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SHAREHOLDERS’ EQUITY | 12 Months Ended
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Dec. 27, 2019
SHAREHOLDERS’ EQUITY |
SHAREHOLDERS’ EQUITY | 10. SHAREHOLDERS’ EQUITY Stock Incentive Plans As of December 27, 2019, the Company had two share‑based compensation plans, which are described below. The Company may no longer grant awards under the 2006 Stock Incentive Plan. 2006 Stock Incentive Plan In June 2006, the Company’s board of directors adopted the 2006 Stock Incentive Plan (“2006 Plan”) and it received stockholder approval. The Company re‑submitted the 2006 Plan to its stockholders for post‑IPO approval at the 2007 annual meeting of the stockholders and it was approved. The 2006 Plan terminated in June 2016 and no additional awards were granted under the 2006 Plan after the Company’s shareholders approved the 2008 Plan (as defined below) in June 2008. The 2006 Plan had 300,000 shares of common stock reserved for issuance to the Company’s directors, executives, officers, employees, consultants and advisors. Approximately 70,333 shares that were available for award grant purposes under the 2006 Plan have become available for grant under the 2008 Plan following shareholder approval of the 2008 Plan. Options granted under the 2006 Plan could be “non‑statutory stock options” which expire no more than 10 years from the date of grant or “incentive stock options” as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). Upon exercise of non‑statutory stock options, the Company is generally entitled to a tax deduction on the exercise of the option for an amount equal to the excess over the exercise price of the fair market value of the shares at the date of exercise. The Company is generally not entitled to any tax deduction on the exercise of an incentive stock option. As of December 27, 2019, there were no outstanding stock options under the 2006 Plan. Amended and Restated 2008 Performance Incentive Plan In March 2008, the Company’s board of directors adopted the 2008 Performance Incentive Plan (“2008 Plan”), and it received stockholder approval at the 2008 annual meeting of the stockholders in June 2008. The 2008 Plan was originally set to terminate on April 17, 2027 but received a ten-year extension at the 2019 annual meeting of the stockholders. The 2008 Plan is currently scheduled to expire on April 18, 2029. The 2008 Plan initially had 450,000 shares of common stock reserved for issuance (not counting any shares originally available under the 2006 Plan that “poured over.”) At the 2010, 2012, 2016, 2017, 2019 annual meetings of the stockholders, the stockholders approved 350,000, 500,000, 500,000, 875,000 and 955,000 share increases, respectively, to the 2008 Plan. The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2008 Plan can also be increased by any shares subject to stock options granted under the 2006 Plan and outstanding as of June 9, 2008 which expire, or for any reason are cancelled or terminated, after June 9, 2008 without being exercised. The 2008 Plan currently has 418,000 shares of common stock reserved for issuance. Awards authorized by the 2008 Plan include stock options, stock appreciation rights, restricted stock, stock bonuses, stock units, performance stock, and other share‑based awards. No participant may be granted an option to purchase more than 300,000 shares in any fiscal year. Options generally may not be granted with exercise prices less than fair market value at the date of grant, with vesting provisions and contractual terms determined by the compensation committee of the board of directors on a grant-by-grant basis, subject to the minimum vesting provisions contained in the 2008 Plan. Options granted under the 2008 Plan may be “nonqualified stock options” or “incentive stock options” as defined in Section 422 of the Internal Revenue Code. The maximum term of each option shall be 10 years. Upon exercise of nonqualified stock options, the Company is generally entitled to a tax deduction on the exercise of the option for an amount equal to the excess over the exercise price of the fair market value of the shares at the date of exercise. The Company is generally