STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

On August 7, 2017, the Company's Board of Directors approved the extension for an additional two years of its previously announced share repurchase program of up to an aggregate of $100.0 million of the Company's Common Stock depending on market conditions. As of December 30, 2017, the Company has approximately $100 million remaining under the share repurchase program approved in August 2017.

On May 9, 2017, the shareholders approved the Company's 2017 Omnibus Incentive Plan (the “2017 Omnibus Plan”). The 2017 Omnibus Plan replaced the Company's 2012 Omnibus Incentive Plan (the “2012 Omnibus Plan”) for future grants. Under the 2017 Omnibus Plan, the Company can grant stock options, stock appreciation rights, non-vested and restricted stock (including performance stock), restricted stock units (including performance units), other stock-based awards, non-employee director awards, dividend equivalents and cash-based awards. There are up to 20,166,500 common shares available under the 2017 Omnibus Plan which may be granted to participants in any plan year (as such term is defined in the 2017 Omnibus Plan). Some of those shares are subject to outstanding awards as detailed in the tables below. To the extent these outstanding awards are forfeited or expire without exercise, the shares will be returned to and available for future grants under the 2017 Omnibus Plan. The 2017 Omnibus Plan’s purpose is to attract, retain and motivate employees, directors and third party service providers of the Company and to encourage them to have a financial interest in the Company. The 2017 Omnibus Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors. The Committee has the authority to select plan participants, grant awards, and determine the terms and conditions of such awards as provided in the 2017 Omnibus Plan. Beginning fiscal 2017, the Committee has adopted an executive compensation program that includes a long-term incentive component (the “LTIP”) for the Company's key employees, as a subplan under the terms of the 2017 Omnibus Plan. The principal purpose of the LTIP is to encourage the participants to enhance the value of the Company and, hence, the price of the Company’s stock and the stockholders' return. In addition, the LTIP is designed to create retention incentives for the individual and to provide an opportunity for increased equity ownership by participants. The Committee adopted similar LTIPs for fiscal 2015 and 2016, as subplans under the terms of the 2012 Omnibus Plan. At December 30, 2017, the number of common shares available for issuance under the 2017 Omnibus Plan was 16,576,999.

For fiscal 2015, the Committee awarded dollar value performance based restricted stock and stock option opportunities under the LTIP to certain of the Company's key employees, including the Chief Executive Officer and other executive officers, and such restricted stock and stock options were issued only if predetermined financial objectives were met by the Company. The Company met the financial objectives for fiscal 2015 and those shares and options were issued in accordance with the terms of the LTIP.

Beginning in fiscal 2016, a shift was made in the LTIP from backward-looking performance-based restricted stock and stock options to a combination of (i) annual, overlapping grants of performance share units (“PSUs”) tied to a three-year, forward-looking performance metric and (ii) annual stock option grants that vest 33.33% on the first, second and third anniversaries of grant; provided that a small portion of fiscal 2016 LTIP value was granted as one-time, non-incremental transition PSUs to facilitate the switch to a forward-looking program, with these grants tied to a two-year, forward-looking performance metric. See “Stock Option Awards”, “Fiscal 2017 LTIP PSU Awards” and “Fiscal 2016 LTIP PSU Awards” below for more information regarding the stock options and PSU awards under the 2017 LTIP and 2016 LTIP.

The following is a summary of stock-based compensation awards granted during the years ended December 30, 2017, December 31, 2016 and January 2, 2016.

Stock Option Awards. Stock options to purchase Darling common shares are granted by the Committee to certain of the Company's employees as part of the Company's LTIPs under the 2012 Omnibus Plan and the 2017 Omnibus Plan, as the case may be. For the options granted under the fiscal 2015 LTIP, the exercise price was equal to the market value of Darling common shares on the close of the trading day immediately preceding the grant date, and such options vest 25 percent upon grant and 25 percent each of the first three anniversary dates of the grant thereafter. The Company met the requisite performance measure under the 2015 LTIP, accordingly, in accordance with the terms of the 2015 LTIP, the Company granted 452,878 stock options to participants on March 7, 2016. For the options granted under the fiscal 2017 LTIP and 2016 LTIP, the exercise price was equal to the closing price of Darling common shares on the date of grant, which was February 6, 2017 and February 25, 2016, respectively and such options vest 33.33% on the first, second and third anniversaries of the grant. The Company granted 956,809 stock options under the 2017 LTIP and 1,094,306 stock options under the 2016 LTIP.

