Stock-Based Compensation

12 Months Ended

Jan. 02, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The Company’s Stock Incentive Plan (the “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, non-employee directors and other service providers. The number of shares of common stock available for issuance pursuant to awards granted under the Plan on or after the IPO shall not exceed 3,750,500 shares. The Plan is administered by the Compensation Committee of the Company’s Board of Directors (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 a 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 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, or the Board using historical or then current transactions, comparable public company valuations, third-party valuations and other factors. All share-based awards (except for RSUs) granted under the Plan have a life of ten years. Most awards vest ratably over four years; however, some have been granted with different vesting schedules. Of the awards outstanding, none have been granted to non-employees (except those granted to non-employee members of the Board of Directors of the Company) under the Plan. At January 2, 2018, approximately 4.2 million share-based awards were available to be granted under the Plan.

Stock-based compensation expense is generally recognized on a straight-line basis over the service period of the awards. In 2017, 2016 and 2015, non-cash stock-based compensation expense of $1.7 million, $2.5 million and $1.7 million, respectively, was included in general and administrative expense. Stock-based compensation of approximately $178,000, $222,000 and $229,000 was included in capitalized internal costs in 2017, 2016 and 2015, respectively. Stock-based compensation expense also includes approximately $29,000 related to the Employee Stock Purchase Plan, see Note 11, Employee Benefit Plans.

Included in stock-based compensation expense during the year ended January 3, 2017 was a $0.7 million charge for modifying the outstanding stock options granted to Kevin Reddy, who resigned from his position as the Chairman of the Board and from his position as the Company’s Chief Executive Officer in July 2016. In connection with Mr. Reddy’s termination from the Company, the Company extended the exercise period of Mr. Reddy’s vested options and, as a result, he had the right to exercise his vested options to purchase the Company’s Class A common stock through October 23, 2017. These vested options expired unexercised.

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:



	2017			2016			2015
Risk-free interest rate	2.0		%	1.2		%	1.6		%
Expected term (average in years)	6.1			5.0			5.0
Expected dividend yield	—			—			—
Expected volatility	39.6		%	37.0		%	36.8		%
Weighted-average Black-Scholes fair value per share at date of grant	$	1.74		$	2.85		$	5.04

The Company has estimated forfeiture rates that range from 0% to 10% based upon the class of employees receiving stock-based compensation in its calculation of stock-based compensation expense for the year ended January 2, 2018. These estimates are based on historical forfeiture behavior exhibited by employees of the Company.

A summary of aggregate option award activity under the Plan as of January 2, 2018, and changes during the fiscal year then ended is presented below:



	Awards		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value ⁽¹⁾(in thousands)
Outstanding—January 3, 2017	2,574,932		$	12.34
Granted	232,000		4.25
Forfeited or expired	(1,474,797	)	11.16
Exercised	—		—
Outstanding—January 2, 2018	1,332,135		$	12.23	6.50	$	—
Vested and expected to vest	1,305,060		$	12.20	6.47	$	219
Exercisable as of January 2, 2018	788,873		$	13.75	5.14	$	—

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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 January 2, 2018.

The weighted-average grant-date fair value of options granted during the years ended January 2, 2018, January 3, 2017 and December 29, 2015 was $1.74, $2.85 and $5.04, respectively. The intrinsic value associated with options exercised was zero, $0.2 million and $4.2 million for the fiscal years ended January 2, 2018, January 3, 2017 and December 29, 2015, respectively. The Company had 177,491, 271,457 and 346,235 options that vested during the years ended January 2, 2018, January 3, 2017 and December 29, 2015, respectively. These awards had a total estimated fair value of $0.8 million, $2.7 million and $3.4 million at the date of vesting for the years ended January 2, 2018, January 3, 2017 and December 29, 2015, respectively.

A summary of the status of the Company’s non-vested restricted share units as of January 2, 2018 and changes during the year then ended is presented below:



	Awards		Weighted- Average Grant Date Fair Value
Outstanding at January 3, 2017	122,765		$	10.20
Granted	328,106		3.42
Vested	(100,871	)	6.87
Forfeited	(21,641	)	9.15
Non-vested at January 2, 2018	328,359		$	5.44

The Company granted 328,106 restricted stock units during the year ended January 2, 2018 with a weighted-average grant-date estimated fair value of $3.42. The Company had 100,871 restricted stock units that vested during the year ended January 2, 2018. These units had a total estimated fair value of $0.5 million at the date of vesting for the year ended January 2, 2018.

The restricted stock units granted during the year ended January 2, 2018 include 100,000 performance-vesting restricted stock units which were granted to the Company’s Chief Executive Officer and Executive Chairman. These restricted stock units will only vest upon the achievement of certain performance and market conditions including; the Company’s Class A common stock reaching a certain average closing price for two consecutive calendar quarters prior to December 31, 2020, or upon a change in control prior to December 31, 2020 if the stock price is equal to or higher than certain thresholds. The estimated fair value of the performance-vesting restricted stock units was calculated using a Monte Carlo simulation pricing model, using the following assumptions: (i) risk-free interest rate of 1.7%, (ii) expected term of 3.4 years, (iii) dividend yield of 0%, and (iv) volatility of 55.0%.

As of January 2, 2018, there was $2.5 million of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized over 2.49 years.