6. Shareholders’ Equity and Stock-Based Compensation

Shareholders may convert their shares of Class B Common Stock into shares of Common Stock at any time. Class B Common Stock shareholders are substantially restricted in their ability to transfer their Class B Common Stock. Holders of Common Stock are entitled to cash dividends per share equal to 110% of all dividends declared and paid on each share of the Class B Common Stock. Holders of Class B Common Stock are entitled to ten votes per share while holders of Common Stock are entitled to one vote per share on any matters brought before the shareholders of the Company. Liquidation rights are the same for both classes of stock.

Through May 29, 2014, the Company’s Board of Directors has approved the repurchase of up to 11,687,500 shares of Common Stock to be held in treasury. The Company intends to reissue these shares upon the exercise of stock options and for savings and profit-sharing plan contributions. The Company purchased 314,312, 2,158,207 and 1,077,314 shares pursuant to these authorizations during fiscal 2014, 2013 and 2012, respectively. At May 29, 2014, there were 3,290,558 shares available for repurchase under these authorizations.

The Company’s Board of Directors has authorized the issuance of up to 750,000 shares of Common Stock for The Marcus Corporation Dividend Reinvestment and Associate Stock Purchase Plan. At May 29, 2014, there were 470,199 shares available under this authorization.

Shareholders have approved the issuance of up to 4,937,500 shares of Common Stock under various equity incentive plans. Options granted under the plans to employees generally become exercisable 40% after two years, 60% after three years, 80% after four years and 100% after five years of the date of grant. The options generally expire ten years from the date of grant as long as the optionee is still employed with the Company.

Awarded shares of non-vested stock cumulatively vest either 25% after three years of the grant date, 50% after five years of the grant date, 75% after ten years of the grant date and 100% upon retirement, or 50% after three years of the grant date and 100% after five years of the grant date, depending on the date of grant. The non-vested stock may not be sold, transferred, pledged or assigned, except as provided by the vesting schedule included in the Company’s equity incentive plan. During the period of restriction, the holder of the non-vested stock has voting rights and is entitled to receive all dividends and other distributions paid with respect to the stock. Non-vested stock awards and shares issued upon option exercises are issued from previously acquired treasury shares. At May 29, 2014, there were 1,602,537 shares available for grants of additional stock options, non-vested stock and other types of equity awards under the current plan.

Stock-based compensation, including stock options and non-vested stock awards, is expensed over the vesting period of the awards based on the grant date fair value.

The Company estimated the fair value of stock options using the Black-Scholes option pricing model with the following assumptions used for awards granted during fiscal 2014, 2013 and 2012:

	Year Ended May 29, 2014	Year Ended May 30, 2013	Year Ended May 31, 2012

Risk-free interest rate	1.04 – 2.38%	0.48 – 1.33%	0.96 – 2.69%
Dividend yield	2.7%	2.8%	2.9%
Volatility	41 – 49%	49 – 62%	48 – 63%
Expected life	4 – 9 years	4 – 9 years	4 – 9 years

Total pre-tax stock-based compensation expense was $1,781,000, $1,772,000 and $2,010,000 in fiscal 2014, 2013 and 2012, respectively. The recognized tax benefit on stock-based compensation was $752,000, $491,000 and $337,000 in fiscal 2014, 2013 and 2012, respectively.

A summary of the Company’s stock option activity and related information follows:

	May 29, 2014				May 30, 2013				May 31, 2012
			Weighted-				Weighted-				Weighted-
			Average				Average				Average
			Exercise				Exercise				Exercise
	Options		Price		Options		Price		Options		Price
	(options in thousands)
Outstanding at beginning of year		1,949	$	14.03		2,006	$	13.91		1,873	$	14.31
Granted		291		13.16		306		13.12		328		10.00
Exercised		(437)		12.81		(202)		10.82		(121)		10.61
Forfeited		(237)		14.16		(161)		14.48		(74)		11.98
Outstanding at end of year		1,566	$	14.06		1,949	$	14.03		2,006	$	13.91
Exercisable at end of year		909	$	15.29		1,113	$	15.47		1,122	$	15.13
Weighted-average fair value of options granted during year			$	4.52			$	5.20			$	3.96

Exercise prices for options outstanding as of May 29, 2014, ranged from $8.52 to $23.37. The weighted-average remaining contractual life of those options is 5.8 years. The weighted-average remaining contractual life of options currently exercisable is 3.8 years. There were 1,532,000 options outstanding, vested and expected to vest as of May 29, 2014 with a weighted-average exercise price of $14.10 and an intrinsic value of $4,949,000. Additional information related to these options segregated by exercise price range is as follows:

	Exercise Price Range
	$8.52 to $12.71		$12.72 to $17.73		$17.74 to $23.37
	(options in thousands)

Options outstanding		369		970		227
Weighted-average exercise price of options outstanding	$	10.88	$	13.90	$	20.13
Weighted-average remaining contractual life of options outstanding		6.6		5.9		2.5
Options exercisable		172		510		227
Weighted-average exercise price of options exercisable	$	11.11	$	14.55	$	20.13

The intrinsic value of options outstanding at May 29, 2014 was $5,096,000 and the intrinsic value of options exercisable at May 29, 2014 was $2,157,000. The intrinsic value of options exercised was $1,211,000, $510,000 and $174,000 during fiscal 2014, 2013 and 2012, respectively. As of May 29, 2014, total remaining unearned compensation cost related to stock options was $2,361,000, which will be amortized to expense over the remaining weighted-average life of 3.2 years.

A summary of the Company’s non-vested stock activity and related information follows:

	May 29, 2014				May 30, 2013				May 31, 2012
	Shares		Weighted- Average Fair Value		Shares		Weighted- Average Fair Value		Shares		Weighted- Average Fair Value
	(shares in thousands)
Outstanding at beginning of year		97	$	12.92		86	$	12.37		94	$	14.55
Granted		37		14.14		28		13.65		24		10.98
Vested		(25)		12.01		(17)		11.36		(32)		17.57
Forfeited		(11)		12.93		–		–		–		–
Outstanding at end of year		98	$	13.61		97	$	12.92		86	$	12.37

The Company expenses awards of non-vested stock based on the fair value of the Company’s common stock at the date of grant. As of May 29, 2014, total remaining unearned compensation related to non-vested stock was $909,000, which will be amortized over the weighted-average remaining service period of 4.5 years.

On December 6, 2012, the Company’s Board of Directors approved a special cash dividend of $1.00 per share of Common Stock and $0.90909 per share of Class B Common Stock, which was paid on December 28, 2012. The Board also accelerated the next two quarterly cash dividends totaling $0.17 per share of Common Stock and $0.15454 per share of Class B Common Stock that would have been paid in February and May of 2013 to the December payment date. The total combined dividend payment made on December 28, 2012 was $30,924,000.