Stock-Based Compensation

12 Months Ended

Jan. 03, 2023

Share-Based Payment Arrangement [Abstract]

The Company’s 2010 Stock Incentive Plan (the “Plan”), as amended and restated in May of 2013, authorizes the grant of non-qualified stock options, incentive stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance stock units (“PSUs”) and incentive bonuses to employees, officers, non-employee directors and other service providers. 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. 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. In 2022, the Company launched the General Manager (“GM”) Equity program which granted RSUs to top performing general managers with a three year cliff vesting. At January 3, 2023, approximately 1.5 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 2022, 2021 and 2020, non-cash stock-based compensation expense of $4.4 million, $4.3 million and $2.6 million, respectively, was included in general and administrative expense. Expense recognized in 2021 was higher than previous years due to the increase in performance share compensation expense as a result of improved Company performance compared to previous years. As of January 3, 2023, there was $7.4 million of unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized over 2.4 years.

The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. Expected volatilities are based on the Company’s historical data and implied volatility. The Company uses historical data to estimate expected employee forfeitures 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 Company did not grant any options in 2022, 2021 or 2020.

The Company has estimated forfeiture rates that average 21% based upon the class of employees receiving stock-based compensation in its calculation of stock-based compensation expense for the year ended January 3, 2023. 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 3, 2023, 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—December 28, 2021	783,412	$	12.26
Granted	—	—
Forfeited or expired	(90,807)	12.07
Exercised	—	—
Outstanding—January 3, 2023	692,605	$	12.36	3.94	$	141
Vested and expected to vest	686,785	$	12.40	3.92	$	141
Exercisable as of January 3, 2023	657,625	$	12.62	3.80	$	141

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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 3, 2023.

There were no options granted in the years ended January 3, 2023, December 28, 2021 and December 29, 2020. The Company had 57,147, 90,590 and 120,349 options that vested during the years ended January 3, 2023, December 28, 2021 and December 29, 2020, respectively. These awards had a total estimated fair value of $0.3 million, $1.1 million, and $0.8 million at the date of vesting for the years ended January 3, 2023, December 28, 2021 and December 29, 2020, respectively.

Performance Stock Units

The Company grants PSUs to its executive officers under the Plan. These PSU awards are earned over a three-year performance period subject to the achievement of certain target performance conditions. The number of shares eligible to vest ranges from 0% to 200%, however no share shall vest if the defined minimum targets are not met. The PSUs granted during fiscal years 2019 to 2022 were based on target performance measures over the Company’s comparable sales growth and Adjusted EBITDA (“Financial PSU”). In 2022 and 2021, the Company also awarded a total shareholder return based metric (“TSR”), which compares the stock price of the Company’s shares to a group of peer companies.

Each share of the Financial PSU has a fair value equal to the Company’s stock price at the date of grant while the fair value of each share of TSR is determined using a Monte Carlo valuation model. The Financial PSU stock-based compensation expense is recognized during the three-year period and is adjusted for the number of shares that are expected to vest based on the probability of achieving the targeted performance measures. Stock-based compensation expense for TSR awards is recognized straight-line over the term of the award. PSUs remain unvested until the end of the performance period and through the post-vest holding period of three to six months (“vest date”). PSUs are forfeited in the event of termination prior to the vest date. The stock-based compensation expense recognized from the PSUs amounted to $0.9 million and $1.5 million during 2022 and 2021, respectively. There was no stock-based compensation expense recognized from the PSUs in 2020.

A summary of the status of the Company’s non-vested restricted share units as of January 3, 2023 and changes during the year then ended is presented below:


	Awards	Weighted- Average Grant Date Fair Value
Outstanding—December 28, 2021	1,164,827	$	8.23
Granted	1,678,080	5.57
Vested	(393,062)	7.51
Forfeited	(126,171)	6.39
Non-vested at January 3, 2023	2,323,674	$	6.45

The Company had 393,062 restricted stock units that vested during the year ended January 3, 2023. These units had a total estimated fair value of $2.2 million at the date of vesting for the year ended January 3, 2023.