Employee Benefits and Share-Based Compensation

Stock purchase plan

1997 Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan ("ESPP"), under which employees can purchase shares of its common stock based on a percentage of their compensation, but not greater than 15% of their earnings; provided, however, an eligible employee's right to purchase shares of the Company's common stock may not accrue at a rate which exceeds $25,000 of the fair market value of such shares for each calendar year in which such rights are outstanding. The purchase price per share must be equal to the lower of 85% of the fair value of the common stock at the beginning of a 24-month offering period or the end of each six-month purchasing period.

There was a total of 2.4 million shares reserved for future issuance under the ESPP as of December 31, 2017.

Stock award plans

2009 Equity Incentive Plan

The 2009 Equity Incentive Plan (“2009 Plan”), as amended, provides for the issuance of incentive stock options, restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance stock unit awards ("PSUs"), and other stock awards to the Company's employees, directors and consultants. There were 5.5 million shares of common stock reserved for future issuance under the 2009 Plan as of December 31, 2017.

Options granted under the 2009 Plan become exercisable over periods of up to four years, with one-fourth of the shares vesting one year from the vesting commencement date with respect to initial grants, and the remaining shares vesting in 36 equal monthly installments thereafter. The exercise prices of the options is the fair market value of common stock on the date of grant. RSUs generally vest over periods of up to four years, with one-fourth of the shares vesting one year from the vesting commencement date with respect to initial grants, and the remaining shares vesting in 12 equal quarterly installments thereafter. Awards of restricted stock to non-employee directors are granted on the date of the annual meeting of stockholders and vest in full on the date of the next annual meeting of stockholders, provided such non-employee director remains a director on such date. The fair value of the awards on the date of issuance is amortized to expense from the date of grant to the date of vesting and are expensed ratably on a straight-line basis over the vesting period. PSUs granted to the Company’s executives might include performance and market conditions. PSUs become eligible for vesting when certain market or performance conditions are met.

Share-based compensation expense

The following table sets forth the total share-based compensation expense recognized in the Company's Consolidated Statements of Operations:



	Year Ended December 31,
	2017		2016		2015
	(In thousands)
Cost of product and service revenues	$	3,478	$	2,596	$	2,111
Research and development	3,590		3,128		2,060
Selling, general and administrative	14,789		13,776		10,750
Total share-based compensation expense	$	21,857	$	19,500	$	14,921

The Company did not capitalize any share-based compensation as inventory as such amounts were not material for the years ended December 31, 2017, December 31, 2016 and December 31, 2015. Income tax benefits realized from share-based compensation were $8.2 million, $5.4 million and $5.0 million, for the years ended December 31, 2017, December 31, 2016 and December 31, 2015, respectively.

Stock Options and ESPP Shares

The following assumptions were used to value share options and ESPP shares granted pursuant to our equity incentive

plans:



	Year Ended December 31,
	2017		2016		2015
Stock Option Plans
Risk-free interest rate	1.9	%	1.5	%	1.7	%
Dividend yield	—	%	—	%	—	%
Expected volatility	29.6	%	30.6	%	32.0	%
Expected life (in years)	4.7 years		4.9 years		5.0 years



	Year Ended December 31,
	2017		2016		2015
Employee Stock Purchase Plan
Risk-free interest rate	0.52% - 1.39%		0.34% - 0.79%		0.03% - 0.79%
Dividend yield	—	%	—	%	—	%
Expected volatility	25.8% - 32.8%		25.8% - 34.8%		25.7% - 37.5%
Expected life (in years)	0.5 - 2.0		0.5 - 2.0		0.5 - 2.0

Stock options activity

A summary of the stock option activity under the 2009 Plan is presented below:



	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Years	Aggregate Intrinsic Value
	(In thousands, except per share data)
Outstanding at December 31, 2016	3,214		$	26.06	7.3	$	26,331
Granted (Awarded)	1,045		$	45.13
Exercised (Released)	(813	)	$	22.28
Expired	(6	)	$	27.54
Forfeited	(117	)	$	33.39
Outstanding at December 31, 2017	3,323		32.72		7.6	$	53,953
Exercisable at December 31, 2017	1,350		23.87		5.8	33,293
Vested and expected to vest at December 31, 2017 and thereafter	3,323		32.72		7.6	$	53,953

The weighted-average fair value per share of options granted during 2017, 2016 and 2015 was $13.25, $9.33 and $9.67, respectively. The intrinsic value of options exercised during 2017, 2016 and 2015 was $18.2 million, $5.6 million and $11.3 million, respectively.

As of December 31, 2017, total unrecognized compensation cost related to unvested stock options was $18.9 million, which is expected to be recognized over a weighted-average vesting period of 2.9 years. As of December 31, 2016, total unrecognized compensation cost related to unvested stock options was $13.3 million, which is expected to be recognized over a weighted-average vesting period of 3.0 years.

Employee Stock Purchase Plan activity

For the year ended December 31, 2017, employees purchased 0.5 million shares of common stock under the ESPP and an aggregate of 6.0 million shares were issued under the ESPP as of December 31, 2017.

The unrecognized compensation cost related to the shares to be purchased under the ESPP was approximately $0.9 million, and is expected to be recognized over a weighted-average period of 1.3 years as of December 31, 2017.

Restricted Stock Units and Restricted Stock Awards

Summaries of the restricted stock activity under the 2009 Plan are presented below:



	Number of Shares		Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Years	Aggregate Intrinsic Value
	(In thousands, except per share data)
Restricted Stock Units
Non-vested at December 31, 2016	505		$	31.42	1.6	$	17,135
Granted (Awarded)	245		45.97
Vested (Released)	(215	)	30.41
Forfeited	(34	)	32.39
Non-vested at December 31, 2017	501		38.90		1.5	$	24,293

The weighted-average grant date fair value per share of RSUs granted during 2017, 2016 and 2015 was $45.97, $32.58 and $31.44, respectively. The total fair value of RSUs that vested in 2017, 2016 and 2015 was $6.5 million, $4.8 million and $4.7 million, respectively.

