Share-Based Compensation

Stock Options

The Company adopted the Susser Holdings Corporation 2006 Equity Incentive Plan (the 2006 Plan) on October 18, 2006. The 2006 Plan provides that an aggregate number of 2,637,277 shares may be issued under this plan. A total of 793,494 options were outstanding at January 1, 2012, of which 318,948 are exercisable. Vesting of most grants are over two to four years and expire 10 years after the original date of grant. The non–exercisable options outstanding at January 1, 2012 vest on various dates from March 2012 to September 2015.

Our policy for issuing shares upon share option exercise or share unit conversion is to first issue shares from treasury, when available, and then to issue new shares.

In accordance with the stock option exchange program approved by the Shareholders on May 26, 2010, on June 27, 2010, Eligible Optionholders tendered, and the Company accepted for cancellation, Eligible Options to purchase an aggregate of 852,910 shares of the Company’s common stock. On June 27, 2010, the Company granted Exchange Options to purchase an aggregate of 362,250 shares of the Company’s common stock and an aggregate of 75,818 shares of Exchange Stock in exchange for the cancellation of the tendered Eligible Options. The exercise price per share of each Exchange Option is $11.19, which was the closing price of the common stock on June 25, 2010. During the second quarter of 2010, Sam L. Susser voluntarily forfeited his 363,953 outstanding stock options and did not derive any benefit from the stock option exchange program.

The following table summarizes certain information regarding stock option activity for the fiscal 2009, 2010 and 2011:



	Stock Options
	Number of Options Outstanding		Weighted Average Exercise Price
Balances at December 28, 2008	1,708,842		$	17.17
Granted	91,158		12.12
Exercised	—		—
Forfeited or expired	(56,978	)	19.19
Balances at January 3, 2010	1,743,022		16.84
Granted	390,750		11.03
Exercised	—		—
Forfeited or expired	(1,335,567	)	17.96
Balances at January 2, 2011	798,205		12.11
Granted	73,500		15.20
Exercised	(48,082	)	11.81
Forfeited or expired	(30,129	)	15.14
Balances at January 1, 2012	793,494		$	12.30
Exercisable at January 1, 2012	318,948		$	12.88
Vested and expected to vest at January 1, 2012	600,280		$	12.47

At January 1, 2012, all outstanding options had an intrinsic value of $8.2 million and a weighted average remaining contractual life of 5.8 years. The vested options had a $3.1 million intrinsic value and a weighted average remaining contractual life of 5.0 years. A total of 48,082 shares had been exercised as of January 1, 2012 with total proceeds of $0.6 million received and an intrinsic value of $0.5 million.

Following our IPO, the fair value of each option grant has been estimated using the Black-Scholes-Merton option pricing model, with the following weighted assumptions and results:



	Year Ended
	January 3, 2010			January 2, 2011			January 1, 2012
Weighted average grant fair value	$	6.23		$	4.65		$	7.08
Exercise price	$	12.12		$	11.03		$	15.20
Stock-value on date of grant	$	12.12		$	11.03		$	15.20
Risk-free interest rate	2.8		%	1.6		%	2.2		%
Expected dividend yield	0.0		%	0.0		%	0.0		%
Weighted average expected life (years)	7.0			4.1			6.1
Expected volatility	46.3		%	52.6		%	45.7		%

Volatility was estimated by using the blended historical volatility of our stock and an industry peer, which was determined giving consideration to size, stage of lifecycle, capital structure and industry. The expected life was estimated using the shortcut method, as allowed by ASC 718. The aggregate grant-date fair value of options granted during fiscal 2009, 2010 and 2011was approximately $0.6 million, $1.8 million and $0.5 million, respectively. We recorded $2.5 million, $1.5 million and $1.2 million in stock compensation expense during fiscal 2009, 2010 and 2011, respectively for the options outstanding under the 2006 Plan. We received a tax deduction of $0.5 million during fiscal 2011. Compensation expense is being recognized straight-line over the related vesting periods and is included in general and administrative expense. The remaining compensation expense to be recognized over the next 45 months is a total of $1.0 million.

Restricted Stock and Restricted Stock Units

The Company has also granted shares of restricted stock. Vesting of most restricted stock grants are two to five years. The remaining shares vest ratably over a two, three or four year period. The total fair value of shares vested during fiscal 2011 was approximately $1.8 million. The following table summarizes certain information regarding the restricted stock grants:



	Restricted Stock
	Number of Units		Grant Date Average Fair Value Per Share
Nonvested at December 28, 2008	119,130		$	17.05
Granted	85,800		12.22
Vested	(35,815	)	14.83
Forfeited	(6,000	)	22.23
Nonvested at January 3, 2010	163,115		14.80
Granted	219,318		9.64
Vested	(65,536	)	13.86
Forfeited	(18,978	)	10.60
Nonvested at January 2, 2011	297,919		11.48
Granted	85,163		13.73
Vested	(145,520	)	12.12
Forfeited	(11,752	)	9.41
Nonvested at January 1, 2012	225,810		$	12.02

Stock-based compensation expense of $1.0 million, $0.6 million and $1.4 million was recognized for restricted stock during 2009, 2010 and 2011, respectively. We received a tax deduction of $0.1 million, $0.4 million and $2.7 million in fiscal 2009, 2010 and 2011, respectively. The remaining compensation expense to be recognized over the next 45 months is a total of $0.8 million.

The Company also granted restricted stock units during 2010 and 2011 which were subject to performance criteria, in addition to time vesting requirements. The performance criteria for a portion of these restricted stock units have been deemed to have been met. The restricted stock units vest over a 37 month period. The following table summarizes certain information regarding the restricted stock unit grants:



	Restricted Stock Units
	Number of Units		Grant Date Average Fair Value Per Unit
Nonvested at January 3, 2010	—		$	—
Granted	121,000		8.75
Vested	—		—
Forfeited	(10,000	)	8.75
Nonvested at January 2, 2011	111,000		8.75
Granted	207,700		13.64
Vested	(52,000	)	8.75
Forfeited (1)	(82,362	)	13.06
Nonvested at January 1, 2012	184,338		$	12.34

(1) Includes a total of 57,862 units canceled due to partial attainment of maximum performance criteria.

Stock-based compensation expense of $0.4 million and $1.0 million was recognized during 2010 and 2011, respectively, for restricted stock units. We received a tax deduction of $1.1 million during fiscal 2011. The remaining compensation expense to be recognized over the next 34 months is a total of $1.3 million.