not entitled to any tax deduction on the exercise of an incentive stock option. For awards other than stock options, the Company is generally entitled to a tax deduction at the time the award holder recognizes income with respect to the award equal to the amount of compensation income recognized by the award holder. Options and other awards provide for accelerated vesting if there is a change in control (as defined in the 2008 Plan) and the outstanding awards are not substituted or assumed in connection with the transaction. Through December 27, 2019, outstanding awards granted, net of forfeitures and exercises, under the 2008 Plan consisted of 509,000 shares of incentive stock options, 598,000 shares of non-statutory stock options, 101,000 shares of restricted stock awards and 326,000 shares of performance-based restricted stock units. Employee Stock Purchase Plan Amended and Restated 2006 Employee Stock Purchase Plan The Company adopted its Amended and Restated 2006 Employee Stock Purchase Plan (“ESPP”) to allow eligible employees the right to purchase shares of common stock, at semi‑annual intervals, with their accumulated payroll deductions. The plan received stockholder approval in June 2006. The Company re‑submitted the plan to its stockholders for post‑IPO approval at the 2007 annual stockholders’ meeting where approval was obtained. The ESPP initially had 300,000 shares of common stock reserved for issuance. At the 2017 annual meeting of the stockholders, the stockholders approved an 825,000 share increase to the ESPP. A total of 1,125,000 shares of the Company’s common stock have been reserved for issuance under the plan. The plan has semi‑annual periods beginning on each January 1 and ending on each June 30 and beginning on each July 1 and ending on each December 31. The first offering period commenced on February 10, 2007 and ended on June 30, 2007. Participants make contributions under the plan only by means of payroll deductions each payroll period. The rate of payroll contributions elected by a Participant may not be less than one percent (1%) nor more than ten percent (10%) of the Participant’s Earnings for each payroll period, and only whole percentages may be elected. The accumulated contributions are applied to the purchase of shares. Shares are purchased under the plan on or as soon as practicable after, the last day of the offering period. The purchase price per share equals 85% of the fair market value of a share on the lesser price of the share on the first day or last day of the offering period. The Company’s Amended and Restated 2006 Employee Stock Purchase Plan is a compensatory plan. As of December 27, 2019, there were 679,000 shares available for issuance under the plan. Stock-based Compensation Expense The compensation expense that has been recognized for stock options, restricted stock awards (“RSA”), performance-based restricted stock units (“PBRSU”), and ESPP issued under these plans was $12,112,000, $6,262,000 and $2,774,000 for fiscal years 2019, 2018 and 2017, respectively. The total unrecognized compensation expense related to nonvested stock options was $1,489,000, $3,598,000 and $3,514,000 for fiscal years 2019, 2018 and 2017, respectively. The total unrecognized compensation expense related to RSAs was $1,502,000, $1,012,000, and $1,162,000 for fiscal years 2019, 2018 and 2017, respectively. The total unrecognized compensation expense related to PBRSUs was $21,515,000 and $12,254,000 for the fiscal year 2019, and 2018. That expense is expected to be recognized over a weighted-average period of 1.07 years. There was no unrecognized compensation expense related to PBRSUs for fiscal year 2017. There were no options granted that were immediately vested during the fiscal years 2019, 2018 and 2017. Summary of Stock Option Activity A summary of option activity under the 2006 Plan and 2008 Plan as of December 27, 2019 and changes during the fiscal years ended December 27, 2019, December 28, 2018 and December 29, 2017 is presented below. The intrinsic value of the fully‑vested options is $15,169,000 based on the Company’s closing stock price of $31.21 and the average exercise price of outstanding options on December 27, 2019.