During fiscal 2017, 2016 and 2015 only nonqualified stock options were issued and none of the options were incentive stock options. The Company’s stock options granted under the LTIPs generally terminate 10 years after the date of grant.

A summary of all stock option activity as of December 30, 2017 and changes during the year ended is as follows:



	Number of shares		Weighted-avg. exercise price per share		Weighted-avg. remaining contractual life
Options outstanding at January 3, 2015	696,176		$	13.88	6.2 years
Granted	422,386		14.76
Exercised	(131,653	)	4.13
Forfeited	(136,177	)	16.68
Expired	—		—
Options outstanding at January 2, 2016	850,732		15.38		7.7 years
Granted	1,547,184		9.53
Exercised	(28,000	)	6.71
Forfeited	(4,000	)	16.20
Expired	—		—
Options outstanding at December 31, 2016	2,365,916		11.65		8.4 years
Granted	956,809		12.29
Exercised	(27,968	)	8.51
Forfeited	(4,000	)	13.55
Expired	—		—
Options outstanding at December 30, 2017	3,290,757		$	11.86	7.3 years
Options exercisable at December 30, 2017	1,516,605		$	12.90	5.9 years

The fair value of each stock option grant under the LTIPs was estimated on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions and results for fiscal 2017, 2016 and 2015.



Weighted Average	2017	2016	2015
Expected dividend yield	0.0%	0.0%	0.0%
Risk-free interest rate	2.00%	1.35%	1.82%
Expected term	5.82 years	5.76 years	5.75 years
Expected volatility	33.4%	34.4%	38.0%
Fair value of options granted	$4.34	$3.34	$5.59

The expected lives for options granted during fiscal 2017, 2016 and 2015 were computed using the simplified method since the current option plans historical exercise data has not provided a reasonable basis for estimating the expected term for the current option grants.

At December 30, 2017, $7.8 million of total future equity-based compensation expense (determined using the Black-Scholes option pricing model and Monte Carlo model for non-vested stock grants with performance based incentives) related to outstanding non-vested options and stock awards is expected to be recognized over a weighted average period of 1.1 years.

For the year ended December 30, 2017, the amount of cash received from the exercise of options was less than $0.1 million and the related tax benefit was less than $0.1 million. For the year ended December 31, 2016, the amount of cash received from the exercise of options was approximately $0.2 million and the related tax benefit was less than $0.1 million. For the year ended January 2, 2016 the amount of cash received from the exercise of options was approximately $0.2 million and the related tax benefits were approximately $0.4 million. The total intrinsic value of options exercised for the years ended December 30, 2017, December 31, 2016 and January 2, 2016 was approximately $0.2 million, $0.2 million and $1.4 million, respectively. The fair value of shares vested for the years ended December 30, 2017, December 31, 2016 and January 2, 2016 was approximately $11.3 million, $8.3 million and $7.5 million, respectively. At December 30, 2017, the aggregate intrinsic value of options outstanding was approximately $20.8 million and the aggregate intrinsic value of options exercisable was approximately $8.1 million.

