In April 2019, the Company adopted the 2019 Equity Incentive Plan, as amended and restated in June 2022 (“2019 Plan”), which replaced the Company’s Amended and Restated 2007 Equity and Performance Incentive Plan (the “Prior Plan”). The amendment and restatement of the 2019 Plan in June 2022 primarily authorized an additional 3,300,000 shares available for future grant. Awards under the 2019 Plan may consist of share option awards (both incentive share option awards and non-qualified share option awards), stock appreciation rights, nonvested share awards, other stock unit awards or dividend equivalents. In the past, share option awards issued by the Company have typically been non-qualified share option awards, while nonvested share awards and nonvested share unit awards issued by the Company have typically been based on the attainment of service-only conditions. Upon the adoption of the 2019 Plan, the Company stopped issuing awards under the Prior Plan, although the Company will continue to honor any outstanding awards under the Prior Plan.

The 2019 Plan (i) permits the Company to issue a maximum of 7,148,803 shares of the Company’s common stock plus the number of any additional shares that may thereafter become available as a result of the forfeiture, expiration or other cancellation of awards under any prior plans; and (ii) expires on April 11, 2029.

Any share option awards or stock appreciation rights shall be counted against this limit as one share for every one share granted. Any shares that are subject to awards other than share option awards or stock appreciation rights (including shares delivered on the settlement of dividend equivalents) shall be counted against this limit as 2.5 shares for every one share granted. The aggregate number of shares available under the 2019 Plan and the number of outstanding share option awards will be increased or decreased to reflect any changes in the outstanding common stock of the Company by reason of any recapitalization, spin-off, reorganization, reclassification, stock dividend, stock split, reverse stock split, or similar transaction.

At its discretion, the Company grants share option awards, nonvested share awards and nonvested share unit awards to certain employees, as defined by ASC 718, Compensation—Stock Compensation, under the 2019 Plan, and accounts for its share-based compensation in accordance with ASC 718. As of January 1, 2023, 4,350,658 shares remained available for future grant, and 300,035 share option awards, 587,675 nonvested share awards and zero nonvested share unit awards remained outstanding.

The Company accounts for its share-based compensation in accordance with ASC 718 and recognizes compensation expense on a straight-line basis over the requisite service period, net of estimated forfeitures, using the fair-value method for share option awards, nonvested share awards and nonvested share unit awards granted with service-only conditions. The estimated forfeiture rate considers historical employee turnover rates stratified into employee pools in comparison with an overall employee turnover rate, as well as expectations about the future. The Company periodically revises the estimated forfeiture rate in subsequent periods if actual forfeitures differ from those estimates. Compensation expense recorded under this method for fiscal 2022, 2021 and 2020 was $2.5 million, $2.0 million and $1.7 million, respectively, which reduced operating income and income before income taxes by the same amount. Compensation expense recognized in cost of sales was $0.1 million in fiscal 2022, 2021 and 2020 and compensation expense recognized in selling and administrative expense was $2.4 million, $1.9 million and $1.6 million in fiscal 2022, 2021 and 2020, respectively. The recognized tax benefit related to compensation expense for fiscal 2022, 2021 and 2020 was $0.5 million, $0.5 million and $0.4 million, respectively. Net income for fiscal 2022, 2021 and 2020 reflects the net-of-tax charge of $2.0 million, $1.5 million and $1.3 million, respectively, or $0.09, $0.07 and $0.06 per basic and diluted share, respectively.

Share option awards granted by the Company generally vest and become exercisable in four equal installments of 25% per year with a maximum life of ten years. The exercise price of share option awards is equal to the quoted market price of the Company’s common stock on the date of grant. The Company granted 10,000 share option awards with a weighted-average grant-date fair value of $5.46 per share option award in fiscal 2022, granted 10,000 share option awards with a weighted-average grant-date fair value of $12.16 per share option award in fiscal 2021 and granted 257,000 share option awards with a weighted-average grant-date fair value of $1.25 per share option awards in fiscal 2020.

The following table details the Company’s share option awards activity for the current fiscal year:


	Shares	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value
Outstanding at January 2, 2022	383,035	$3.96
Granted	10,000	13.35
Exercised	(83,400)	4.18
Forfeited	(9,600)	2.81
Outstanding at January 1, 2023	300,035	$4.24	6.80	$1,580,147
Exercisable at January 1, 2023	112,472	$4.32	6.36	$547,268
Vested and Expected to Vest at January 1, 2023	299,492	$4.24	6.80	$1,577,728

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based upon the Company’s closing stock price of $8.83 per share as of January 1, 2023, which would have been received by the share option award holders had all share option award holders exercised their share option awards as of that date.

