15. Employee Compensation Plans

Equity-Based Incentive Plans

On March 16, 2006, stockholders of the Company approved the Company's 2006 Incentive Plan (the "2006 Plan"). The 2006 Plan was amended on March 13, 2008 and on March 11, 2010 to increase the total shares of common stock authorized for issuance to 13,200,000. As of September 28, 2013, 4,537,397 shares of common stock were available for grant for future equity-based compensation awards under the plan.

On September 25, 2001, the Company registered on Form S-8 the 2000 Stock Option Plan (the "2000 Plan"). The plan expired in October 2010. Grants under the 2000 Plan generally expire ten years after the grant date, or earlier if employment terminates. As of September 28, 2013, there were no options for shares of common stock available for grant under this plan.

In connection with the acquisition of Keurig, the Company assumed the existing outstanding unvested option awards of the Keurig, Incorporated Fifth Amended and Restated 1995 Stock Option Plan (the "1995 Plan") and the Keurig, Incorporated 2005 Stock Option Plan (the "2005 Plan"). No shares under either the 1995 Plan or the 2005 Plan were eligible for post-acquisition awards. As of September 28, 2013 and September 29, 2012, 0 and 2,776 options, respectively, out of the 1,386,933 options for shares of common stock granted were outstanding under the 1995 Plan. As of September 28, 2013 and September 29, 2012, 28,749 options and 37,313 options, respectively, out of the 1,490,577 options granted for shares of common stock were outstanding under the 2005 Plan. All awards assumed in the acquisition were initially granted with a four-year vesting schedule.

On May 3, 2007, Mr. Lawrence Blanford commenced his employment as the President and Chief Executive Officer of the Company. Pursuant to the terms of the employment, the Company made an inducement grant on May 4, 2007, to Mr. Blanford of a non-qualified option to purchase 945,000 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option vested in 20% installments on each of the first five anniversaries of the date of the grant.

On November 3, 2008, Ms. Michelle Stacy commenced her employment as the President of Keurig, Incorporated. Pursuant to the terms of the employment, the Company made an inducement grant on November 3, 2008, to Ms. Stacy of a non-qualified option to purchase 157,500 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option vested in 25% installments on each of the first four anniversaries of the date of the grant.

On February 9, 2009, Mr. Howard Malovany commenced his employment as the Vice President, Corporate General Counsel and Secretary of the Company. Pursuant to the terms of the employment, the Company made an inducement grant on February 9, 2009, to Mr. Malovany of a non-qualified option to purchase 157,500 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option vested in 25% installments on each of the first four anniversaries of the date of the grant.

On December 17, 2010, Mr. Gérard Geoffrion commenced his employment as the President of the Canada segment. Pursuant to the terms of the employment, the Company made an inducement grant on December 17, 2010, to Mr. Geoffrion of a non-qualified option to purchase 35,000 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option vest in 25% installments on each of the first four anniversaries of the date of the grant, provided that Mr. Geoffrion remains employed with the Company on each vesting date.

On December 22, 2010, the Company made an inducement grant to Mr. Sylvain Toutant, Chief Operating Officer of the Canada segment, of a non-qualified option to purchase 20,000 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option vest in 25% installments on each of the first four anniversaries of the date of the grant, provided that Mr. Toutant remains employed with the Company on each vesting date.

On February 17, 2011, Ms. Linda Longo-Kazanova commenced her employment as the Vice President, Chief Human Resources Officer. Pursuant to the terms of the employment, the Company made an inducement grant on February 17, 2011, to Ms. Longo-Kazanova of a non-qualified option to purchase 30,000 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option vest in 25% installments on each of the first four anniversaries of the date of the grant, provided that Ms. Longo-Kazanova remains employed with the Company on each vesting date.

