Stock-Based Compensation

In connection with the IPO, the Wingstop Inc. 2015 Omnibus Equity Incentive Plan, or the 2015 Plan, was adopted and became effective upon completion of the offering. The 2015 Plan provides for the grant or award of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance unit awards, performance share awards, cash-based awards and other stock-based awards to employees, directors, and other eligible persons. Under the 2015 Plan, Wingstop had 2,143,589 shares authorized for issuance, 96,435 shares of common stock issuable upon exercise of currently outstanding options, and 2,047,154 shares available for future grants as of December 31, 2016.

The options granted under the 2015 Plan are subject to either service-based or performance-based vesting. Service-based options contain a service-based, or time-based, vesting provision. Performance-based options contain performance-based vesting provisions based on the Company meeting certain Adjusted EBITDA profitability targets for each fiscal year during the vesting period. In the event of a change in control of the Company (as defined in the 2015 Plan), each outstanding award will be treated as the compensation committee determines, either by the terms of the award agreement or by resolution adopted by the compensation committee, including without limitation, that the awards may be vested, assumed replaced with substitute awards, cashed-out or terminated.

Additionally, Wingstop had previously adopted the 2010 Stock Option Plan, or the 2010 Plan, which permits the granting of awards to employees, directors and other eligible persons of the Company in the form of stock options. The Plan is administered by Wingstop’s Board of Directors. The options granted under the 2010 Plan are generally exercisable within a 10-year period from the date of grant.

Under the 2010 Plan, options are subject to either service-based or performance-based vesting. Service-based options contain a service-based, or time-based, vesting provision. Performance-based options contain performance-based vesting provisions based on the Company meeting certain Adjusted EBITDA profitability targets for each fiscal year during the vesting period. Any options that have not vested prior to a change of control or do not vest in connection with a change of control or do vest but are not exercised will be forfeited by the grantee upon a change of control for no consideration. The IPO in June 2015 was not considered a change of control event as defined in the 2010 Plan. Options issued and outstanding expire on various dates up to fiscal year 2025.

Under the 2010 Plan, Wingstop had 3,304,115 shares authorized for issuance. There are 758,612 shares of common stock issuable upon exercise of currently outstanding options, and 358,306 shares available for future grants at December 31, 2016.

The following table summarizes stock option activity (in thousands, except per share data):



	Stock Options		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Term
Outstanding - December 26, 2015	1,177		$	4.66	$	21,059	7.7
Granted	36		$	24.34
Exercised	(166	)	$	2.92
Canceled	(192	)	$	5.99
Outstanding - December 31, 2016	855		$	5.14	$	20,905	6.8

The total grant-date fair value of stock options vested during each of the fiscal years 2016, 2015 and 2014 was $1.0 million, $0.7 million and $0.9 million, respectively. The total intrinsic value of stock options exercised was $3.8 million, $3.0 million and $2.7 million for fiscal years 2016, 2015 and 2014, respectively.

Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). The Company recognized approximately $1.2 million, $1.2 million and $1.0 million in stock compensation expense for fiscal years 2016, 2015 and 2014, respectively, with a corresponding increase to additional paid-in-capital. Stock compensation expense is included in Selling, general and administrative expenses in the Consolidated Statement of Operations.

A summary of the status of non-vested shares as of December 31, 2016 and the changes during the period then ended is presented below:



	December 31, 2016
	Shares		Weighted average grant-date fair value
Non-vested shares at beginning of year	955		$	4.88
Granted	36		$	24.34
Vested	(299	)	$	2.64
Forfeited	(192	)	$	5.99
Non-vested shares at end of year	500		$	7.19

The Company granted 11,724 shares of restricted stock awards during 2016 with a weighted average grant date fair value of $25.59. The fair value of the non-vested restricted stock awards is based on the closing price on the date of grant. All of the outstanding restricted stock awards are non-vested as of December 31, 2016 and will be recognized over a weighted average remaining term of approximately 2.9 years.

As of December 31, 2016, there was $2.0 million of total unrecognized stock compensation expense related to non-vested stock options and restricted stock awards, which will be recognized over a weighted average period of approximately 2.1 years.

The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. Expected volatilities are based on volatilities from publicly traded companies operating in the Company’s industry. The Company uses historical data to estimate expected employee forfeiture of stock options. The expected life of options granted is management’s best estimate using recent and expected transactions. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The weighted-average assumptions used in the model were as follows:



	2016			2015			2014
Risk-free interest	1.44		%	1.96		%	1.96		%
Expected life (years)	6.2			6.5			6.5
Expected dividend yield	0		%	0		%	0		%
Volatility	52.0		%	52.0		%	50.8		%
Weighted-average Black-Scholes fair value per share at date of grant	$	13.74		$	8.87		$	3.87

The Company used the simplified method for determining the expected life of the options. In addition, assumptions made regarding forfeitures in determining the remaining unamortized share-based compensation are re-evaluated periodically.

During 2016, the Board of Directors authorized a dividend in the amount of $2.90 per share, or $83.3 million. In connection with the declaration and payment of the dividend, the exercise price of some of the outstanding options on July 12, 2016 was reduced by an amount of $2.90 per share. During 2015, the Board of Directors authorized a dividend in the amount of $1.83 per share or $48.0 million. In connection with the declaration and payment of the dividend, the exercise price of some of the outstanding options on March 27, 2015 was reduced by an amount of $1.83 per share. At each dividend date, management evaluated the option modification for incremental compensation expense and calculated $94,000 and $537,000 of total incremental compensation for the modifications during fiscal years 2016 and 2015, respectively.