|  |  |  |  |  |  | Weighted- |
|  |  |  | Weighted- |  | Average |
|  |  |  | Average |  | Remaining |
|  |  |  | Exercise |  | Contractual |
|  | Options |  | Price |  | Term |
|  | (in thousands) |  |  |  |  | (in years) |
Outstanding at December 28, 2018 |  | 1,252 |  | $ | 16.87 |  | 6.62 |
Granted |  | — |  |  | — |  | — |
Exercised |  | (115) |  |  | 8.08 |  | — |
Forfeited or expired |  | (13) |  |  | 14.97 |  | — |
Outstanding at December 27, 2019 |  | 1,124 |  | $ | 17.80 |  | 6.06 |
Vested and expected to vest at December 27, 2019 |  | 1,124 |  | $ | 17.80 |  | 6.06 |
Exercisable at December 27, 2019 |  | 958 |  | $ | 15.48 |  | 5.68 |
|  |  |  |  |  |  | Weighted- |
|  |  |  | Weighted- |  | Average |
|  |  |  | Average |  | Remaining |
|  |  |  | Exercise |  | Contractual |
|  | Options |  | Price |  | Term |
|  | (in thousands) |  |  |  |  | (in years) |
Outstanding at December 29, 2017 |  | 1,207 |  | $ | 14.04 |  | 7.02 |
Granted |  | 158 |  |  | 31.54 |  | — |
Exercised |  | (85) |  |  | 7.85 |  | — |
Forfeited or expired |  | (28) |  |  | 5.07 |  | — |
Outstanding at December 28, 2018 |  | 1,252 |  | $ | 16.87 |  | 6.62 |
Vested and expected to vest at December 28, 2018 |  | 1,252 |  | $ | 16.87 |  | 6.62 |
Exercisable at December 28, 2018 |  | 838 |  | $ | 12.20 |  | 5.58 |
|  |  |  |  |  |  | Weighted- |
|  |  |  | Weighted- |  | Average |
|  |  |  | Average |  | Remaining |
|  |  |  | Exercise |  | Contractual |
|  | Options |  | Price |  | Term |
|  | (in thousands) |  |  |  |  | (in years) |
Outstanding at December 30, 2016 |  | 1,311 |  | $ | 10.15 |  | 6.69 |
Granted |  | 199 |  |  | 30.28 |  | — |
Exercised |  | (271) |  |  | 7.02 |  | — |
Forfeited or expired |  | (32) |  |  | 15.65 |  | — |
Outstanding at December 29, 2017 |  | 1,207 |  | $ | 14.04 |  | 7.02 |
Vested and expected to vest at December 29, 2017 |  | 1,207 |  | $ | 14.04 |  | 7.02 |
Exercisable at December 29, 2017 |  | 660 |  | $ | 8.84 |  | 5.58 |
A summary of the status of the Company’s nonvested options and changes in nonvested options is presented below:
|  |  |  | Weighted- |
|  |  |  | Average |
|  |  |  | Grant-Date |
|  | Options |  | Fair Value |
|  | (in thousands) |  |  |  |
Nonvested at December 28, 2018 |  | 414 |  | $ | 8.69 |
Granted |  | — |  |  | — |
Vested |  | (242) |  |  | 9.43 |
Forfeited |  | (6) |  |  | 10.87 |
Nonvested at December 27, 2019 |  | 166 |  |  | 12.15 |
|  |  |  | Weighted- |
|  |  |  | Average |
|  |  |  | Grant-Date |
|  | Options |  | Fair Value |
|  | (in thousands) |  |  |  |
Nonvested at December 29, 2017 |  | 547 |  | $ | 6.43 |
Granted |  | 158 |  |  | 12.73 |
Vested |  | (263) |  |  | 7.29 |
Forfeited |  | (28) |  |  | 5.07 |
Nonvested at December 28, 2018 |  | 414 |  |  | 8.69 |
|  |  |  | Weighted- |
|  |  |  | Average |
|  |  |  | Grant-Date |
|  | Options |  | Fair Value |
|  | (in thousands) |  |  |  |
Nonvested at December 30, 2016 |  | 653 |  | $ | 4.75 |
Granted |  | 199 |  |  | 12.23 |
Vested |  | (273) |  |  | 6.68 |
Forfeited |  | (32) |  |  | 15.65 |
Nonvested at December 29, 2017 |  | 547 |  |  | 6.43 |
Summary of Restricted Stock Activity A summary of restricted stock activity under the 2008 Plan as of December 27, 2019 is presented below:
|  |  |  | Weighted- |
|  |  |  | Average |
|  | Restricted Stock |  | Grant Date Fair Value |
|  | (in thousands) |  |  |  |
Outstanding at December 28, 2018 |  | 64 |  | $ | 22.28 |
Awarded |  | 37 |  |  | 35.60 |
Vested |  | (43) |  |  | 18.90 |
Forfeited |  | — |  |  | — |
Outstanding at December 27, 2019 |  | 58 |  | $ | 33.33 |
Outstanding at December 29, 2017 |  | 87 |  | $ | 17.67 |
Awarded |  | 22 |  |  | 28.17 |
Vested |  | (45) |  |  | 16.09 |
Forfeited |  | — |  |  | — |
Outstanding at December 28, 2018 |  | 64 |  | $ | 22.28 |
Outstanding at December 30, 2016 |  | 99 |  | $ | 11.37 |
Awarded |  | 28 |  |  | 31.53 |
Vested |  | (40) |  |  | 33.02 |
Forfeited |  | — |  |  | — |
Outstanding at December 29, 2017 |  | 87 |  | $ | 17.67 |
Summary of Performance-Based Restricted Stock Unit Activity A summary of performance-based restricted stock unit activity under the 2008 Plan as of December 27, 2019 is presented below:
|  | Performance-Based |  | Weighted-Average
|  | Restricted Stock Unit |  | Grant Date Fair Value
|  | (in thousands) |  |  |
Outstanding at December 28, 2018 |  | 280 |  | $ | 21.94
Awarded |  | 329 |  |  | 28.99
Released |  | (175) |  |  | 21.94
Forfeited |  | (3) |  |  | 27.28
Outstanding at December 27, 2019 |  | 431 |  | $ | 27.28
Outstanding at December 29, 2017 |  | — |  | $ | —
Awarded |  | 280 |  |  | 21.94
Vested |  | — |  |  | —
Forfeited |  | — |  |  | —
Outstanding at December 28, 2018 |  | 280 |  | $ | 21.94
Fair Value Valuation Assumptions Stock Option Grants The fair value of each option is calculated using the Black‑Scholes option valuation model that uses the assumptions noted in the following table. Expected volatility is based upon historical volatility of “guideline companies” since the length of time the Company’s shares have been publicly traded is equal to the contractual term of the options. The expected term of the option, taking into account both the contractual term of the option and the effects of employees’ expected exercise and expected post‑vesting termination behavior is estimated based upon the simplified method. Under this approach, the expected term is presumed to be the mid‑point between the vesting date and the end of the contractual term. The risk‑free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions are as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Expected volatility |  | 34 | % |  | 37 | % | - | 38 | % |  | 38 | % | - | 41 | %
Expected dividends |  | 0 | % |  |  |  |  | 0 | % |  |  |  |  | 0 | %
Expected term (in years) |  | 6 |  |  |  |  |  | 6 |  |  |  |  |  | 6 |
Risk-free rate |  | 2.49 | % |  | 2.65 | % | - | 2.78 | % |  | 1.86 | % | - | 2.08 | %
RSA and PBRSU Grants The Company’s restricted stock awards are valued on the closing price of the Company’s common stock on the date of grant and typically vest over a three-year period. The Company’s performance-based restricted stock unit awards are valued on the closing price of the Company’s common stock on the date of grant and vest over performance period. Under the Company’s new performance-based restricted stock unit (“PBRSU”) design, 50% of each award will vest based upon the Company’s EBITDA performance over a two-year and four-year performance periods (“EBITDA Units”), and the remaining 50% of each award will vest based upon the Company’s earnings per share performance over a two-year and four-years-performance periods (“EPS Units”) for awards granted for 2019 and 2018, respectively. The Company must achieve a 10% growth rate for the threshold number of EBITDA Units and EPS Units to vest for any performance year, and the target number of EBITDA Units and EPS Units will only vest in any performance year if the Company is able to achieve a 20% growth rate. The Compensation Committee determined to move away from its historical practice of granting only time-based equity awards and introduced the PBRSUs in order to further align the interests of the Company’s executives with those of shareholders by strengthening the relationship between executive pay and the Company’s performance against two critical performance metrics that the Company believes will drive value creation for its shareholders. ESPP The fair value of ESPP purchase rights issued is calculated using the Black‑Scholes valuation model that uses the assumptions noted in the following table. Purchase right under the ESPP are generally granted on either January 1 or July 1 of each year. The assumptions are as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Weighted-average expected term (in years) |  |  | .5 |  |  |  | .5 |  |  |  | .5 |
Risk-Free interest Rate |  |  | 2.3 | % |  |  | 1.4 | % |  |  | 0.65 | %
Stock Price Volatility |  |  | 35.6 | % |  |  | 37.9 | % |  |  | 40.7 | %
Dividend yield |  |  | 0 | % |  |  | 0 | % |  |  | 0 | %
Fair Value |  | $ | 33.01 |  |  | $ | 26.86 |  |  | $ | 23.02 |

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