14.

Share-based compensation

Share-based compensation

FASB ASC Topic 718, Compensation-Stock Compensation (“FASB ASC 718”) requires companies to recognize the cost of employee service received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. In determining the grant date fair value of those awards, the Group is required to make estimates of the fair value of the Group’s ordinary shares, expected dividends to be issued, expected volatility of the Group’s shares, expected forfeitures of the awards, risk free interest rates for the expected term of the awards, expected terms of the awards, and the vesting period of the respective awards. FASB ASC 718 requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates.

The effect of recording share-based compensation expense for the years ended June 29, 2012, June 24, 2011 and June 25, 2010 was as follows:


	Year Ended
	June 29, 2012		June 24, 2011		June 25, 2010
Share-based compensation expense by type of award:
Share options	$	3,443	$	2,943	$	655
Restricted shares		1,206		517		—

Total share-based compensation expense		4,649		3,460		655
Tax effect on share-based compensation expense		—		—		—

Net effect on share-based compensation expense	$	4,649	$	3,460	$	655

Share-based compensation expense was recorded in the consolidated statements of operations as follows: cost of revenues of $1,546, $1,147 and $301 for the years ended June 29, 2012, June 24, 2011 and June 25, 2010, respectively; and SG&A expenses of $3,103, $2,313 and $354 for the years ended June 29, 2012, June 24, 2011 and June 25, 2010, respectively. The Group did not capitalize any share-based compensation expense as part of any asset costs during the years ended June 29, 2012, June 24, 2011 and June 25, 2010.

Share-based award activity

Share options have been granted to directors and employees. As of June 29, 2012, there were 189,540 share options outstanding under the Amended and Restated 1999 Share Option Plan (the “1999 Plan”). Additional option grants may not be made under the 1999 Plan.

On March 12, 2010, the Company’s shareholders adopted the 2010 Performance Incentive Plan (the “2010 Plan”), and on December 20, 2010, the Company’s shareholders adopted an amendment to the 2010 Plan to increase the number of ordinary shares authorized for issuance under the 2010 Plan. A total of 2,000,000 ordinary shares are authorized for issuance under the 2010 Plan, plus any shares subject to share options under the 1999 Plan outstanding as of June 24, 2010, that expire, are canceled or terminate after such date. As of June 29, 2012, there were an aggregate of 1,280,750 share options outstanding, 168,275 restricted share units outstanding and 500,341 ordinary shares available for future grant under the 2010 Plan.

Share options

The Company’s board of directors has the authority to determine the type of option and the number of shares subject to an option. Options generally vest and become exercisable over four years and expire, if not exercised, within 7 years of the grant date. In the case of a grantee’s first grant, 25 percent of the underlying shares subject to an option vest 12 months after the vesting commencement date and 1/48 of the underlying shares vest monthly over each of the subsequent 36 months. In the case of any additional grants to a grantee, 1/48 of the underlying shares subject to an option vest monthly over four years, commencing one month after the vesting commencement date.

During the years ended June 29, 2012, June 24, 2011 and June 25, 2010, the Group granted options to purchase an aggregate of 590,537, 1,012,367, and 168,500 ordinary shares, respectively, with an estimated total grant date fair value of $4,267, $6,377 and $773, respectively, and a weighted average grant date fair value of $7.23, $6.30 and $4.58 per share, respectively.

The weighted average exercise price of options granted during the year ended June 29, 2012 was $14.82 per share. The total fair value of shares vested during the years ended June 29, 2012, June 24, 2011 and June 25, 2010 was $2,440, $1,738 and $1,264, respectively. The total intrinsic value of options exercised during the years ended June 29, 2012, June 24, 2011 and June 25, 2010 was $3,278, $9,803 and $3,151, respectively. In conjunction with these exercises, there was no tax benefit realized by the Company due to the fact that it is exempted from income tax. The amount of cash received from the exercise of share options was $1,000 during the year ended June 29, 2012.

Determining Fair Value

Valuation Method—The Group estimated the fair value of its ordinary shares to be used in the Black-Scholes-Merton (“BSM”) option-pricing formula by taking into consideration a number of assumptions.

Expected Dividend—The Group used zero as an annualized dividend yield since it did not anticipate paying any cash dividends in the near future.

Expected Volatility—As the Group did not have a sufficient trading history to use the volatility of its ordinary shares, management based its expected volatility on a comparable industry index as a reasonable measure of expected volatility in accordance with the guidance of FASB ASC 718.

Risk-Free Interest Rate—The Group based the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the option.

Expected Term—Expected terms used in the BSM option-pricing formula represent the periods that the Group’s share options are expected to be outstanding and are determined based on the Group’s historical experience of similar awards, giving consideration to the contractual terms of the share options, vesting schedules and expectations of future employee behavior.

Vesting Period—The Group’s share options generally vest and become exercisable over a four-year period, and expire 7 years from the date of grant. For an initial grant, 25 percent of the underlying shares subject to an option vest 12 months after the vesting commencement date and 1/48 of the underlying shares vest monthly over each of the subsequent 36 months. In the case of any additional grants to an optionee, 1/48 of the underlying shares subject to an option vest monthly over four years, commencing one month after the vesting commencement date.

