CAPITAL STOCK

Stock Plans

The 2005 Long-Term Incentive Compensation Plan (the “2005 Incentive Compensation Plan”) permits the award of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, deferred stock/restricted stock units, other stock units and performance shares to the Company’s key employees, officers and directors. The 2005 Incentive Compensation Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”) consisting of five independent members of our Board of Directors.

The maximum number of shares available for award under the 2005 Incentive Compensation Plan is 19,824,920. The maximum number of shares that may be issued pursuant to incentive stock options may not exceed 500,000. Any shares that are subject to the award of stock options shall be counted against this limit as one share for every one share issued. Any shares that are subject to awards other than stock options shall be counted against this limit as 3.02 shares for every one share granted. The total shares available for future grant as of March 31, 2018 were 4,534,161.

Stock-Based Compensation

Compensation cost related to stock-based transactions is recognized in the consolidated financial statements based on fair value. The total amount of stock-based compensation expense, which is recorded on a straight line basis, was as follows:



(In thousands)	2018	2017	2016
Selling, general and administrative expenses	$9,960	$6,894	$5,183
Research and development	2,114	1,549	1,060
Cost of goods sold	951	707	706
	$13,025	$9,150	$6,949

Stock Options

Options are granted to purchase ordinary shares at prices as determined by the Committee, but in no event shall such exercise price be less than the fair market value of the common stock at the time of the grant. Options generally vest in equal installments over a four year period for employees and one year from grant for non-employee directors. Options expire not more than 7 years from the date of the grant. The grant-date fair value of options, adjusted for estimated forfeitures, is recognized as expense on a straight line basis over the requisite service period, which is generally the vesting period. Forfeitures are estimated based on historical experience.

A summary of stock option activity for the fiscal year ended March 31, 2018 is as follows:



	Options Outstanding (shares)		Weighted Average Exercise Price per Share		Weighted Average Remaining Life (years)	Aggregate Intrinsic Value ($000’s)
Outstanding at April 1, 2017	2,038,795		$	35.51	3.88	$	10,963
Granted	368,507		41.96
Exercised	(1,027,727	)	36.64
Forfeited/Canceled	(182,137	)	34.51
Outstanding at March 31, 2018	1,197,438		$	36.68	4.71	$	43,685

Exercisable at March 31, 2018	429,084		$	36.24	2.92	$	15,843

Vested or expected to vest at March 31, 2018	1,066,789		$	36.55	4.57	$	39,051

The total intrinsic value of options exercised was $15.4 million, $8.3 million and $4.5 million during fiscal 2018, 2017 and 2016, respectively.

As of March 31, 2018, there was $5.4 million of total unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted average period of 2.71 years.

The fair value was estimated using the Black-Scholes option-pricing model based on the average of the high and low stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of our common stock over the expected term of the option. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued. The expected life of the option was estimated with reference to historical exercise patterns, the contractual term of the option and the vesting period.

The assumptions utilized for option grants during the periods presented are as follows:



	2018			2017			2016
Volatility	24.2		%	24.0		%	22.8		%
Expected life (years)	4.8			4.9			4.9
Risk-free interest rate	1.7		%	1.2		%	1.4		%
Dividend yield	0.0		%	0.0		%	0.0		%
Fair value per option	$	10.25		$	7.61		$	7.40

Restricted Stock Units

Restricted Stock Units ("RSUs") generally vest in equal installments over a four year period for employees and one year from grant for non-employee directors. The grant-date fair value of RSUs, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The fair market value of RSUs is determined based on the market value of the Company’s shares on the date of grant.

A summary of RSU activity for the fiscal year ended March 31, 2018 is as follows:



	Shares		Weighted Average Grant Date Fair Value
Unvested at April 1, 2017	341,641		$	33.16
Granted	269,905		41.87
Vested	(133,906	)	33.03
Forfeited	(59,926	)	34.58
Unvested at March 31, 2018	417,714		$	38.95

The weighted-average grant-date fair value of RSUs granted and total fair value of RSUs vested were as follows:



	2018		2017		2016
Grant-date fair value per RSU	$	41.87	$	32.61	$	33.19
Fair value of RSUs vested	$	33.03	$	34.98	$	36.07

As of March 31, 2018, there was $12.2 million of total unrecognized compensation cost related to non-vested restricted stock units. This cost is expected to be recognized over a weighted average period of 2.5 years.

