6. Equity Incentive Plan and Stock-Based Compensation

Plan Descriptions

2010 Equity Incentive Award Plan

The equity incentive award plan is available for issuance of shares to the Company’s employees, consultants and non-employee members of its Board of Directors, in the form of equity awards, including incentive and nonqualified stock options, stock appreciation rights, restricted stock unit (RSU) awards, restricted stock, performance awards and deferred stock.

The aggregate number of shares of Class A common stock which may be issued or transferred pursuant to equity awards under the 2010 Plan is the sum of (i) 6,580,240 (provided that the aggregate number of shares of Class A common stock which may be issued or transferred pursuant to Full Value Awards, as defined in the Plan is 3,290,120) and (ii) an annual increase on the first day of each year beginning in 2011 and ending in 2015, equal to the least of (A) 7,000,000 shares; (B) a percentage of the shares of Class A common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year as follows: 7% or 4,321,911 shares for the increase made on January 1, 2011, 6% or 3,560,245 for the increase made on January 1, 2012, 4.5% or 2,577,033 shares for the increase made on January 1, 2013 and 3.5% for the increases to be made thereafter; and (C) such smaller number as may be determined by the Board  prior to the first day of such year.

The 2010 Plan is administered by the Compensation Committee of the Company’s Board of Directors, and that committee has the authority to, among other things, grant awards, delegate certain of its powers, accelerate or extend the vesting or exercisability of awards and determine the date of grant of an award. The maximum term of any stock option granted under the 2010 Plan is seven years from the date of grant and the exercise price of each option is determined under the applicable terms and conditions as approved by the Compensation Committee.

The 2010 Plan provides that incentive stock options may only be granted to employees of the Company or its subsidiaries. Grants of non-qualified options and RSUs may be awarded to an officer or employee, a consultant or advisor, or a director of the Company or its subsidiaries. The exercise price of each stock option shall not be less than 100% of the fair market value of the Class A common stock on the date of grant or not less than 110% if such stock option is granted to a person who has more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary. One third of the shares subject to stock options excluding stock options granted to non-employee directors vest on the anniversary of the grant date, and 1/36 of the shares vest each month for the next two years. For non-employee directors, one twelfth of the shares subject to stock options vest on a quarterly basis over three years. All stock options expire if not exercised by the seventh anniversary of the grant date. 

Annual RSU awards granted in fiscal 2010 and fiscal 2011 to certain senior officers and employees vest over four years in four substantially equal annual installments on the anniversary date of the grant. In fiscal 2012, the Company issued RSU awards which vest over three years in three substantially equal annual installments on the anniversary date of the grant. 10% up to a maximum of 100 shares of the RSU awards granted to the Company’s US employees, excluding the executive officers on May 10, 2010, vested immediately. For non-employee directors, one twelfth of the RSU awards granted vest on a quarterly basis over three years. In fiscal 2013, the Company issued RSU awards which vest over two years in two substantially equal annual installments on the anniversary date of the grant. Shares that are subject to or underlie awards that expire or for any reason are cancelled, terminated or forfeited, or fail to vest will again be available for grant under the 2010 Plan. 

The 2010 Plan also provides for the issuance of performance-based RSU (including key executive RSU) awards, which the Company issued to certain senior executives. Key executive RSUs granted have both service conditions and certain performance conditions, relating to annual revenue and operating margin, for vesting. The key executive RSU awards granted in fiscal 2010 and fiscal 2011 have a four-year performance period. The key executive RSU awards granted in fiscal 2012 have a three-year performance period. A minimum of 50% and a maximum of 150% of base shares may vest over a three-year period, subject to the Company’s financial performance. If the performance goals are not met in a particular year, the unvested shares will be carried forward but will be forfeited if not earned by the last performance year. If performance is above target in a particular year, base shares earned will be accelerated after shares carried forward from prior years are used. However, no more than the number of shares in the initial grant can be earned. In the first quarter of fiscal 2012, the Company issued additional key executive RSU awards with a two-year performance period, with 100% of each target award (base shares) subject to performance goals in each of the two fiscal years following the date of grant. The two-year awards were granted to certain executives in lieu of participation in the Company’s annual cash bonus plan. The annual performance goals for these awards are the same as those for the three and four-year key executive RSU awards. A minimum of 0% and maximum of 100% of base shares vest each year, subject to performance. Unvested shares will not be carried forward and will be forfeited if not earned in any particular year. Vesting of 50% of the first year’s award was accelerated on July 31, 2012 based on achievement of the first six month’s performance targets in fiscal 2012.

In the first half of fiscal 2013, the Company granted performance-based restricted stock units (PSUs) to certain senior executives. The PSUs have vesting percentages ranging from 0% to 100%, calculated based on the relative total shareholder return (TSR) of the Company’s common stock as compared to the TSR of its peer companies. These awards are divided into two equal tranches, each with an 18-month performance period. The first performance period is from February 1, 2013 through July 31, 2014 and the second performance period is from August 1, 2014 through January 31, 2016. The grant date fair value for these grants is estimated using the Monte-Carlo performance share unit valuation model.

Valuation and Expense Information

The following table presents the total stock-based compensation expense resulting from the Company’s stock options and RSU awards for the years ended December 29, 2013, December 30, 2012 and December 25, 2011.

The weighted average fair value of the Company’s stock options granted is as follows:

The fair value of each stock option was estimated at the date of the grant using a Black-Scholes option pricing model, with the following assumptions for grants:

The assumptions used for evaluating the fair value of the PSU awards are as under:

As of December 29, 2013, the total unrecognized compensation cost related to unvested stock options and RSU awards was approximately $28.1million after reduction for estimated forfeitures. Such stock options and RSU awards will generally vest over an estimated weighted average amortization period of 1.43 years and 1.05 years as of December 29, 2013.

Shares Available to Grant

The numbers of shares of Class A common stock available for grant under the 2010 Plan are shown in the following table:

Stock Option and Restricted Stock Unit Activity

The following table summarizes stock option activities and related information under the 2010 Plan for the periods presented:

No income tax benefit was realized from stock option exercises for fiscal 2013, 2012 and 2011. Total fair value of options vested was $14.3 million for fiscal 2013, $13.5 million for fiscal 2012, $8.6 million for fiscal 2011.

          The following table summarizes RSU award activities and related information for the periods presented:

The following table summarizes key executive RSU award activities and PSU award and related information for the periods presented: