Note L - Stockholders' Equity, Stock Plans and Other Employee Benefit Plans

12 Months Ended

Mar. 26, 2023

Notes to Financial Statements

Equity [Text Block]

NOTE L – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS

1. Dividends

On June 24, 2022, September 2, 2022 and December 2, 2022, the Company paid quarterly dividends of $0.45 per share. On February 2, 2023, the Company’s Board of Directors (the “Board”)authorized the increase of its quarterly dividend from from $0.45 to $0.50 per share. On March 3, 2023, the Company paid quarterly cash dividends of $0.50 per share. Through March 26, 2023, the Company paid quarterly dividends aggregating $7,563.

On June 25, 2021, September 3, 2021 and December 3, 2021, the Company paid quarterly dividends of $0.35 per share. On February 4, 2022, the Board authorized the increase of its quarterly dividend from $0.35 per share to $0.45 per share. On March 4, 2022, the Company paid quarterly cash dividends of $0.45 per share. Through March 27, 2022, the Company paid quarterly cash dividends aggregating $6,173.

Effective June 8, 2023, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal year 2024, which is payable on June 28, 2023 to stockholders of record as of the close of business on June 20, 2023.

Our ability to pay future dividends is limited by the terms of the Indenture with U.S. Bank Trust Company, National Association (formerly U.S. Bank National Association), as trustee and collateral trustee. In addition to the terms of the Indenture, the declaration and payment of any cash dividends in the future are subject to final determination of the Board and will be dependent upon our earnings and financial requirements.

2. Stock Incentive Plan

On September 18, 2019, the Company’s shareholders approved the Nathan’s Famous, Inc. 2019 Stock Incentive Plan (the “2019 Plan”). The 2019 Plan became effective as of July 1, 2020 (the "Effective Date"). Following the Effective Date, (i) no additional stock awards were granted under the 2010 Plan and (ii) all outstanding stock awards previously granted under the 2010 Plan remained subject to the terms of the 2010 Plan. All awards granted on or after the Effective Date are subject to the terms of the 2019 Plan.

As of the Effective Date, we were able to issue up to: (a) 369,584 shares of common stock under the 2019 Plan which includes: (i) shares that have been authorized but not issued pursuant to the 2010 Plan as of the Effective Date up to a maximum of an additional 208,584 shares and (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of the Effective Date and that subsequently expire unexercised, or were otherwise forfeited, up to a maximum of an additional 11,000 shares. As of March 26, 2023, there were up to 131,683 shares available to be issued for future option grants or up to 148,584 shares of restricted stock to be granted under the 2019 Plan.

In general, options granted under the Company’s stock incentive plans have terms of five or ten years and vest over periods of between three and five years. The Company has historically issued new shares of common stock for options that have been exercised and used the Black-Scholes option valuation model to determine the fair value of options granted at the grant date.

During the fiscal year ended March 26, 2023, the Company granted 50,000 restricted stock units at a fair value of $67.59 per unit representing the closing price on the date of grant, which will be fully vested five years from the date of grant. The restricted stock units vest ratably over a five year period as follows: 10,000 restricted stock units on December 8, 2023; 10,000 restricted units on December 8, 2024; 10,000 restricted stock units on December 8, 2025; 10,000 restricted stock units on December 8, 2026; and 10,000 restricted stock units on December 8, 2027.

During the fiscal year ended March 27, 2022, the Company granted options to purchase 10,000 shares at an exercise price of $68.50 per share, all of which expire five years from the date of grant. All such options vest ratably over a four year period commencing August 10, 2021.

The weighted average option fair values, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the fiscal year ended March 27, 2022 were as follows:

Weighted-average option fair values	$13.04
Expected life (years)	4.4
Interest rate	0.82%
Volatility	27.69%
Dividend yield	2.04%

The expected dividend yield is based on historical and projected dividend yields. The Company estimates volatility based primarily on historical monthly price changes of the Company’s stock equal to the expected life of the option. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on expected historical exercise patterns and employment termination behavior.

The Company recognizes compensation cost for unvested stock-based incentive awards on a straight-line basis over the requisite service period. Compensation cost charged to expense under all stock-based incentive awards for the fiscal years ended March 26, 2023 and March 27, 2022 is as follows:

	March 26, 2023		March 27, 2022
Stock options	$	33	$	60
Restricted stock units		225		14
	$	258	$	74

The tax benefit on share-based compensation expense was $0 and $5 for the fiscal years ended March 26, 2023 and March 27, 2022, respectively. As of March 26, 2023, there was $3,232 of unamortized compensation expense related to stock-based incentive awards. The Company expects to recognize this expense over approximately fifty-two months, which represents the weighted average remaining requisite service periods for such awards.

A summary of the status of the Company’s stock options at March 26, 2023 and March 27, 2022 and changes during the fiscal years then ended is presented in the tables below:

					Weighted
			Weighted		Average
March 26, 2023			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price		Life		Value
Options outstanding – beginning of year		20,000	$	79.20		2.92
Granted		-		-
Expired		-		-
Exercised		-		-
Options outstanding - end of year		20,000	$	79.20		1.92	$	40
Options exercisable - end of year		12,500	$	85.62		1.05	$	10

					Weighted
			Weighted		Average
March 27, 2022			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price		Life		Value
Options outstanding – beginning of year		10,000	$	89.90		2.46
Granted		10,000	$	68.50		4.37
Expired		-		-
Exercised		-		-
Options outstanding - end of year		20,000	$	79.20		2.92	$	-
Options exercisable - end of year		10,000	$	89.90		1.46	$	-

Restricted stock units

Transactions with respect to restricted stock units for the fiscal year ended March 26, 2023 are as follows:

			Weighted
			Average
			Grant-date Fair value
	Shares		Per share
Unvested restricted stock units at March 27, 2022		-	$	-
Granted		50,000	$	67.59
Vested		-	$	-
Unvested restricted stock units at March 26, 2023		50,000	$	67.59

3. Stock Repurchase Programs

On June 14, 2022, the Board approved a 10b5-1 Plan (the “10b5-1 Plan”) which expired on September 13, 2022. During the fiscal year ended March 26, 2023, the Company repurchased in open market transactions 35,434 shares of the Company’s common stock at an average share price of $53.39 for a total cost of $1,892 under the 10b5-1 Plan.

In 2016, the Board authorized increases to the sixth stock repurchase plan for the purchase of up to 1,200,000 shares of its common stock on behalf of the Company. As of March 26, 2023, Nathan’s had repurchased 1,101,884 shares at a cost of $39,000 under the sixth stock repurchase plan. At March 26, 2023, there were 98,116 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases.

4. Employment Agreements

Effective January 1, 2007, Howard M. Lorber, previously Chairman of the Board and Chief Executive Officer, assumed the newly created position of Executive Chairman of the Board of Nathan’s and Eric Gatoff, previously Vice President and Corporate Counsel, became Chief Executive Officer of Nathan’s. In connection with the foregoing, the Company entered into an employment agreement with each of Messrs. Lorber (as amended, the “Lorber Employment Agreement”) and Gatoff (as amended, the “Gatoff Employment Agreement”).

On December 8, 2022, the Company entered into Amendment No. 3 to the Lorber Employment Agreement. Under the amendment, the term of the employment agreement was extended from December 31, 2022 to December 31, 2027. In addition, Mr. Lorber received a grant of 50,000 restricted stock units under the Company’s 2019 Stock Incentive Plan which vest in equal installments over five years. The Lorber Employment Agreement provides for a three-year consulting period after the termination of employment during which Mr. Lorber will receive a consulting fee of $200 per year in exchange for his agreement to provide no less than 15 days of consulting services per year, provided, Mr. Lorber is not required to provide more than 50 days of consulting services per year.

The Lorber Employment Agreement provides Mr. Lorber with the right to participate in employment benefits offered to other Nathan’s executives. During and after the contract term, Mr. Lorber is subject to certain confidentiality, non-solicitation and non-competition provisions in favor of the Company.