The total intrinsic value of share option awards exercised, the total cash received from employees as a result of employee share option award exercises and the actual tax benefit realized for the tax deduction from share option award exercises in fiscal 2022 was approximately $1.0 million, $0.3 million and $0.2 million, respectively.

The fair value of each share option award on the date of grant was estimated using the Black-Scholes method based on the following weighted-average assumptions:


	Fiscal Year Ended
	January 1, 2023			January 2, 2022			January 3, 2021
Risk-free interest rate		2.7	%		1.3	%		0.9	%
Expected term	6.5 years			6.5 years			5.7 years
Expected volatility		80.8	%		75.7	%		63.0	%
Expected dividend yield		7.4	%		4.0	%		—

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option award; the expected term represents the weighted-average period of time that option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based upon the Company’s dividend rate at the time fair value is measured and future expectations.

As of January 1, 2023, there was $0.2 million of total unrecognized compensation expense related to nonvested share option awards granted. That expense is expected to be recognized over a weighted-average period of 1.1 years.

Nonvested share awards granted by the Company vest for employees from the date of grant in four equal annual installments of 25% per year. Nonvested share awards and nonvested share unit awards granted by the Company to non-employee directors for their service as directors, as defined by ASC 718, vest 100% on the earlier of (a) the date of the Company’s next annual stockholders meeting following the grant date, or (b) the first anniversary of the grant date.

Nonvested share awards become outstanding when granted and are delivered to the recipient upon their vesting. Vested share unit awards, including any dividend reinvestments, are delivered to the recipient on the tenth business day of January following the year in which the recipient’s service to the Company is terminated, at which time the units convert to shares and become outstanding. Outstanding nonvested share awards and nonvested share unit awards accrue dividends at the same rate as dividends paid to the Company’s shareholders. Accrued dividends on nonvested share awards are paid upon vesting of the underlying shares and forfeited if a recipient’s service to the Company is terminated prior to vesting. Accrued dividends on nonvested share unit awards are reinvested into additional nonvested share unit awards, vest on the same schedule as the underlying share unit awards, and are settled at the same time as the underlying share unit awards. The total fair value of nonvested share awards which vested during fiscal 2022, 2021 and 2020 was $3.3 million, $5.3 million and $0.4 million, respectively. No nonvested share unit awards vested during fiscal 2022. The total fair value of nonvested share unit awards which vested during fiscal 2021 and 2020 was $2.1 million and $0.2 million, respectively. On January 14, 2022, the Company delivered 124,012 shares on previously vested share unit awards, which included dividend reinvestments, to a Board member who retired in November 2021.

The Company granted 284,630 nonvested share awards with a weighted-average grant-date fair value of $15.03 per share award in fiscal 2022, granted 248,550 nonvested share awards with a weighted-average grant-date fair value of $15.61 per share award in fiscal 2021 and granted 321,600 nonvested share awards with a weighted-average grant-date fair value of $1.69 per share award in fiscal 2020.

The following table details the Company’s nonvested share awards activity for the current fiscal year:


	Shares			Weighted- Average Grant- Date Fair Value
Balance at January 2, 2022		551,700		$	8.51
Granted		284,630			15.03
Vested		(216,700	)		8.19
Forfeited		(31,955	)		11.18
Balance at January 1, 2023		587,675		$	11.64

To satisfy employee minimum statutory tax withholding requirements for nonvested share awards that vest, the Company withholds and retires a portion of the vesting common shares, unless an employee elects to pay cash. In fiscal 2022, the Company withheld 77,340 common shares with a total value of $1.2 million. This amount is presented as a cash outflow from financing activities in the Company’s consolidated statement of cash flows.

As of January 1, 2023, dividends accrued but not paid related to nonvested share awards were $1.4 million.

The Company granted no nonvested share unit awards in fiscal 2022, granted 2,614 nonvested share unit awards with a weighted-average grant-date fair value of $28.69 per share unit award in fiscal 2021 and granted 40,000 nonvested share unit awards with a weighted-average grant-date fair value of $2.28 per share unit award in fiscal 2020. The weighted-average grant-date fair value of nonvested share awards and nonvested share unit awards is the quoted market price of the Company’s common stock on the date of grant.

As of January 1, 2023, there were 299,084 cumulative vested share unit awards remaining, of which 92,764 of these awards represented cumulative dividend reinvestments. These cumulative vested share unit awards are deliverable to the holders on the tenth business day of January following the year in which the holder’s service to the Company terminates, at which time the units convert to shares of the Company’s common stock and become outstanding.

As of January 1, 2023, there was $4.9 million of total unrecognized compensation expense related to nonvested share awards, which is expected to be recognized over a weighted-average period of 2.2 years. There was no remaining unrecognized compensation expense related to nonvested share unit awards.