9.	Stockholders’ Equity and Stock-Based Compensation

Stockholder Rights Agreement

On November 20, 2013, the Company’s Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.01 per share, of the Company, to purchase from the Company one ten-thousandth of a share of newly designated Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company (the “Preferred Stock”) at a price of $107.00 per one ten-thousandth of a share of Preferred Stock, subject to adjustment as provided in the Rights Agreement. The dividend is payable to stockholders of record at the close of business on December 2, 2013 (the “Record Date”). The description and terms of the Rights are set forth in a Rights Agreement, dated as of November 21, 2013, as the same may be amended from time to time (the “Rights Agreement”), between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent.

The Rights Agreement became effective on November 21, 2013 (the “Effective Date”). Upon and following the Effective Date, Rights will be issued in respect of all outstanding shares of Common Stock on the Record Date, and for all shares of Common Stock issued after the Record Date and, subject to the terms described in the Rights Agreement, prior to the earliest of the Distribution Date (as defined in the Rights Agreement), the redemption of the Rights or the expiration of the Rights.

The Rights are not exercisable until the Distribution Date. The Rights will expire on November 20, 2014, unless the Rights are earlier redeemed or exchanged by the Company, in each case as defined in the Rights Agreement.

Stock Repurchase Progam

On November 11, 2013, the Company announced that its Board of Directors authorized the repurchase of up to $250 million of the Company’s outstanding common stock over the next three years. Under the stock repurchase program, the Company authorized to repurchase, from time-to-time, shares of its outstanding common stock on the open market or in privately negotiated transactions in the United States. The timing and amount of stock repurchases will be determined based upon the Company’s evaluation of market conditions and other factors. The stock repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program.

Stock-Based Compensation

Equity Compensation Plans

The Company has one share-based compensation plan pursuant to which awards are currently being made—the 2008 amended and restated Equity Incentive Plan (“2008 Equity Plan”). The Company has four share-based compensation plans pursuant to which outstanding awards have been made, but from which no further awards can or will be made—i) the 1995 Combination Stock Option Plan; ii) the 1997 Employee Equity Incentive Plan; iii) the 1999 Equity Incentive Plan; and iv) the 2000 Acquisition Equity Incentive Plan.

The purpose of the 2008 Equity Plan is to provide stock options, stock issuances and other equity interests in the Company to employees, officers, directors, consultants and advisors of the Company and its parents and subsidiaries, and any other person who is determined by the Board of Directors to have made (or is expected to make) contributions to the Company. The 2008 Equity Plan is administered by the Board of Directors of the Company, and a total of 31.5 million shares were reserved for issuance under this plan. As of September 28, 2013, the Company had 13.6 million shares available for future grant under the 2008 Equity Plan.

The Company assumed certain other plans in connection with the Gen-Probe, Cytyc and Third Wave acquisitions, and no shares are available for future grant under these plans.

The following presents stock-based compensation expense in the Company’s Consolidated Statement of Operations in fiscal 2013, 2012 and 2011:


	2013		2012		2011
Cost of revenues	$	7,031	$	5,722	$	4,602
Research and development		7,179		5,328		4,852
Selling and marketing		8,915		7,355		5,954
General and administrative		20,153		18,667		20,064
Restructuring and divestiture		9,029		3,500		—

	$	52,307	$	40,572	$	35,472

Grant-Date Fair Value

The Company uses a binomial model to determine the fair value of its stock options. The Company considers a number of factors to determine the fair value of options including the assistance of an outside valuation advisor. Information pertaining to stock options granted during fiscal 2013, 2012 and 2011 and related assumptions are noted in the following table:


	Years ended
	September 28, 2013			September 29, 2012			September 24, 2011
Options granted		2,640			2,259			2,249
Weighted-average exercise price	$	20.29		$	17.21		$	17.15
Weighted-average grant date fair value	$	7.03		$	6.48		$	6.16
Assumptions:
Risk-free interest rates		0.5	%		0.7	%		1.0	%
Expected life (in years)		4.4			4.3			4.2
Expected volatility		44	%		47	%		45	%
Dividend yield		—			—			—

The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. In projecting expected stock price volatility, the Company uses a combination of historical stock price volatility and implied volatility from observable market prices of similar equity instruments. The Company estimated the expected life of stock options based on historical experience using employee exercise and option expiration data.

The Company also granted approximately 0.1 million market stock units (MSU) in the first quarter of fiscal 2013 to its then Chief Executive Officer and Chief Financial Officer. The MSUs were valued at $18.49 using the Monte Carlo simulation model. Each recipient of the MSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of three years provided the Company’s stock price achieves the defined measurement criteria for MSUs. The Company is recognizing compensation expense over the required service period, and since these are market-based awards, the compensation expense will be recognized by the Company regardless of whether the required criteria is met to receive such shares unless the requisite service is not rendered. Due to the resignation of the former Chief Executive Officer in July 2013, his MSUs were forfeited and the related compensation expense previously recognized was reversed.