Under the 2000 Plan, the option price for each incentive stock option was not less than the fair market value per share of common stock on the date of grant, with certain provisions which increased the option price of an incentive stock option to 110% of the fair market value of the common stock if the grantee owned in excess of 10% of the Company's common stock at the date of grant. The 2006 Plan requires the exercise price for all awards requiring exercise to be no less than 100% of fair market value per share of common stock on the date of grant, with certain provisions which increase the option price of an incentive stock option to 110% of the fair market value of the common stock if the grantee owns in excess of 10% of the Company's common stock at the date of grant. Options under the 2000 Plan and the 2006 Plan become exercisable over periods determined by the Board of Directors, generally in the range of three to five years.

Option activity is summarized as follows:

			Weighted Average Exercise Price (per share)

Outstanding at September 29, 2012	7,470,975		$	12.56
Granted	474,236		$	45.48
Exercised	(2,849,308	)	$	6.95
Forfeited/expired	(73,563	)	$	49.53

Outstanding at September 28, 2013	5,022,340		$	18.30
Exercisable at September 28, 2013	3,958,017		$	10.70

The following table summarizes information about stock options that have vested and are expected to vest at September 28, 2013:

Number of options outstanding			Weighted average remaining contractual life (in years)			Weighted average exercise price			Intrinsic value at September 28, 2013 (in thousands)

	5,011,076			4.81		$	18.24		$	284,095

The following table summarizes information about stock options exercisable at September 28, 2013:

Number of options exercisable			Weighted average remaining contractual life (in years)			Weighted average exercise price			Intrinsic value at September 28, 2013 (in thousands)

	3,958,017			3.90		$	10.70		$	254,162

Compensation expense is recognized only for those options expected to vest, with forfeitures estimated based on the Company's historical employee turnover experience and future expectations.

The Company uses a blend of recent and historical volatility to estimate expected volatility at the measurement date. The expected life of options is estimated based on options vesting periods, contractual lives and an analysis of the Company's historical experience.

The intrinsic values of options exercised during fiscal years 2013, 2012 and 2011 were approximately $165.5 million, $46.6 million and $221.8 million, respectively. The Company's policy is to issue new shares upon exercise of stock options.

The grant-date fair value of employee share options and similar instruments is estimated using the Black-Scholes option-pricing model with the following assumptions for grants issued during fiscal years 2013, 2012 and 2011:

	Fiscal 2013			Fiscal 2012			Fiscal 2011

Average expected life		6 years			6 years			6 years
Average volatility		81	%		69	%		52	%
Dividend yield		—			—			—
Risk-free interest rate		1.02	%		1.31	%		2.37	%
Weighted average fair value	$	31.23		$	30.10		$	29.34

Restricted Stock Units and Other Awards

The Company awards restricted stock units ("RSUs"), restricted stock awards ("RSAs"), and performance stock units ("PSUs") to eligible employees ("Grantee") which entitle the Grantee to receive shares of the Company's common stock. RSUs and PSUs are awards denominated in units that are settled in shares of the Company's common stock upon vesting. RSAs are awards of common stock that are restricted until the shares vest. In general, RSUs and RSAs vest based on a Grantee's continuing employment. The fair value of RSUs, RSAs and PSUs is based on the closing price of the Company's common stock on the grant date. Compensation expense for RSUs and RSAs is recognized ratably over a Grantee's service period. Compensation expense for PSUs is also recognized over a Grantee's service period, but only if and when the Company concludes that it is probable (more than likely) the performance condition(s) will be achieved. The assessment of probability of achievement is performed each period based on the relevant facts and circumstances at that time, and if the estimated grant-date fair value changes as a result of that assessment, the cumulative effect of the change on current and prior periods is recognized in the period of change. In addition, the Company awards deferred cash awards ("DCAs"), to Grantees which entitle a Grantee to receive cash paid over time upon vesting. The vesting of DCAs is conditioned on a Grantee's continuing employment. All awards are reserved for issuance under the Company's 2006 Incentive Plan and vest over periods determined by the Board of Directors, generally in the range of three to four years for RSUs, RSAs and DCAs, and three years for PSUs.

