Share-Based Compensation

Share-Based Compensation Plans

We maintain four share-based compensation plans (the Denny’s Corporation 2012 Omnibus Incentive Plan (the “2012 Omnibus Plan”), Denny’s Corporation 2008 Omnibus Incentive Plan (the “2008 Omnibus Plan”), the Denny’s Corporation Amended and Restated 2004 Omnibus Incentive Plan (the “2004 Omnibus Plan”), and the Denny’s, Inc. Omnibus Incentive Compensation Plan for Executives) under which stock options and other awards granted to our employees and directors are outstanding.

The 2012 Omnibus Plan is used to grant share-based compensation to selected employees, officers and directors of Denny’s and its affiliates. However, we reserve the right to pay discretionary bonuses, or other types of compensation, outside of these plans. There were originally 4.5 million shares reserved for issuance under the 2012 Omnibus Plan, plus a number of additional shares (not to exceed 1.5 million) underlying awards that were outstanding prior to the adoption of the 2012 Omnibus Plan pursuant to our other plans which thereafter cancel, terminate or expire unexercised for any reason. The 2008 Omnibus Plan and the 2004 Omnibus Plan will no longer be used to grant share-based compensation awards. There were originally 4.5 million shares reserved for issuance under the 2008 Omnibus Plan. There were originally 10.0 million shares reserved for issuance under the 2004 Omnibus Plan. During 2010, we registered 1.5 million shares to be issued outside of these plans pursuant to the grant or exercise of employment inducement awards of stock options and restricted stock units in accordance with NASDAQ Listing Rule 5635(c)(4). During 2011 and 2010, a portion of these shares were used to grant options and restricted stock awards to our new Chief Executive Officer, Chief Operating Officer and Chief Marketing Officer.

The Compensation and Incentives Committee of our Board or Directors, or our Board of Directors as a whole, has sole discretion to determine the terms and conditions of awards granted under such plans. Under the terms of options granted under the above referenced plans, generally, optionees who terminate for any reason other than cause, disability, retirement or death will be allowed 60 days after the termination date to exercise vested options. Vested options are generally exercisable for one year when termination is by a reason of disability, retirement or death. If termination is for cause, no option shall be exercisable after the termination date.

Share-Based Compensation Expense

Total share-based compensation expense included as a component of net income was as follows:



	Fiscal Year Ended
	December 26, 2012		December 28, 2011		December 29, 2010
	(In thousands)
Stock options	$	909	$	1,069	$	1,072
Restricted stock units	2,050		2,369		1,451
Board deferred stock units	537		781		317
Total share-based compensation	$	3,496	$	4,219	$	2,840

Stock Options

Options granted to date generally vest evenly over 3 years, have a 10-year contractual life and are issued at the market value at the date of grant.

The following table summarizes information about stock options outstanding and exercisable at December 26, 2012:



	Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value
	(In thousands)					(In thousands)
Outstanding, beginning of year	4,140		$	3.15
Granted	—		—
Exercised	(843	)	2.59
Forfeited	(161	)	3.52
Expired	(37	)	4.02
Outstanding, end of year	3,099		3.28		5.33	$	4,802
Exercisable, end of year	2,394		3.22		4.59	$	3,870

The aggregate intrinsic value represents the difference between the market price of our stock on December 26, 2012 and the exercise price, multiplied by the number of options that have an exercise price that is less than the market price of our stock. The aggregate intrinsic value of the options exercised was $1.7 million, $3.6 million and $5.6 million during the years ended December 26, 2012, December 28, 2011 and December 29, 2010, respectively.

There were no options granted during the year ended December 26, 2012. The weighted-average fair value per option of options granted during the years ended December 28, 2011 and December 29, 2010 was $1.98 and $1.31, respectively.

At December 26, 2012 and December 28, 2011, approximately $19.3 million and $17.4 million, respectively, was included as a component of additional paid-in-capital in our Consolidated Balance Sheet related to stock options. As of December 26, 2012, we had approximately $0.6 million of unrecognized compensation cost related to unvested stock option awards granted, which is expected to be recognized over a weighted-average of 0.8 years years.

Restricted Stock Units

We primarily grant restricted stock units containing performance conditions. These conditions are generally based on either the Total Shareholder Return of our stock compared with the returns of a group of peer companies or our stock's achievement of certain stock price thresholds. The following table summarizes information about restricted stock units activity:



	Fiscal Year Ended
	December 26, 2012				December 28, 2011				December 29, 2010
	Units		Weighted-Average Grant Date Fair Value		Units		Weighted-Average Grant Date Fair Value		Units		Weighted-Average Grant Date Fair Value
	(In thousands, except per share amounts)
Outstanding, beginning of year	1,276		$	3.19	1,450		$	2.92	2,009		$	3.47
Granted	397		6.05		416		3.99		619		2.29
Vested	(445	)	3.28		(535	)	3.07		(908	)	3.54
Forfeited	(295	)	3.37		(55	)	3.42		(270	)	3.47
Outstanding, end of year	933		4.30		1,276		3.19		1,450		2.92

In February 2012, we granted approximately 0.4 million performance shares and related performance-based target cash awards of $2.0 million to certain employees. As these awards contain a market condition, a Monte Carlo valuation was used to determine the performance shares' grant date fair value of $6.05 per share and the payout probability of the target cash awards. The awards granted to our named executive officers also contain a performance condition based on certain operating measures for the fiscal year ended December 26, 2012. The performance period is the three year fiscal period beginning December 29, 2011 and ending December 31, 2014. The performance shares and cash awards will vest and be earned (from 0% to 200% of the target award for each such increment) at the end of the performance period based on the Total Shareholder Return of our stock compared with the Total Shareholder Returns of a group of peer companies. As of December 26, 2012, approximately 0.3 million performance shares and performance-based target cash awards of $1.6 million were outstanding under this award.

At December 26, 2012, $0.4 million and $0.9 million of accrued compensation was included as a component of other current liabilities and other noncurrent liabilities in our Consolidated Balance Sheet, respectively, (based on the fair value of the related shares for the liability classified units as of December 26, 2012) and $4.1 million was included as a component of additional paid-in capital in our Consolidated Balance Sheet related to the equity classified restricted stock units. At December 28, 2011, $0.5 million and $0.3 million of accrued compensation was included as a component of other current liabilities and other noncurrent liabilities in our Consolidated Balance Sheet, respectively, (based on the fair value of the related shares for the liability classified units as of December 28, 2011) and $4.5 million was included as a component of additional paid-in-capital in our Consolidated Balance Sheet related to the equity classified restricted stock units.

During the year ended December 26, 2012, we made payments of $1.0 million in cash and issued 0.2 million shares of common stock related to restricted stock unit awards.

As of December 26, 2012, we had $2.8 million of unrecognized compensation cost related to unvested restricted stock unit awards granted, which is expected to be recognized over a weighted-average of 1.3 years.

Board Deferred Stock Units

During the year ended December 26, 2012, we granted 0.2 million deferred stock units (which are equity classified) with a weighted average grant date fair value of $4.05 per unit to non-employee members of our Board of Directors. A director may elect to convert these awards into shares of common stock either on a specific date in the future (while still serving as a member of the Board of Directors) or upon termination as a member of the Board of Directors. During the year ended December 26, 2012, less than 0.1 million deferred stock units were converted into shares of common stock. Approximately 0.7 million and 0.5 million of these units were outstanding as of December 26, 2012 and December 28, 2011, respectively. As of December 26, 2012, we had approximately $0.2 million of unrecognized compensation cost related to all unvested deferred stock unit awards outstanding, which is expected to be recognized over a weighted average of 0.3 years.