In the event that Mr. Lorber’s employment is terminated without cause, he is entitled to receive his salary and bonus for the remainder of the contract term. The Lorber Employment Agreement further provides that in the event there is a change in control, as defined in the agreement, Mr. Lorber has the option, exercisable within one year after such event, to terminate the agreement. Upon such termination, he has the right to receive a lump sum cash payment equal to the greater of (A) his salary and annual bonuses for the remainder of the employment term (including a prorated bonus for any partial fiscal year), which bonus shall be equal to the average of the annual bonuses awarded to him during the three fiscal years preceding the fiscal year of termination; or (B) 2.99 times his salary and annual bonus for the fiscal year immediately preceding the fiscal year of termination, in each case together with a lump sum cash payment equal to the difference between the exercise price of any exercisable options having an exercise price of less than the then current market price of the Company’s common stock and such then current market price. In addition, Nathan’s will provide Mr. Lorber with a tax gross-up payment to cover any excise tax due.

In the event of termination due to Mr. Lorber’s death or disability, he is entitled to receive an amount equal to his salary and annual bonuses for a three-year period, which bonus shall be equal to the average of the annual bonuses awarded to him during the three fiscal years preceding the fiscal year of termination.

Under the terms of the Gatoff Employment Agreement, Mr. Gatoff initially served as Chief Executive Officer from January 1, 2007 until December 31, 2008, which period automatically extends for additional one-year periods unless either party delivers notice of non-renewal no less than 180 days prior to the end of the term then in effect. Consequently, the Gatoff Employment Agreement is expected to be extended through December 31, 2024, based on the original terms, and no non-renewal notice has been given.

Pursuant to the agreement, Mr. Gatoff receives a base salary, currently $625 effective June 1, 2022, and an annual bonus based on his performance measured against the Company’s financial, strategic and operating objectives as determined by the Compensation Committee. The Gatoff Employment Agreement provides for an automobile allowance and the right of Mr. Gatoff to participate in employment benefits offered to other Nathan’s executives. The employment agreement automatically extends for successive one-year periods unless notice of non-renewal is provided in accordance with the agreement. During and after the contract term, Mr. Gatoff is subject to certain confidentiality, non-solicitation and non-competition provisions in favor of the Company.

Each employment agreement terminates upon death or voluntary termination by the respective employee or may be terminated by the Company on up to 30-days’ prior written notice by the Company in the event of disability or “cause,” as defined in each agreement.

5. Defined Contribution and Union Pension Plans

The Company has a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code covering all nonunion employees over age 21, who have been employed by the Company for at least one year. Employees may contribute to the plan, on a tax-deferred basis, up to 20% of their total annual salary. Historically, the Company has matched contributions at a rate of $.25 per dollar contributed by the employee on up to a maximum of 3% of the employee’s total annual salary. Employer contributions for each of the fiscal years ended March 26, 2023 and March 27, 2022 were $35 and are included in general and administrative expenses on the Consolidated Statements of Earnings.

The Company participates in a noncontributory, multi-employer, defined benefit pension plan (the “Union Plan”) covering substantially all of the Company’s union-represented employees. The risks of participating in the Union Plan are different from a single-employer plan in the following aspects: (a) assets contributed to the Union Plan by one employer may be used to provide benefits to employees of other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (c) if the Company chooses to stop participating in the Union Plan, the Company may be required to pay the Union Plan an amount based on the underfunded status of the Union Plan, referred to as a withdrawal liability. The most recent estimate of our potential withdrawal liability is $402 as of December 31, 2022. The Company has no plans or intentions to stop participating in the plan as of March 26, 2023 and does not believe that there is a reasonable possibility that a withdrawal liability will be incurred. Any adjustment for withdrawal liability will be recorded only when it is probable that a liability exists and can be reasonably estimated, in accordance with U.S. GAAP. Contributions to the Union Plan were $9 and $6 for the fiscal years ended March 26, 2023 and March 27, 2022, respectively.

6. Other Benefits

The Company provides, on a contributory basis, medical benefits to active employees. The Company does not provide medical benefits to retirees.