.07%

Dividend yield
—
%
 
—
%
 
—
%
Expected life (in years)
0.50

 
0.50

 
0.50

Volatility
49.94 - 53.94%

 
32.65 - 59.14%

 
47.75 - 46.82%


The risk-free interest rate assumption was based on the United States Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The weighted-average expected life of options was calculated using the simplified method as prescribed by guidance provided by the SEC. This decision was based on the lack of historical data due to the Company’s limited number of stock option exercises under the 2010 Equity Incentive Plan.
A summary of the Company’s stock option activity is as follows:
 
Number of Options
(in thousands)
 
Weighted-Average Exercise Price
 
Weighted-Average Contractual Term
(in years)
 
Aggregate Intrinsic Value
(in thousands)
Outstanding at December 31, 2015
3,572

 
$
6.83

 
 
 
 
Granted (1)
—

 
N/A

 
 
 
 
Exercised
(492
)
 
5.13

 
 
 
 
Canceled
(55
)
 
24.15

 
 
 
 
Outstanding at December 31, 2016
3,025

 
$
6.78

 
2.73
 
$
45,603

Vested and expected to vest at December 31, 2016
3,018

 
$
6.78

 
2.73
 
$
45,522

Exercisable at December 31, 2016
2,760

 
$
6.65

 
2.62
 
$
41,991


___________________________
(1)
No options were granted during 2016.

The intrinsic value of stock options exercised during 2016, 2015 and 2014 was $6.5 million, $6.6 million and $0.6 million, respectively.
Restricted Stock Units and Restricted Stock Awards
The Company calculates the fair value of restricted stock units and restricted stock awards based on the fair market value of the Company’s Class A common stock on the grant date. Stock-based compensation expense is recognized over the vesting period using the straight-line method.
A summary of the Company’s restricted stock unit and restricted stock award activity is as follows:
 
Number of Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2015
3,642

 
$
9.19

  Granted
2,932

 
18.83

  Vested
(2,308
)
 
11.32

  Canceled
(596
)
 
13.55

Outstanding at December 31, 2016
3,670

 
14.67