Fair Value—The fair value of the Group’s share options granted to employees for the years ended June 29, 2012, June 24, 2011 and June 25, 2010 was estimated using the following weighted-average assumptions:


	June 29, 2012			June 24, 2011			June 25, 2010
Dividend yield		—			—			—
Expected volatility		61.3	%		42.3	%		43.4	%
Risk-free rate of return		0.90	%		1.21	%		2.26	%
Expected term (in years)		4.36			4.54			4.55

The following summarizes share option activity under the 1999 Plan:


	Number of Shares Underlying Options									Weighted-Average Exercise Price Per Share
	Year Ended									Year Ended
	June 29, 2012			June 24, 2011			June 25, 2010			June 29, 2012		June 24, 2011		June 25, 2010
Shares underlying options outstanding at beginning of the period		423,205			858,005			1,023,592		$	4.34	$	3.66	$	2.77
Granted		—			—			168,500			—		—		5.77
Exercised		(225,731	)		(418,048	)		(285,108	)		3.58		2.95		1.70
Forfeited		(6,805	)		(10,852	)		(19,219	)		5.92		5.48		5.32
Expired		(1,129	)		(5,900	)		(29,760	)		5.75		2.78		2.67

Shares underlying options outstanding at end of the period		189,540			423,205			858,005		$	5.18	$	4.34	$	3.66

Shares underlying options exercisable at end of the period		133,578			292,514			593,409		$	4.94	$	3.75	$	2.93

The following summarizes information for share options outstanding as of June 29, 2012 under the 1999 Plan:


	Number of Shares Underlying Options		Exercise Price Per Share		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
		1,000	$	2.00		0.25
		4,925		2.25		0.62
		3,100		2.75		1.17
		1,600		3.00		1.19
		20,021		3.50		1.51
		3,605		4.25		2.17
		6,415		4.75		2.42
		11,156		5.00		2.63
		5,480		5.25		2.85
		26,250		5.50		3.16
		101,788		5.75		4.30
		4,200		6.25		4.85

Options outstanding		189,540				3.42	$	1,396

Options exercisable		133,578				3.03	$	1,016

As of June 29, 2012, $52 of estimated share-based compensation expense related to share options under the 1999 Plan remains to be recorded. That cost is expected to be recorded over an estimated amortization period of 1.39 years.

The following summarizes share option activity under the 2010 Plan:


	Number of Shares Underlying Options								Weighted-Average Exercise Price Per Share
	Year Ended								Year Ended
	June 29, 2012			June 24, 2011			June 25, 2010		June 29, 2012		June 24, 2011		June 25, 2010
Shares underlying options outstanding at beginning of the period		925,921			—			—	$		$	—	$	—
Granted		590,537			1,012,367			—		14.82		17.37		—
Exercised		(11,619	)		(20,281	)		—		16.60		16.83		—
Forfeited		(211,491	)		(66,165	)		—		16.51		17.51		—
Expired		(12,598	)		—			—		19.51		—		—

Shares underlying options outstanding at end of the period		1,280,750			925,921			—	$	16.32	$	17.37	$	—

Shares underlying options exercisable at end of the period		399,068			112,343			—	$	16.66	$	17.05	$	—

The following summarizes information for share options outstanding as of June 29, 2012 under the 2010 Plan:


	Number of Shares Underlying Options		Exercise Price Per Share		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
		40,000	$	13.77		5.15
		658,955		16.83		5.29
		30,000		15.05		5.35
		33,944		25.50		5.55
		9,800		26.16		5.60
		12,800		23.62		5.85
		199,502		15.16		6.14
		255,739		14.12		6.37
		31,160		19.36		6.62
		5,550		18.60		6.67
		3,300		12.83		6.86

Options outstanding		1,280,750				5.69	$	0

Options exercisable		399,068				5.47	$	0

As of June 29, 2012, $2,570 of estimated share-based compensation expense related to share options under the 2010 Plan remains to be recorded. That cost is expected to be recorded over an estimated amortization period of 2.88 years.

Restricted share units

Restricted share units may be granted under the 2010 Plan. Restricted share units granted to non-employee directors generally cliff vest 100% on the first of January, approximately 1 year from the grant date. Restricted share units granted to executives generally vest as to 1/4th of the shares over 4 years on each anniversary of the vesting commencement date.

The following summarizes restricted share unit activity under the 2010 Plan:


	Number of Shares Underlying Restricted Share Units								Weighted-Average Grant Date Fair Value Per Share
	Year Ended								Year Ended
	June 29, 2012			June 24, 2011			June 25, 2010		June 29, 2012		June 24, 2011		June 25, 2010
Unvested balance at beginning of the period		25,900			—			—	$	21.62	$	—	$	—
Granted		211,266			43,420			—		14.37		18.47		—
Issued		(25,900	)		(17,520	)		—		21.62		13.82		—
Forfeited		(42,991	)		—			—		14.07		—		—
Vested		—			—			—		—		—		—

Unvested balance at end of the period		168,275			25,900			—	$	14.44	$	21.62	$	—

As of June 29, 2012, $1,501 of estimated share-based compensation expense related to restricted share units under the 2010 Plan remains to be recorded. That cost is expected to be recorded over an estimated amortization period of 2.96 years.