The following table summarizes the number and weighted average grant-date fair value of nonvested RSUs (amounts in thousands except grant date fair value and weighted average remaining contractual life):

			Weighted Average Grant-Date Fair Value			Intrinsic Value (in Thousands)

Nonvested, September 29, 2012	81,834		$	39.62	3.52	$	1,943
Granted	175,789		$	45.19
Vested	(34,761	)	$	47.22
Forfeited	(1,360	)	$	54.12

Nonvested, September 28, 2013	221,502		$	42.74	1.71	$	16,586

As of September 28, 2013, total RSUs expected to vest totaled 218,459 shares with an intrinsic value of $16.4 million. The weighted average grant-date fair value of RSUs granted was $45.19 and $39.73 for fiscal 2013 and fiscal 2012, respectively. There were no RSUs granted prior to fiscal 2012.

The total intrinsic value of RSUs converted to shares of common stock during fiscal 2013 was $2.2 million. There were no RSUs converted to common stock prior to fiscal 2013.

The following table summarizes the number and weighted average grant-date fair value of nonvested PSUs based on the target award amounts in the PSU agreements as of September 28, 2013:

			Weighted Average Grant-Date Fair Value

Outstanding on September 29, 2012	—			—
Granted	122,719		$	41.28
Forfeited	(2,051	)	$	51.56

Outstanding on September 28, 2013(1)	120,668		$	41.10

(1): The outstanding PSUs as of September 28, 2013, at the threshold award and maximum award levels were 96,534 and 144,802, respectively.

The weighted average grant-date fair value of PSUs granted was $41.28 in fiscal 2013. The Company did not issue grants for PSUs prior to fiscal 2013. There were no PSUs converted to shares of common stock during fiscal 2013.

In addition, in fiscal 2012, the Company issued a grant for 55,432 RSAs with an intrinsic value of $1.3 million as of September 29, 2012, which vested in fiscal 2013. The total intrinsic value of RSAs vested during fiscal 2013 was $2.7 million.

Employee Stock Purchase Plan

On October 5, 1998, the Company registered on Form S-8 the 1998 Employee Stock Purchase Plan. On March 13, 2008, the plan was amended and renamed the Amended and Restated Employee Stock Purchase Plan ("ESPP"). Under this plan, eligible employees may purchase shares of the Company's common stock, subject to certain limitations, at the lesser of 85 percent of the beginning or ending withholding period fair market value as defined in the plan. There are two six-month withholding periods in each fiscal year. At September 28, 2013, and September 29, 2012, options for 1,216,051 and 1,559,728 shares of common stock were available for purchase under the plan, respectively.

The grant-date fair value of employees' purchase rights granted during fiscal years 2013, 2012 and 2011 under the Company's ESPP is estimated using the Black-Scholes option-pricing model with the following assumptions:

	Fiscal 2013			Fiscal 2012			Fiscal 2011

Average expected life		6 months			6 months			6 months
Average volatility		86	%		70	%		57	%
Dividend yield		—			—			—
Risk-free interest rate		0.13	%		0.09	%		0.19	%
Weighted average fair value	$	14.38		$	11.61		$	15.97

Stock-Based Compensation Expense

Stock-based compensation expense recognized in the Consolidated Statements of Operations in fiscal years 2013, 2012, and 2011 (in thousands):

	Fiscal 2013		Fiscal 2012		Fiscal 2011

Options	$	14,151	$	12,595	$	8,206
RSUs/PSUs/RSAs		7,529		1,861		—
ESPP		4,401		3,412		2,155

Total stock-based compensation expense recognized in the Consolidated Statements of Operations	$	26,081	$	17,868	$	10,361

Total related tax benefit	$	9,936	$	6,004	$	3,147

As of September 28, 2013, total unrecognized compensation cost related to all nonvested stock-based compensation arrangements was approximately $30.5 million net of estimated forfeitures. This unrecognized cost is expected to be recognized over a weighted-average period of approximately 1.28 years at September 28, 2013.