13.

Share-based compensation

Share-based compensation

In determining the grant date fair value of equity awards, the Company is required to determine the fair value of Fabrinet’s ordinary shares and make estimates of 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 six months ended December 30, 2016 and December 25, 2015 was as follows:


	Three Months Ended				Six Months Ended
(amount in thousands)	December 30, 2016		December 25, 2015		December 30, 2016		December 25, 2015
Share-based compensation expense by type of award:
Share options	$	—	$	2	$	—	$	18
Restricted share units		7,633		3,108		12,453		5,765
Performance share units		964		—		1,755		—

Total share-based compensation expense		8,597		3,110		14,208		5,783
Tax effect on share-based compensation expense		—		—		—		—

Net effect on share-based compensation expense	$	8,597	$	3,110	$	14,208	$	5,783

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


	Three Months ended				Six Months Ended
(amount in thousands)	December 30, 2016		December 25, 2015		December 30, 2016		December 25, 2015
Cost of revenue	$	1,514	$	540	$	2,528	$	1,077
Selling, general and administrative expense		7,083		2,570		11,680		4,706

Total share-based compensation expense	$	8,597	$	3,110	$	14,208	$	5,783

The Company did not capitalize any share-based compensation expense as part of any asset costs during the three and six months ended December 30, 2016 and December 25, 2015.

Share-based award activity

Share options have been granted to directors and employees. As of December 30, 2016, there were no 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 December 30, 2016, there were an aggregate of 99,263 share options outstanding, 1,462,170 restricted share units outstanding and 234,678 performance share units outstanding under Fabrinet’s 2010 Performance Incentive Plan (the “2010 Plan”). As of December 30, 2016, there were 1,230,956 ordinary shares available for future grant under 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 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 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 24, 2016		464,334			464,334	$	15.95
Granted		—					—		—
Exercised		(365,066	)			$	16.02
Forfeited		—					—
Expired		(5	)			$	5.75

Balance as of December 30, 2016		99,263			99,263	$	15.71


	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		(130,779	)			$	15.48
Forfeited		(213	)			$	14.43
Expired		—					—

Balance as of December 25, 2015		661,027			660,035	$	16.50

The following summarizes information for share options outstanding as of December 30, 2016 under the Share Option Plans:


	Range of Exercise Price		Number of Shares Underlying Options		Weighted- Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (amount in thousands)
		$14.12 – $15.05		55,238		1.31
		$15.16 – $16.83		36,975		0.96
		$18.60 – $26.16		7,050		1.92

Options outstanding				99,263		1.22	$	2,441

Options exercisable				99,263		1.22	$	2,441

As of December 30, 2016, there was no unrecognized compensation cost under the Share Option Plans.

Restricted share units and performance share units

Restricted share units and performance share units are types of share-based awards 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 equal installments over three or four years on each anniversary of the vesting commencement date.

Performance share units granted to executives will vest at the end of a two-year performance period based on the Company’s achievement of pre-defined performance criteria, which consist of revenue and gross margin targets. The actual number of performance share units that may vest at the end of the performance period ranges from 0% to 100% of the award grant.

The Company has entered into an employment agreement, as amended on August 12, 2016, with an executive of the Company that provides for accelerated vesting of equity awards under certain circumstances, including upon termination of employment. In addition, if the executive’s employment with the Company continues through and including February 20, 2017, (1) any outstanding equity awards granted to the executive prior to August 2016 will become 100% vested and (2) certain restricted share units granted to the executive in August 2016 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 24, 2016		1,181,402		$	18.34
Granted		741,973		$	39.23
Issued		(423,035	)	$	16.41
Forfeited		(38,170	)	$	22.35

Balance as of December 30, 2016		1,462,170		$	29.40


	Number of Shares			Weighted- Average Grant Date Fair Value Per Share
Balance as of June 26, 2015		1,140,927		$	16.03
Granted		539,772		$	19.57
Issued		(388,425	)⁽¹⁾	$	15.27
Forfeited		(15,415	)	$	18.39

Balance as of December 25, 2015		1,276,859		$	17.27

⁽¹⁾	Includes 849 shares vested on December 1, 2015, but not settled as of December 25, 2015.

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


	Number of Shares		Weighted- Average Grant Date Fair Value Per Share
Balance as of June 24, 2016		—		—
Granted		234,678	$	40.48
Issued		—		—
Forfeited		—		—

Balance as of December 30, 2016		234,678	$	40.48

As of December 30, 2016, there was $32.3 million of unrecognized share-based compensation expense related to restricted share units and performance share units under the 2010 Plan that is expected to be recorded over a weighted-average period of 2.07 years.

For the six months ended December 30, 2016 and December 25, 2015, the Company withheld an aggregate of 26,085 shares and 84,269 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 six months ended December 30, 2016 and December 25, 2015, the Company then remitted cash of $1.0 million and $1.7 million, respectively, to the appropriate taxing authorities, and presented it as 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.