Stock-Based Compensation Expense Attribution

The Company uses the straight-line attribution method to recognize stock-based compensation expense for stock options and restricted stock units (“RSU”). The vesting term of stock options is generally five years with annual vesting of 20% per year on the anniversary of the grant date, and RSUs generally vest over four years with annual vesting at 25% per year on the anniversary of the grant date. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time granted and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on an analysis of historical forfeitures, the Company has determined a specific forfeiture rate for certain employee groups and has applied forfeiture rates ranging from 0% to 6% as of September 28, 2013 depending on the specific employee group. This analysis is re-evaluated annually and the forfeiture rate will be adjusted as necessary. Ultimately, the actual stock-based compensation expense recognized will only be for those stock options and RSUs that vest.

Stock-based compensation expense related to stock options was $23.7 million, $18.7 million, and $15.2 million in fiscal 2013, 2012 and 2011, respectively. Stock compensation expense related to RSUs was $26.0 million, $21.4 million, and $20.3 million in fiscal 2013, 2012 and 2011, respectively. The related tax benefit recorded in the Consolidated Statements of Operations was $17.2 million, $12.2 million and $14.8 million in fiscal 2013, 2012 and 2011, respectively. Included within stock-based compensation expense in fiscal 2013 and 2012 is $7.9 million and $3.5 million, respectively, related to modification accounting, the acceleration of vesting of certain retention RSUs provided under their original terms upon termination, and the acceleration of vesting for certain options assumed in the Gen-Probe acquisition related to employees who were terminated in connection with the Company’s restructuring action to consolidate its Diagnostics operations. The original terms of the stock options assumed in the Gen-Probe acquisition provided for acceleration upon a change-in-control and termination within 18 months of the change-in-control. At September 28, 2013, there was $30.0 million and $41.6 million of unrecognized compensation expense related to stock options and RSUs, respectively, to be recognized over a weighted average period of 2.7 years and 2.6 years, respectively.

Share Based Payment Activity

The following table summarizes all stock option activity under the Company’s stock option plans for the year ended September 28, 2013:


	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Options outstanding at September 29, 2012		18,039		$	17.40		4.4	$	78,962
Granted		2,640			20.29
Cancelled/forfeited		(1,021	)		20.04
Exercised		(4,786	)		13.71			$	37,609

Options outstanding at September 28, 2013		14,872		$	18.92		3.9	$	54,956

Options exercisable at September 28, 2013		7,472		$	20.28		2.9	$	29,438

Options vested and expected to vest at September 28, 2013 (1)		13,780		$	19.00		3.8	$	51,656

(1)	This represents the number of vested stock options as of September 28, 2013 plus the unvested outstanding options at September 28, 2013 expected to vest in the future, adjusted for estimated forfeitures.

During fiscal 2012 and 2011, the total intrinsic value of options exercised (i.e., the difference between the market price on the date of exercise and the price paid by the employee to exercise the options) was $20.4 million and $12.3 million, respectively.

A summary of the Company’s RSU activity during the year ended September 28, 2013 is presented below:


Non-vested Shares	Number of Shares			Weighted-Average Grant-Date Fair Value
Non-vested at September 29, 2012		3,580		$	16.45
Granted		1,995			19.94
Vested		(1,711	)		15.98
Forfeited		(405	)		18.11

Non-vested at September 28, 2013		3,459		$	18.51

The number of RSUs vested includes shares withheld on behalf of employees to satisfy minimum statutory tax withholding requirements. The Company pays the minimum statutory tax withholding requirement on behalf of its employees. During fiscal 2013, 2012 and 2011 the total fair value of RSUs vested was $27.3 million, $15.7 million and $43.2 million, respectively.

Employee Stock Purchase Plan

The Company’s 2008 Employee Stock Purchase Plan (the “2008 ESPP”) met the criteria set forth in ASC 718’s definition of a non-compensatory plan and did not give rise to stock-based compensation expense. The ESPP plan period was semi-annual and allowed participants to purchase the Company’s common stock at 95% of the closing price of the stock on the last day of the plan period. A total of 0.4 million shares were authorized for issuance under the 2008 ESPP.

In March 2012, the Company’s stockholders approved the Hologic, Inc. 2012 Employee Stock Purchase Plan (“2012 ESPP”), which provides for the granting of up to 2.5 million shares of the Company’s common stock to eligible employees, and resulted in the termination of the 2008 ESPP. The 2012 ESPP plan period is semi-annual and allows participants to purchase the Company’s common stock at 85% of the lower of (i) the market value per share of the common stock on the first day of the offering period or (ii) the market value per share of the common stock on the purchase date. The first plan period began on July 1, 2012. Stock-based compensation expense in fiscal 2013 and 2012 was $2.7 million and $0.4 million, respectively.

The Company uses the Black-Scholes model to estimate the fair value of shares to be issued as of the grant date using the following weighted average assumptions:


	September 28, 2013			September 29, 2012
Assumptions:
Risk-free interest rates		0.11	%		0.16	%
Expected life (in years)		0.5			0.5
Expected volatility		32	%		35	%
Dividend yield		—			—