Non-Vested Stock, Restricted Stock Unit and Performance Share Unit Awards. The Company has in the past granted non-vested stock and restricted stock unit (RSU) awards to certain of the Company's employees as part of the LTIP under the 2012 Omnibus Plan, and beginning in 2016, the Company grants performance share unit awards as part of the LTIP. In addition, the Company has granted performance share unit awards, individual non-vested stock and RSU awards to key employees from time to time at the discretion of the Committee. Non-vested stock is generally granted to U.S. based employees, while RSUs are generally granted to foreign based employees, with each RSU equivalent to one share of common stock and payable upon vesting in an equivalent number of shares of Darling common stock. For grants made under the 2012 Omnibus Plan, both non-vested stock and RSUs generally vest 25 percent upon grant and 25 percent each of the first three anniversary dates of the grant thereafter. For grants made under the 2017 Omnibus Plan, both non-vested stock and RSUs generally vest on the first three anniversary dates of the grant. Generally, upon termination of employment (voluntary or with cause), non-vested stock, RSUs and discretionary performance share awards that have not vested are forfeited. Upon, death, disability or qualifying retirement, a pro-rata portion of the unvested non-vested and RSU awards will vest and be payable. Under the 2015 LTIP, the Company met the requisite performance measure, accordingly, in accordance with the 2015 LTIP, the Company granted 454,916 shares of nonvested stock and 147,390 restricted stock units in the first quarter of fiscal 2016.

A summary of the Company’s non-vested stock, restricted stock unit and performance share unit awards as of December 30, 2017, and changes during the year ended is as follows:



	Non-Vested, RSU and PSU Shares		Weighted Average Grant Date Fair Value
Stock awards outstanding January 3, 2015	1,257,173		$	19.98
Shares granted	524,225		14.47
Shares vested	(714,626	)	17.91
Shares forfeited	(32,581	)	19.65
Stock awards outstanding January 2, 2016	1,034,191		18.63
Shares granted	602,306		12.11
Shares vested	(413,654	)	15.11
Shares forfeited	(241,582	)	20.86
Stock awards outstanding December 31, 2016	981,261		15.56
Shares granted	104,750		12.27
Shares vested	(486,086	)	13.98
Shares forfeited	(239,581	)	20.90
Stock awards outstanding December 30, 2017	360,344		$	13.18

Fiscal 2017 LTIP PSU Awards. On February 6, 2017, the Committee granted 559,388 PSUs under the Company's 2017 LTIP. The PSUs are tied to a three-year forward-looking performance period and will be earned based on the Company's average return on capital employed (ROCE), as calculated in accordance with the terms of the award agreement, relative to the average ROCE of the Company's performance peer group companies over the same performance period, with the earned award to be determined in the first quarter of fiscal 2020, after the final results for the relevant performance period are determined.

Fiscal 2016 LTIP PSU Awards. On February 25, 2016, the Committee granted 664,120 PSUs under the Company's 2016 LTIP, 153,000 of which are tied to a two-year forward-looking performance period and 511,120 of which are tied to a three-year, forward-looking performance period and all of which will be earned based on the Company's average ROCE, as calculated in accordance with the terms of the award agreement, relative to the average ROCE of the Company's performance peer group companies over the same performance periods, with the earned award to be determined in the first quarter of fiscal 2018 and fiscal 2019, respectively, after the final results for the relevant performance period are determined.

Under the 2017 LTIP and 2016 LTIP, PSUs were granted at target level; however, actual awards may vary between 0% and 225% of the target number of PSUs, depending on the performance level achieved. In addition, the number of PSUs earned may be reduced (up to 30%) or increased (capped at the maximum payout) based on the Company's total shareholder return (TSR) over the performance period. In addition, certain of the PSUs have a two-year holding requirement after vesting before the PSUs are settled in shares of the Company's Common Stock.

The fair value of each 2017 LTIP and 2016 LTIP PSU award under the Company's 2017 LTIP and 2016 LTIP was estimated on the date of grant using a Monte Carlo model with the following weighted average assumptions for fiscal 2017 and fiscal 2016, except for the illiquidity discount, which only pertains to the 2017 LTIP and 2016 LTIP PSU's with a holding period requirement.



