Employee and Executive long-Term Incentive Plan
The Company has adopted various stock option plans and has entered into stock option agreements with various employees. Under these plans, employees may purchase a specific number of shares of the Company’s common stock. Options are priced at market value in euro or US dollars on the date of grant.
2011 Long-term incentive plan
In 2011 a Stock option plan was adopted. In this plan to limit potential dilution, the amount of outstanding (vested and non-vested) options granted to the Management Board and to other employees will not exceed 7.5% of the issued ordinary share capital of ASMI. The Stock option plan 2011 consists of two sub-plans: the ASMI Stock option plan for employees (ESOP) and the ASMI Stock option for members of the Management Board (MSOP).
For employees and existing Management Board members the grant date for all options granted is December 31 of the relevant year. In each of these situations the three year vesting period starts at the grant date. The exercise price in euro of all options issued under the SOPS is determined on the basis of the market value of the ASMI shares at (i.e. immediately prior to) the grant date.
The exercise period is four years starting at the third anniversary of the vesting date.
2014 Long-Term incentive plan
In 2014 a new Long-term incentive plan was adopted. In the new plan to limit potential dilution, the amount of outstanding (vested and non-vested) options and shares granted to the Management Board and to other employees will not exceed 5% of the issued ordinary share capital of ASMI. The new Long-term incentive plan 2014 consists of two sub-plans: the ASM International NV 2014 Long -term incentive plan for employees (ELTI) and the ASM International NV 2014 Long-term incentive plan for members of the Management Board (MLTI).
Options and performance shares are issued to Management Board members and restricted shares are issued to employees once per annum on the date following the publication of the first quarter results of the relevant year. Possible grant to newly hired employees can be issued once a quarter, on the date following the publication of the financial results of the relevant quarter. The number of options and shares outstanding under the Long-Term Incentive plans or under any other plan or arrangement in aggregate may never exceed 5% of ASMI’s share capital. In accordance with the ASMI Remuneration Policy an exception is made for a transition period of four years, during which the dilution may exceed 5% but will not exceed 7.5%
Authority to issue options and shares
By resolution of the Annual General Meeting of May 21, 2014 the formal authority to issue options and shares was allocated to the Management Board subject to the approval of the Supervisory Board. This authority is valid for 18 months and needs to be refreshed annually by the AGM to allow the continued application of the LTI plans beyond November 20, 2015. The ELTI is principally administered by the Management Board and the MLTI is principally administered by the Supervisory Board. This complies with applicable corporate governance standards. However, the Supervisory Board has no power to represent the Company. For external purposes the Management Board remains the competent body under both LTI plans. The LTI plans envisage that the Supervisory Board, or - in the case of the ELTI - the Management Board with the approval of the Supervisory Board, will determine the number of options and shares to be granted to the Management Board members and to employees.
Outstanding options and shares
At December 31, 2014, options to purchase 2,172,455 shares have been issued under the 2011 Stock option plan representing 4.4% of the shares outstanding per December 31, 2014. Under previous plans no more options to purchase shares can be issued. Under the various stock option plans a total of 2,789,561 options to purchase common stock were outstanding at December 31, 2014, expiring at various dates through 2020. The number of options outstanding at December 31, 2013 and 2014 were 3,308,502 and 2,789,561 respectively. The number of restricted shares outstanding at December 31, 2014 was 10,215.
Following the sale of a 12% share of ASMPT on March 15, 2013, a capital distribution of €4.25 per common share was effectuated on July 25, 2013. As a result of this capital distribution the underlying value of ASMI option holders was diluted. The Management Board of ASMI and the Supervisory Board of ASMI decided to apply a theoretical adjustment ratio of 0.84794 to the outstanding options granted to employees including members of the Management Board as determined based on the specific rules issued and applied by NYSE Liffe. These specific rules issued by NYSE Liffe are similar to the adjustment ratio as applied to traded securities that are also not entitled to receive the capital distribution. Under these rules a theoretical adjustment ratio was determined based on the value and the effective date of the capital distribution and this ratio was applied to adjust the original number of the options and the original exercise price of the outstanding options.
The following is a summary of changes in options outstanding:
|Number of options||Weighted average exercise price in €||Number of options||Weighted average exercise price in US$|
|Balance January 1, 2013||1,924,688||22.22||400,400||20.94|
|Balance July 25, 2013||1,876,088||22.26||346,510||21.72|
|Adjustment following capital distribution||336,446||18.88||62,145||18.42|
|Balance December 31, 2013||2,920,352||20.22||388,150||18.75|
|Balance December 31, 2014||2,703,336||20.49||86,225||21.18|
The weighted average fair values of employee stock option granted in euro were €10.22 in 2013.
As a result of the newly adopted 2014 Long-term incentive plan under which restricted shares, performance shares and employee stock options may be granted in the period following the publication of the first quarterly results no stock options were granted in 2014.
The total intrinsic value of options exercised was €7,311 for the year ended December 31, 2014 (2013: €1,651). In 2013 and 2014 new shares have been issued for the exercise of 125,402 options and 354,650 options respectively.
On December 31, 2014 options outstanding and options exercisable classified by range of exercise prices are:
|Options outstanding||Options exercisable|
|Range of exercise prices||Number outstanding||Weighted average remaining contractual life||Weighted average exercise price||Number exercisable||Weighted average exercise price|
|In US$||In years||In US$||In US$|
|In EUR||In years||In EUR||In EUR|
At December 31, 2014, the aggregate intrinsic value of all options outstanding and all options exercisable is €41,019 and €22,504 respectively.
The cost relating to employee stock options is measured at fair value on the grant date. The fair value was determined using the Black-Scholes option valuation model with the following weighted average assumptions:
|Expected life (years)||7|
|Risk free interest rate||2.93%|
No employee stock options were granted during 2014.
The expected volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the the last three years.
The grant date fair value of the stock options is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of stock options that will eventually vest. The impact of the true up of the estimates is recognized in the consolidated statement of operations in the period in which the revision is determined. We recorded compensation expenses of €7,417 for 2014 (2013: €4,440). The compensation expenses for 2014 include a true up for a lower non-vesting assessment of €971.
Restricted shares outstanding
As a result of the newly adopted 2014 Long-term incentive plan under which restricted shares, performance shares and employee options may be granted in the period following the publication of the first quarterly results no shares were granted in 2014. During the year 2014 restricted shares were granted to new hired employees only. The number of restricted shares outstanding at December 31, 2014 was 10,215.