Performance Stock Units

The grant date fair value of Performance Stock Units ("PSUs"), adjusted for estimated forfeitures, is recognized as expense on a straight line basis from the grant date through the end of the performance period. The value of these PSUs is generally based on relative shareholder return which equals total shareholder return for the Company as compared to total shareholder return of the PSU comparison group, measured over a three year performance period. Depending on the Company's relative performance during the performance period, a recipient of the award is entitled to receive a number of ordinary shares equal to a percentage, ranging from 0% to 200%, of the award granted. As a result, we may issue up to 751,789 shares related to these awards. If the Company’s total shareholder return for the performance period is negative, then any share payout will be capped at 100% of the target award, regardless of the Company's performance relative to the Company's comparison group.

PSUs granted in fiscal 2016 have a comparison group consisting of the Standard and Poor's ("S&P") Health Care Equipment Index, while PSUs granted in fiscal 2018 and 2017 have a comparison group consisting of the S&P Small Cap 600 and the S&P Mid Cap 400 indices.

In addition to these relative shareholder return PSUs, the Company's Chief Executive Officer received a PSU grant during both fiscal 2018 and 2017 with performance conditions based on the financial results of the Company and other internal metrics.

A summary of PSU activity for the fiscal year ended March 31, 2018 is as follows:



	Shares		Weighted Average Grant Date Fair Value
Unvested at April 1, 2017	284,625		$	33.66
Granted	179,616		46.49
Vested	(13,212	)	35.09
Forfeited	(62,922	)	33.16
Unvested at March 31, 2018	388,107		$	39.63

The Company uses the Monte Carlo model to estimate the probability of satisfying the performance criteria and the resulting fair value of PSU awards with market conditions. The assumptions used in the Monte Carlo model for PSUs granted during each year were as follows:



	2018		2017		2016
Expected stock price volatility	26.11	%	26.39	%	22.27	%
Peer group stock price volatility	34.13	%	33.86	%	31.95	%
Correlation of returns	49.51	%	51.17	%	26.27	%

The weighted-average grant-date fair value of PSUs granted was $46.49, $34.07 and $29.20 in fiscal 2018, 2017 and 2016 respectively.

As of March 31, 2018, there was $9.7 million of total unrecognized compensation cost related to non-vested performance share units. This cost is expected to be recognized over a weighted average period of 1.9 years.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (the “Purchase Plan”) under which a maximum of 3,200,000 shares (subject to adjustment for stock splits and similar changes) of common stock may be purchased by eligible employees. Substantially all of our full-time employees are eligible to participate in the Purchase Plan.

The Purchase Plan provides for two “purchase periods” within each of our fiscal years, the first commencing on November 1 of each year and continuing through April 30 of the next calendar year, and the second commencing on May 1 of each year and continuing through October 31 of such year. Shares are purchased through an accumulation of payroll deductions (of not less than 2% or more than 15% of compensation, as defined) for the number of whole shares determined by dividing the balance in the employee’s account on the last day of the purchase period by the purchase price per share for the stock determined under the Purchase Plan. The purchase price for shares is the lower of 85% of the fair market value of the common stock at the beginning of the purchase period, or 85% of such value at the end of the purchase period.

The fair values of shares purchased under the Employee Stock Purchase Plan are estimated using the Black-Scholes single option-pricing model with the following weighted average assumptions:



	2018		2017		2016
Volatility	22.6	%	31.3	%	21.1	%
Expected life (months)	6		6		6
Risk-free interest rate	1.2	%	0.5	%	0.2	%
Dividend Yield	0.0	%	0.0	%	0.0	%

The weighted average grant date fair value of the six-month option inherent in the Purchase Plan was approximately $9.66, $7.79 and $7.80 during fiscal 2018, 2017 and 2016, respectively.