As of December 31, 2017, total unrecognized compensation cost related to RSUs was $16.1 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.7 years. As of December 31, 2016, total unrecognized compensation cost related to RSUs was $12.8 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.9 years.



	Number of Shares		Weighted-Average Grant Date Fair Value
	(In thousands, except per share data)
Restricted Stock Awards
Non-vested at December 31, 2016	30		$	31.57
Granted (Awarded)	23		41.10
Vested (Released)	(30	)	31.58
Non-vested at December 31, 2017	23		$	41.07

The weighted-average grant date fair value per share of RSAs granted during 2017, 2016 and 2015 was $41.10, $31.59 and $36.05, respectively. The total fair value of RSAs that vested in 2017, 2016 and 2015 was $1.0 million, $1.2 million and $1.1 million, respectively.

As of December 31, 2017, total unrecognized compensation cost related to RSAs was $0.3 million, which is expected to be recognized over the remaining weighted-average vesting period of 0.4 years. As of December 31, 2016, total unrecognized compensation cost related to RSAs was $0.4 million, which was expected to be recognized over the remaining weighted-average vesting period of 0.4 years.

Performance-based Restricted Stock Units

In 2011, the Company began incorporating performance-based restricted stock units ("PSUs") as an element of its executive compensation plans. In 2016, the Company granted 122,740 PSUs to its executive officers, all of which became eligible for vesting upon the achievement of a certain level of shareholder return. In 2017, the Company granted 147,830 PSUs to its executive officers, all, none or a portion of which may become eligible for vesting depending on the level of shareholder return for the period from March 1, 2017 through March 1, 2018.

The fair value of a PSU award is determined using a Monte Carlo simulation model. The number of shares that vest at the end of the performance period depends on the percentile ranking of the total shareholder return for Omnicell stock over the performance period relative to the total shareholder return of each of the other companies in the NASDAQ Healthcare Index (the "Index").

For PSUs granted on February 8, 2017, stock price appreciation is calculated based on the trailing 20-day average stock price just prior to the first trading day of March 2017, compared to the trailing 20-day average stock price just prior to the first trading day of March 2018. For PSUs granted on February 4, 2016, stock price appreciation is calculated based on the trailing 20-day average stock price just prior to the first trading day of March 2016, compared to the trailing 20-day average stock price just prior to the first trading day of March 2017.

On March 7, 2016, the Compensation Committee confirmed 66.0% as the percentile rank of the Company's 2016 total stockholder return. This resulted in 100% of the 2015 PSUs, or 60,000 shares, as eligible for further time-based vesting. The eligible PSUs will vest as follows: 25% of the eligible shares vested immediately on March 7, 2016 with the remaining eligible awards vesting in equal increments, semi-annually, over the subsequent three-year period beginning on June 15th and December 15th of the year after the date of grant and each subsequent year. Vesting is contingent upon continued service. Of the 60,000 shares eligible for time-based vesting under the 2015 PSUs, 45,000 shares have vested as of December 31, 2017.

On March 7, 2017, the Compensation Committee confirmed 71.5% as the percentile rank of the Company's 2017 total stockholder return. This resulted in 100% of the 2016 PSUs, or 122,740 shares, as eligible for further time-based vesting. The eligible PSUs will vest as follows: 25% of the shares vested immediately on March 7, 2017 with the remaining shares vesting on a semi-annual basis period of 36 months commencing on June 15, 2017. Vesting is contingent upon continued service. Of the 122,740 shares eligible for time-based vesting under the 2016 PSUs, 61,375 shares have vested as of December 31, 2017.

A summary of the performance-based restricted stock activity under the 2009 Plan is presented below:



	Number of Shares		Weighted-Average Grant Date Fair Value Per Unit
	(In thousands, except per share data)
Non-vested at December 31, 2016	184		$	24.89
Granted (Awarded)	148		34.05
Vested (Released)	(107	)	24.36
Non-vested at December 31, 2017	225		$	31.18

The weighted-average grant date fair value per share of PSUs granted during 2017, 2016 and 2015 was $34.05, $24.66 and $29.56, respectively. The total fair value of PSUs that vested in 2017, 2016 and 2015 was $2.6 million, $2.0 million and $1.9 million, respectively.

As of December 31, 2017, total unrecognized compensation cost related to PSUs was approximately $2.7 million, which is expected to be recognized over the remaining weighted-average period of 1.2 years. As of December 31, 2016, total unrecognized compensation cost related to PSUs was approximately $1.6 million, which was expected to be recognized over the remaining weighted-average period of 1.2 years.

Summary of Shares Reserved for Future Issuance under Equity Incentive Plans

The Company had the following ordinary shares reserved for future issuance under its equity incentive plans as of December 31, 2017:



		Number of Shares
		(In thousands)
Share options outstanding		3,323
Non-vested restricted stock awards		749
Shares authorized for future issuance		1,398
ESPP shares available for future issuance		2,365
Total shares reserved for future issuance		7,835

401(k) Plan

The Company has established a pre-tax savings plan under Section 401(k) of the Internal Revenue Code. The 401(k) Plan allows eligible employees in the United States to voluntarily contribute a portion of their pre-tax salary, subject to a maximum limit specified in the Internal Revenue Code. The Company matches 50% of employee contributions up to $2,500, annually. The Company's contributions under this plan were $3.8 million, $1.9 million and $1.8 million in 2017, 2016 and 2015, respectively.