7. 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 December 31, 2015, 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 3,669, 54,742, 314,312 and 2,158,207 shares pursuant to these authorizations during the Transition Period, fiscal 2015, fiscal 2014 and fiscal 2013, respectively. At December 31, 2015, there were 3,232,147 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 December 31, 2015, there were 455,220 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 December 31, 2015, there were 1,169,353 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 the Transition Period, fiscal 2015, fiscal 2014 and fiscal 2013:

	31 Weeks Ended	Year Ended	Year Ended	Year Ended
	December 31, 2015	May 28, 2015	May 29, 2014	May 30, 2013

Risk-free interest rate	1.30 – 2.13%	1.31 – 2.32%	1.04 – 2.38%	0.48 – 1.33%
Dividend yield	2.3%	2.5%	2.7%	2.8%
Volatility	36 – 48%	37 – 49%	41 – 49%	49 – 62%
Expected life	4 – 9 years	4 – 9 years	4 – 9 years	4 – 9 years

Total pre-tax stock-based compensation expense was $975,000, $1,499,000, $1,781,000 and $1,772,000 in the Transition Period, fiscal 2015, fiscal 2014 and fiscal 2013, respectively. The recognized tax benefit on stock-based compensation was $418,000, $689,000, $752,000 and $491,000 in the Transition Period, fiscal 2015, fiscal 2014 and fiscal 2013, respectively.

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

	December 31, 2015				May 28, 2015				May 29, 2014				May 30, 2013
			Weighted-				Weighted-				Weighted-				Weighted
			Average				Average				Average				Average
			Exercise				Exercise				Exercise				Exercise
	Options		Price			Options	Price		Options		Price		Options		Price
	(options in thousands)

Outstanding at beginning of period		1,526	$	14.75		1,566	$	14.06		1,949	$	14.03		2,006	$	13.91
Granted		284		20.22		276		18.35		291		13.16		306		13.12
Exercised		(68)		12.69		(215)		13.81		(437)		12.81		(202)		10.82
Forfeited		(35)		16.25		(101)		15.87		(237)		14.16		(161)		14.48
Outstanding at end of period		1,707		15.71		1,526		14.75		1,566		14.06		1,949		14.03
Exercisable at end of period		961	$	14.57		840	$	14.90		909	$	15.29		1,113	$	15.47

Weighted-average fair value of options granted during the period			$	6.57			$	5.98			$	4.52			$	5.20

Exercise prices for options outstanding as of December 31, 2015, ranged from $8.52 to $23.37. The weighted-average remaining contractual life of those options is 6.0 years. The weighted-average remaining contractual life of options currently exercisable is 4.0 years. There were 1,632,000 options outstanding, vested and expected to vest as of December 31, 2015 with a weighted-average exercise price of $15.60 and an intrinsic value of $6,030,000. Additional information related to these options segregated by exercise price range is as follows:

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

Options outstanding		304		691		712
Weighted-average exercise price of options outstanding	$	10.91	$	13.86	$	19.56
Weighted-average remaining contractual life of options outstanding		5.1		5.4		7.0
Options exercisable		266		489		206
Weighted-average exercise price of options exercisable	$	11.05	$	14.16	$	20.08

The intrinsic value of options outstanding at December 31, 2015 was $6,135,000 and the intrinsic value of options exercisable at December 31, 2015 was $4,460,000. The intrinsic value of options exercised was $485,000, $1,181,000, $1,211,000 and $510,000 during the Transition Period, fiscal 2015, fiscal 2014 and fiscal 2013, respectively. As of December 31, 2015, total remaining unearned compensation cost related to stock options was $3,391,000, which will be amortized to expense over the remaining weighted-average life of 3.5 years.

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

	December 31, 2015				May 28, 2015				May 29, 2014				May 30, 2013
			Weighted-				Weighted-				Weighted-				Weighted-
			Average				Average				Average				Average
			Fair				Fair				Fair				Fair
	Shares		Value		Shares		Value		Shares		Value		Shares		Value

	(options in thousands)

Outstanding at beginning of period		114	$	15.39		98	$	13.61		97	$	12.92		86	$	12.37
Granted		34		19.24		30		19.38		37		14.14		28		13.65
Vested		(14)		12.55		(14)		11.72		(25)		12.01		(17)		11.36
Forfeited		–		–		–		–		(11)		12.93		–		–
Outstanding at end of period		134	$	16.54		114	$	15.39		98	$	13.61		97	$	12.92

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 December 31, 2015, total remaining unearned compensation related to non-vested stock was $1,559,000, which will be amortized over the weighted-average remaining service period of 4.1 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.