11.

Share-based compensation

Share-based compensation

In determining the grant date fair value of equity awards, the Company is required to make estimates of the fair value of Fabrinet’s ordinary shares, expected dividends to be issued, expected volatility of Fabrinet’s ordinary shares, expected forfeitures of the awards, risk free interest rates for the expected term of the awards, expected terms of the awards, and the vesting period of the respective awards. Forfeitures are estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates.

The effect of recording share-based compensation expense for the three and nine months ended March 25, 2016 and March 27, 2015 was as follows:


	Three Months Ended					Nine Months Ended
(amount in thousands)	March 25, 2016			March 27, 2015		March 25, 2016		March 27, 2015

Share-based compensation (income)/expense by type of award:
Share options	$	(1	)	$	6	$	17	$	197
Restricted share units		2,000			2,003		7,765		5,609

Total share-based compensation expense		1,999			2,009		7,782		5,806
Tax effect on share-based compensation expense		—			—		—		—

Net effect on share-based compensation expense	$	1,999		$	2,009	$	7,782	$	5,806

Share-based compensation expense was recorded in the unaudited condensed consolidated statements of operations and comprehensive income as follows:


	Three Months Ended				Nine Months Ended
(amount in thousands)	March 25, 2016		March 27, 2015		March 25, 2016		March 27, 2015

Cost of revenue	$	517	$	379	$	1,594	$	1,107
Selling, general and administrative expense		1,482		1,630		6,188		4,699

Total share-based compensation expense	$	1,999	$	2,009	$	7,782	$	5,806

The Company did not capitalize any share-based compensation expense as part of any asset costs during the three and nine months ended March 25, 2016 and March 27, 2015.

Share-based award activity

Share options have been granted to directors and employees. As of March 25, 2016, there were 5 share options outstanding under Fabrinet’s Amended and Restated 1999 Share Option Plan (the “1999 Plan”). Additional option grants may not be made under the 1999 Plan.

As of March 25, 2016, there were an aggregate of 591,525 share options outstanding, 1,148,602 restricted share units outstanding, and 2,276,054 ordinary shares available for future grant under Fabrinet’s 2010 Performance Incentive Plan (the “2010 Plan”). The 1999 Plan and 2010 Plan are collectively referred to as the “Share Option Plans”.

Share options

Fabrinet’s board of directors has the authority to determine the type of option and the number of shares subject to an option. Options generally vest and become exercisable over four years and expire, if not exercised, within seven years of the grant date. In the case of a grantee’s first grant, 25 percent of the underlying shares subject to an option vest 12 months after the vesting commencement date and 1/48 of the underlying shares vest monthly over each of the subsequent 36 months. In the case of any additional grants to a grantee, 1/48 of the underlying shares subject to an option vest monthly over four years, commencing one month after the vesting commencement date.

The following summarizes share option activity:


	Number of Shares			Number of Exercisable Options		Weighted- Average Exercise Price Per Share		Weighted- Average Grant Date Fair Value Per Share

Balance as of June 26, 2015		792,019			758,451	$	16.33
Granted		—					—		—
Exercised		(198,334	)			$	16.77
Forfeited		(755	)			$	17.10
Expired		(1,400	)			$	23.62

Balance as of March 25, 2016		591,530			591,488	$	16.16


	Number of Shares			Number of Exercisable Options		Weighted- Average Exercise Price Per Share		Weighted- Average Grant Date Fair Value Per Share

Balance as of June 27, 2014		865,890			666,305	$	16.27
Granted		—					—		—
Exercised		(50,867	)			$	14.50
Forfeited		(8,249	)			$	15.91
Expired		(6,787	)			$	20.80

Balance as of March 27, 2015		799,987			741,957	$	16.34

The following summarizes information for share options outstanding as of March 25, 2016 under the Share Option Plans:


	Number of Shares Underlying Options		Exercise Price Per Share		Weighted- Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (amount in thousands)

		5	$	5.75		0.65
		315,482	$	16.83		1.55
		30,000	$	15.05		1.61
		12,300	$	25.50		1.81
		2,400	$	26.16		1.86
		20,853	$	15.16		2.40
		184,039	$	14.12		2.63
		20,818	$	19.36		2.88
		5,550	$	18.60		2.93
		83	$	12.83		3.12

Options outstanding		591,530				1.99	$	8,535

Options exercisable		591,488				1.99	$	8,535

As of March 25, 2016, there was $23.64 of unrecognized share-based compensation expense related to share options under the Share Option Plans that is expected to be recorded over a weighted-average period of 0.08 years.

Restricted share units

Restricted share units are one type of share-based award that may be granted under the 2010 Plan. Restricted share units granted to non-employee directors generally cliff vest 100% on the first of January, approximately one year from the grant date, provided the director continues to serve through such date. Restricted share units granted to employees generally vest in four equal installments over four years on each anniversary of the vesting commencement date.

On May 24, 2015 the Company entered into an amended and restated employment agreement with an executive of the Company that provides for accelerated vesting of equity awards under certain circumstances. Under the agreement, any equity award granted to the executive after February 20, 2017, shall vest over a period not longer than two years following the applicable grant date. If the executive’s employment with the Company continues through and including February 20, 2017, any outstanding equity award grants before February 20, 2017 will become 100% vested.

The following summarizes restricted share unit activity under the 2010 Plan:


	Number of Shares			Weighted- Average Grant Date Fair Value Per Share

Balance as of June 26, 2015		1,140,927		$	16.03
Granted		586,142		$	19.82
Issued		(492,124	)⁽¹⁾	$	15.53
Forfeited		(86,343	)	$	17.44

Balance as of March 25, 2016		1,148,602		$	17.56


	Number of Shares			Weighted- Average Grant Date Fair Value Per Share

Balance as of June 27, 2014		762,295		$	14.23
Granted		608,544		$	17.52
Issued		(241,231	)	$	17.70
Forfeited		(24,612	)	$	15.95

Balance as of March 27, 2015		1,104,996		$	15.97

⁽¹⁾

Includes 283 shares vested on March 25, 2016, but not settled.

As of March 25, 2016, there was $9.3 million of unrecognized share-based compensation expense related to restricted share units under the 2010 Plan that is expected to be recorded over a weighted-average period of 2.78 years.

For the nine months ended March 25, 2016 and March 27, 2015, the Company withheld an aggregate of 111,584 shares and 18,730 shares, respectively, upon the vesting of restricted share units, based upon the closing share price on the vesting date to settle the employees’ minimum statutory obligation for the applicable income and other employment taxes. For the nine months ended March 25, 2016 and March 27, 2015, the Company then remitted cash of $2.4 million and $0.3 million, respectively, to the appropriate taxing authorities, and presented it in a financing activity within the unaudited condensed consolidated statements of cash flows. The payment had the effect on shares issued by the Company as it reduced the number of shares that would have been issued on the vesting date and was recorded as a reduction of additional paid-in capital.