Stock-Based Compensation

The Company's Stock Incentive Plan, as amended and restated in May of 2013, authorizes the grant of nonqualified stock options, incentive stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units ("RSUs") and incentive bonuses to employees, officers, nonemployee directors and other service providers. The number of shares of common stock available for issuance pursuant to awards granted under the Stock Incentive Plan is 3,168,705 shares. The Plan is administered by the Compensation Committee of the board or another committee designated by the board, or in the absence of any such committee, the board itself (the "administrator"). Stock options are granted at price determined by the administrator at an exercise price that is not less than the fair market value of the underlying stock on the date of option is grant. The administrator may also grant SARs and RSUs with terms determined by the administrator in accordance with the Plan. The fair market value of shares prior to the IPO was determined by the compensation committee of the Board of Directors, or the Board of Directors using historical or current transactions, comparable

10. Stock-Based Compensation (continued)

public company valuations, historical transactions, third-party valuations and other factors. Stock options generally have a 10-year term and vest equally over 4 years from the date of grant.

Stock-based compensation expense is generally recognized on a straight-line basis over the service period of the options. In 2013, 2012 and 2011, non-cash stock-based compensation expense of $4.3 million, $1.2 million and $1.3 million, respectively, is included in general and administrative expense. Stock-based compensation of $71,000, $81,000 and $75,000 is included in capitalized internal costs in 2013, 2012 and 2011, respectively. Of the total stock-based compensation recognized in 2013, $2.0 million related to accelerated vesting of outstanding stock options at the IPO and $1.2 million related to stock options granted at the IPO to 2 executive officers of which 50% were vested at the time of grant. Stock-based compensation expense also includes $65,000 related to the Employee Stock Purchase Plan, see Note 12 "Employee Benefit Plans."

At December 31, 2013, options available for future share grants totaled 3,321,785. The intrinsic value associated with options exercised was $5.1 million and $16,000 for the fiscal years ended December 31, 2013 and January 3, 2012, respectively. There were no options exercised in 2012.

The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. Expected volatilities are based on the historical Company volatility, as well as volatilities from publicly traded companies operating in the Company's industry. The Company uses historical data to estimate expected employee forfeiture of stock options. The expected life of options granted is management's best estimate using recent and expected transactions. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The weighted-average assumptions used in the model were as follows:



	2013			2012			2011
Risk-free interest	1.1		%	0.4		%	1.1		%
Expected life (years)	4.3			3.4			3.7
Expected dividend yield	—			—			—
Volatility	39.7		%	32.7		%	26.2		%
Weighted-average Black-Scholes fair value per share at date of grant	$	6.04		$	2.84		$	1.89

The tables below summarize the option activity under the Plan:



	Shares		Weighted- Average Exercise Price
Outstanding—December 28, 2010	2,420,861		8.67
Granted	283,307		8.67
Forfeited	(81,330	)	8.67
Exercised	(1,815	)	8.67
Outstanding—January 3, 2012	2,621,023		8.67
Granted	516,473		11.27
Forfeited	(164,329	)	8.68
Exercised	—		—
Outstanding—January 1, 2013	2,973,167		9.12
Granted	555,273		18.06
Forfeited	(55,389	)	11.89
Exercised	(163,179	)	8.72
Outstanding—December 31, 2013	3,309,872		$	10.59

10. Stock-Based Compensation (continued)



	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Years of Contractual Life	Aggregate Intrinsic Value⁽¹⁾ (in thousands)
Outstanding as of December 31, 2013	3,309,872	$	10.59	7.65	$	83,842
Vested and expected to vest	3,291,058	10.56		7.63	83,475
Exercisable as of December 31, 2013	2,679,130	9.45		7.27	70,925

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(1)	Aggregate intrinsic value represents the amount by which fair value of the Company's stock exceeds the exercise price of the option as of December 31, 2013.

As of December 31, 2013, there was $2.7 million of unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan, which is expected to be recognized over 3.11 years.

On March 10, 2011, the Company issued warrants to a consultant to purchase 86,550 shares of Class B common stock at $8.67 per share, which are classified as equity awards. The warrants vest based on specified performance criteria and are considered stock-based compensation to nonemployees. Stock-based compensation expense related to the awards is recognized when the performance criteria are met, using the estimated fair value at the measurement date. During 2013 and 2012, the Company did not recognize stock-based compensation expense as no performance criteria were met, and in 2011, the Company recognized $0.1 million of stock-based compensation expense related to the warrants as performance criteria were met. During 2013, 28,850 warrants were exercised by the consultant.