Stock-Based Compensation

The Company’s 2003 Omnibus Equity Incentive Plan (the “2003 Plan”), as amended, provides for the grant of options and restricted stock to key employees, directors and consultants of the Company. The 2003 Plan is administered by the Compensation Committee of the Board of Directors, which is comprised only of independent directors, and which must approve individual awards to be granted, vesting and exercise of share conditions.

There is a total of 5.8 million shares of Common Stock, 19.7 million shares of Class A Common Stock and 500,000 shares of Preferred Stock authorized under the 2003 Plan. If and when the Company issues any shares of Preferred Stock under the 2003 Plan, it will reduce the amount of Class A Common Stock available for future issuance in an amount equal to the number of shares of Class A Common Stock that are issuable upon conversion of such Preferred Stock.

The Company has a Nonemployee Director Stock Option Plan (the “Director Plan”) which provides for the grant of options and restricted stock to nonemployee directors of the Company. The Director Plan, as amended, provides for the granting to each independent director of options to purchase a number of shares equal to $200,000 divided by the fair market value of the Company’s common stock on the date of each annual meeting of stockholders and a number of shares of restricted stock equal to $20,000 divided by such fair market value.

As of September 24, 2016, there were approximately 0.6 million shares of Common Stock, 5.1 million shares of Class A Common Stock and no shares of Preferred Stock reserved for outstanding equity awards, and there were approximately 4.1 million shares of Common Stock, 10.7 million shares of Class A Common Stock and 0.5 million shares of Preferred Stock remaining for future awards.

Stock Option Awards

The Company recognized share-based compensation expense of $8.4 million, $8.3 million, and $7.7 million for the years ended September 24, 2016, September 26, 2015 and September 27, 2014, respectively, as a component of selling, general and administrative expenses. Share-based compensation expense in fiscal 2016, 2015 and 2014 consisted of $2.2 million, $3.3 million, and $2.8 million, respectively, for stock options, and $4.5 million, $3.1 million and $3.0 million, respectively, for stock awards. Share-based compensation expense in fiscal 2016, 2015 and 2014 also includes $1.7 million, $1.9 million and $1.9 million, respectively, for the Company’s 401(k) matching contributions.

From fiscal 2008 to fiscal 2011, the Company granted stock options under its 2003 Plan that included performance targets and time-based vesting to key employees and executives. In March 2012, the Company eliminated all of the past and future performance goals relating to stock options granted from fiscal 2008 to fiscal 2011, except for the performance goals relating to the overall Company performance. The Company took this action because, as a result of the Company’s reorganization around functional lines during 2011, the extent to which cumulative performance targets for segments or business units have been or may be achieved became difficult or impossible to measure and the changes underway within the Company were not contemplated when the Company granted the options. After the amendment, 20% of the shares covered by each award continued to be performance-based. The time vested component of the options did not change. Approximately 250 employees were affected by the modification, and no additional compensation cost was recorded.

The performance-based component of the options granted in fiscal 2008, 2009, 2010 and 2011 were 100%, 60% , 20% and 0% achieved, respectively, and the related expense was recorded over the estimated service period. As of September 24, 2016, no unvested options remain for the options granted from fiscal 2008 to fiscal 2011 that were subject to performance based vesting criteria.

During fiscal 2016, the Company granted time-based stock options with an exercise price based on the closing fair market value on the date of the grant. The majority of the options granted in fiscal 2016 vest in four annual installments commencing approximately one year from the date of grant and expire approximately six years after the grant date.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. Expected stock price volatilities are estimated based on the Company’s historical volatility. The expected term of options granted is based on analyses of historical employee termination rates, option exercises and the contractual term of the option. The risk-free rates are based on U.S. Treasury yields, for notes with comparable terms as the option grants, in effect at the time of the grant. For purposes of this valuation model, no dividends have been assumed.

The Company’s calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life from the date of grant, 3.6 years in fiscal 2016 and 2015 and 3.5 years in fiscal 2014; stock price volatility, 30.8% in fiscal 2016, 30.3% in fiscal 2015 and 34.3% in fiscal 2014; risk free interest rates, 1.3% in fiscal 2016 and 2015 and 1.6% in fiscal 2014; and no dividends during the expected term.

The following table summarizes option activity for the period ended September 24, 2016:



	Number of Shares (in thousands)		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (in thousands)
Outstanding at September 26, 2015	6,257		$	10.51	3 years	$	38,663
Granted	1,166		$	13.83
Exercised	(2,646	)	$	10.02
Canceled or expired	(608	)	$	11.31
Outstanding at September 24, 2016	4,169		$	11.64	3 years	$	53,705
Exercisable at September 27, 2014	5,205		$	10.81	2 years	390
Exercisable at September 26, 2015	2,910		$	10.74	2 years	17,226
Exercisable at September 24, 2016	1,732		$	11.46	2 years	22,954
Expected to vest after September 24, 2016	2,057		$	11.77	4 years	$	25,948

The price of options to purchase shares of common stock and Class A common stock outstanding at September 24, 2016, September 26, 2015 and September 27, 2014 was between $6.43 to $15.56 per share, $6.43 to $15.00 per share and $6.43 to $16.23 per share per share, respectively. The weighted average grant date fair value of options granted during the fiscal years ended September 24, 2016, September 26, 2015 and September 27, 2014 was $3.04, $2.51 and $1.93, respectively. The total intrinsic value of options exercised during the fiscal years ended September 24, 2016, September 26, 2015 and September 27, 2014 was $22.6 million, $5.9 million and $1.4 million, respectively.

As of September 24, 2016, there was $5.2 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a remaining weighted average vesting period of two years.

Restricted Stock Awards

As of September 24, 2016 and September 26, 2015, there were approximately 1.5 million and 1.6 million shares, respectively, of restricted stock awards outstanding. Awards granted in fiscal 2016 and 2015 generally vest within four or five years from the date of grant. In fiscal 2014, approximately $6.4 million of bonus amounts earned in fiscal 2013 were paid by granting approximately 570,000 restricted shares that vested immediately.

Restricted stock award activity during the three fiscal years for the period ended September 24, 2016 is summarized as follows:



	Number of Shares		Weighted Average Grant Date Fair Value per Share
	(in thousands)
Nonvested at September 28, 2013	894		$	9.35
Granted	1,021		$	7.98
Vested	(226	)	$	9.92
Forfeited	(80	)	$	8.93
Nonvested at September 27, 2014	1,609		$	8.43
Granted	493		$	10.55
Vested	(331	)	$	8.63
Forfeited	(221	)	$	8.84
Nonvested at September 26, 2015	1,550		$	9.00
Granted	373		$	16.32
Vested	(295	)	$	9.32
Forfeited	(88	)	$	9.53
Nonvested at September 24, 2016	1,540		$	10.68

As of September 24, 2016, there was $11.2 million of unrecognized compensation cost related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of two years.