Stock-based Compensation

Stock Option Plans

On November 15, 2006, we adopted our 2006 Stock Incentive Plan (‘‘the 2006 Plan’’), which provides for the issuance of incentive and non-qualified stock options, restricted stock and other stock-based awards to employees and non-employees of the Company. We reserved 4,567,500 shares of common stock for issuance under the 2006 Plan. Options generally vest over four years, with 25% vesting upon the one year anniversary of the date of hire, and the remaining 75% vesting quarterly over the next 3 years. Options granted to consultants or other non-employees generally vest over the expected service period to the Company. The options expire ten years from the date of grant. We issue new shares to satisfy stock option exercises. Only stock options have been issued under the 2006 Plan. No grants have been made under the 2006 Plan since our IPO, and no further awards will be granted under the 2006 Plan. However, the 2006 Plan will continue to govern outstanding awards granted under the 2006 Plan.

On January 23, 2014, we adopted our 2014 Incentive Award Plan (‘‘the 2014 Plan’’), which provides for the issuance of incentive and non-qualified stock options, restricted stock, restricted stock units (“RSUs”) and other stock-based awards to employees, directors and non-employees of the Company and our subsidiaries. We initially reserved 4,112,048 shares of common stock for issuance under the 2014 Plan. The number of shares initially available for issuance will be increased by (i) the number of shares represented by awards outstanding under the 2006 Plan that are forfeited, lapse unexercised or are settled in cash and which following the effective date of the 2014 Plan are not issued under the 2006 Plan and (ii) an annual increase on January 1 of each calendar year beginning in 2015 and ending in 2019, equal to the lesser of (A) 4% of the shares of common stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (B) an amount as determined by our board of directors. No more than 5,002,935 shares of common stock may be issued upon the exercise of incentive stock options. Options generally vest over four years, with 25% vesting upon the one-year anniversary of the date of hire, and the remaining 75% vesting quarterly over the next 3 years. Options granted to consultants or other non-employees generally vest over the expected service period to the Company. The options expire ten years from the date of grant. To date stock options, RSUs, performance-based RSUs (“PSUs”), and monetary-based RSUs (“MSUs”) have been issued under the 2014 Plan.

Stock-Based Compensation

The following table summarizes stock-based compensation in our accompanying condensed consolidated statements of operations (in thousands):



	Fiscal Year Ended
	December 30, 2017		December 31, 2016		December 26, 2015

Cost of revenue	$	396	$	316	$	236
Selling and marketing	1,216		898		813
Research and development	1,771		1,103		760
General and administrative	6,310		4,153		3,116
Income (loss) from discontinued operations	—		14		589
Total stock-based compensation	$	9,693	$	6,484	$	5,514

Pursuant to our 2014 Incentive Award Plan (the “2014 Plan”), during fiscal 2017, we granted 0.6 million restricted stock units (RSUs) to certain employees, advisors, and directors, 0.4 million PSUs to certain members of management, and 0.2 million MSUs to senior management.

In the first quarter of fiscal 2017, we issued 0.4 million PSUs. The number of PSUs that become eligible to vest for each recipient will be determined in the first quarter of 2018 based upon the Company’s level of achievement of certain financial targets for fiscal 2017. To the extent any PSUs become eligible to vest, they generally will vest over a three-year period retroactive to March 2017 as continued services are performed. Management is recognizing expense using the graded-vesting method based on its estimate of the number of PSUs that will vest. If there is a change in the estimate of the number of PSUs that are probable of vesting, we will cumulatively adjust compensation expense in the period that the change in estimate is made.

In the second quarter of fiscal 2017, we issued 0.2 million MSUs to senior management. The MSUs awarded will vest at any point during a five-year performance period, from 2017 through 2022, based on achievement of specified 120-day volume-weighted average closing share price targets, which is a market condition, or a change-in-control event, and if vested, will be issued in the form of common stock. The MSUs were valued at $11.18 - $12.20 per share using the Monte Carlo simulation model for the specified price targets. The stock-based compensation expense associated with the MSUs will be recognized over a weighted average derived service period of 1.14 -1.54 years. If the market condition or the performance condition is not achieved during the five-year performance period, then the shares will be forfeited.

RSUs are not included in issued and outstanding common stock until the shares are vested and released. The fair value of the RSUs is measured based on the market price of the underlying common stock as of the date of grant, reduced by the purchase price of $0.001 per share. The weighted average grant-date fair value per vested RSU share and the total fair value of vested shares from the RSU grants was $7.66 and $8.1 million, respectively, for the year ended December 30, 2017. The weighted average grant-date fair value per vested RSU share and the total fair value of vested shares from the RSU grants was $7.29 and $3.6 million, respectively, for the year ended December 31, 2016.

During the years ended December 30, 2017 and December 31, 2016, we granted 1.2 million and 1.5 million stock options, respectively, with a weighted-average exercise price per share of $13.66 and $6.95, respectively. The weighted average grant-date fair value per share was $4.89 and $2.74 for the years ended December 30, 2017 and December 31, 2016, respectively. During the year ended December 26, 2015, no stock options were granted.

The following table presents the assumptions used to estimate the fair value of options granted during the periods presented:



	Fiscal Year Ended
	December 30, 2017	December 31, 2016	December 26, 2015
Risk-free interest rate	1.86 - 2.21 %	1.19 - 2.23 %	N/A
Expected term (years)	6.25	6.25	N/A
Volatility	30.2 - 33.4 %	33.3 - 38.2 %	N/A
Expected dividend yield	—%	—%	N/A

A summary of stock option activity for the year ended December 30, 2017 was as follows (in thousands for shares and intrinsic value):



	Stock Options							Restricted Stock Units
	Shares		Weighted-Average Remaining Contractual Term (Years)	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Shares		Weighted-Average Grant Date Fair Value
Outstanding as of December 31, 2016	4,312		6.45	$	6.64	$	13,042	1,780		$	7.08
Granted ⁽¹⁾	1,243			13.66				1,179		12.85
Settled (RSUs)	—			—				(554	)	7.66
Exercised	(841	)		4.65				—		—
Canceled and forfeited	(228	)		12.61				(555	)	7.09
Outstanding as of December 30, 2017	4,486		6.68	$	8.65	$	42,892	1,850		$	10.58
Vested and exercisable as of December 30, 2017	2,657		5.19	$	6.97	$	30,145	N/A		N/A

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(1) For RSUs, includes both time-based, performance-based, and market-based restricted stock units

Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on the New York Stock Exchange as of December 30, 2017 was $18.04. The total intrinsic value of options exercised and RSUs vested was approximately $16.1 million, $5.8 million, and $2.9 million for the years ended December 30, 2017, December 31, 2016, and December 26, 2015, respectively. The aggregate fair value of the options that vested during the years ended December 30, 2017, December 31, 2016, and December 26, 2015 was $2.2 million, $4.3 million, and $3.7 million, respectively.

As of December 30, 2017, total unrecognized compensation cost, related to non-vested stock options and RSUs, including performance RSUs, was approximately $7.1 million and $14.5 million, respectively, which is expected to be recognized over a weighted-average period of 2.8 years and 2.2 years, respectively, to the extent they are probable of vesting. As of December 30, 2017, we had 2.2 million shares available for grant under the 2014 Plan.

Common Stock

As of December 30, 2017, we had reserved the following shares of common stock for future issuance in connection with the following (in thousands):



	December 30, 2017

Options issued and outstanding	4,486
Restricted stock units issued and outstanding	1,850
Common stock available for stock-based award grants under incentive award plans	2,154
Common stock available for conversion of Series A Redeemable Convertible Preferred Stock	4,787
Total	13,277