Weighted Average	2017	2016
Expected dividend yield	0.0%	0.0%
Risk-free interest rate	1.40%	0.80%
Expected term	2.89 years	2.62 years
Expected volatility	32.7%	29.3%
Illiquidity discount	14.0%	16.1%

A summary of the Company’s 2017 and 2016 LTIP PSU awards as of December 30, 2017, and changes during the year ended is as follows:



	LTIP PSU Shares		Weighted Average Grant Date Fair Value
LTIP PSU awards outstanding January 2, 2016	—		$	—
Granted	664,120		7.17
Vested	—		—
Forfeited	—		—
LTIP PSU awards outstanding December 31, 2016	664,120		$	7.17
Granted	559,388		11.14
Vested	—		—
Forfeited	(82,492	)	9.99
LTIP PSU awards outstanding December 30, 2017	1,141,016		$	8.91

Nonemployee Director Restricted Stock and Restricted Stock Unit Awards. On February 24, 2011, the Company's Board of Directors approved an Amended and Restated Non-Employee Director Restricted Stock Award Plan (the “Director Restricted Stock Plan”) pursuant to and in accordance with the Company's 2004 Omnibus Incentive Plan (the “2004 Omnibus Plan”) in order to attract and retain highly qualified persons to serve as non-employee directors and to more closely align such directors' interests with the interests of the stockholders of the Company by providing a portion of their compensation in the form of Company common stock. Under the Director Restricted Stock Plan, $60,000 in restricted Company common stock was awarded to each non-employee director on the fourth business day after the Company released its earnings for its prior completed fiscal year (the “Date of Award”). The amount of restricted stock to be issued was calculated using the closing price of the Company’s common stock on the third business day after the Company released its earnings. The restricted stock was subject to a right of repurchase at $0.01 per share upon termination of the holder as a member of the Company's board of directors for cause and was not transferable. These restrictions lapse with respect to 100% of the restricted stock upon the earliest to occur of (i) 10 years after the date of award, (ii) a Change of Control (as defined in the 2004 Omnibus Plan), and (iii) termination of the non-employee director's service with the Company, other than for “cause” (as defined in the Director Restricted Stock Plan).

Beginning in fiscal 2014, the Board discontinued grants to non-employee directors under the Director Restricted Stock Plan described above, and in lieu thereof, as an additional element of annual non-employee director compensation, pursuant to the 2012 Omnibus Plan, each non-employee director received $90,000 of restricted stock units immediately following the Company’s annual meeting of stockholders at which such directors are elected. Beginning in fiscal 2017, the Board increased the dollar amount of the annual grant of restricted stock units to $110,000, and such grants are now made under the 2017 Omnibus Plan. The number of restricted stock units to be issued is calculated using the closing price of the Company’s stock on the date of its annual meeting. The award vests (and is no longer subject to forfeiture) on the first to occur of (i) the first anniversary of the grant date, (ii) the grantee’s separation from service as a result of death or disability, or (iii) a change of control. The award will become “payable” in shares of the Company’s stock in a single lump sum payment as soon as possible following a grantee’s separation from service, subject to a grantee’s right to elect earlier distributions under certain circumstances. If a grantee ceases to be a director for any reason other than death or disability prior to vesting, the grantee will receive a prorated amount of the award up to the date of separation.

A summary of the Company’s non-employee director restricted stock awards as of December 30, 2017, and changes during the year ended is as follows:



	Restricted stock and Restricted Stock Unit Shares		Weighted Average Grant Date Fair Value
Stock awards outstanding January 3, 2015	155,916		$	12.22
Restricted shares granted	46,910		13.80
Restricted shares where the restriction lapsed	(50,322	)	12.25
Restricted shares forfeited	—		—
Stock awards outstanding January 2, 2016	152,504		12.69
Restricted shares granted	43,421		14.51
Restricted shares where the restriction lapsed	(81,031	)	11.55
Restricted shares forfeited	(3,535	)	14.51
Stock awards outstanding December 31, 2016	111,359		14.18
Restricted shares granted	60,575		15.63
Restricted shares where the restriction lapsed	(14,915	)	12.42
Restricted shares forfeited	(2,210	)	14.51
Stock awards outstanding December 30, 2017	154,809		$	14.91