Stock-based Compensation

9 Months Ended

Sep. 25, 2012

Stock-based Compensation [Abstract]

Stock-based Compensation

Note 9 – Stock-based Compensation

In connection with the Acquisition, the Purchaser established a new stock option plan (the “2011 Stock Option Plan” or “Plan”) which governs, among other things, the grant of options with respect to the common stock of the Purchaser. The purposes of this Plan are to: (i) attract and retain highly qualified employees for the Company; (ii) motivate the participants to exercise their best efforts on behalf of the Company and the Purchaser; (iii) allow participants in the Plan to participate in equity value creation; and (iv) align the incentives between the participants and the Purchaser as well as the Company.

The following table summarized stock option activity under the Plan during the 39 weeks ended September 25, 2012:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Outstanding at December 27, 2011		—	$	—
Granted		245,914		130
Exercised		—		—
Forfeited or expired		—		—
Outstanding at September 25, 2012		245,914	$	130		9.3
Exercisable at September 25, 2012		—	$	—		—

Under the Purchaser’s 2011 Stock Option Plan, options may be granted with respect to a maximum of 261,469 shares of common stock of the Purchaser (which represents 10% of the outstanding shares of common stock of the Purchaser as of the date of the acquisition on a fully diluted basis), subject to adjustment under certain circumstances. Each grant of options under the 2011 Stock Option Plan will specify the applicable option exercise period, option exercise price, vesting conditions and such other terms and conditions as deemed appropriate by the Board of Directors of the Purchaser. Currently 80% of the options granted under the 2011 Stock Option Plan will vest ratably over four years subject to the achievement of certain performance targets (“Series 1”). Currently 20% of the options issued under the 2011 Stock Option Plan will vest only upon a change of control of the Company (“Series 2”). In each case, vesting will be subject to the option holders’ continued employment through the vesting date. All options granted under the Plan will expire ten years from the date of grant, subject to earlier expiration in the event the option holder ceases to be employed. At September 25, 2012, there were 15,555 shares of common stock available for future grant under the Plan.

Under their respective employment agreements, the following options have been granted to certain members of management:

	As of September 25, 2012
Series 1 Options		196,731
Series 2 Options		49,183
Total options granted		245,914
Total options exercisable		—

The exercise price of the Series 1 and Series 2 options was established based on the per share price of the common stock investment in the Purchaser at the time of closing of the Transactions, or $100.00 per share. For the Series 1 options, the exercise price accretes at a rate equal to 9% per annum, compounded annually. The exercise price of the Series 2 options was established as $250.00 per share. The exercise price of options granted following the Transactions will be determined at the discretion of the Compensation Committee of the Purchaser. The exercise price for all options granted was equal to or greater than the fair market value of the shares subject to the option on the date of grant.

Option grants will be made at the discretion and through approval of the Board of Directors of the Purchaser to ensure that compensation to the Company’s executive officers remains competitive and in-line with its peer companies.

The Company considers these options to be liability awards. The compensation cost for the portion of awards that are outstanding for which the requisite service has not been rendered, or the performance condition has not been achieved, will be recognized as the requisite service is rendered (subject to the occurrence of a triggering event becoming probable as described below) and/or performance condition achieved. Further, under the award agreements under the 2011 Stock Option Plan, any portion of an option that was vested on the date of the termination of the option holder’s employment or engagement with the Company for any reason is forfeited without payment of any kind 30 days after the date of such separation; provided that in the event the separation is a result of a termination by the Company for cause or the resignation of the option holder (other than for good reason in certain situations), any portion of the option that was vested shall also expire and be forfeited without payment of any kind on the separation date. Under the Stockholders Agreement among the stockholders of Purchaser, upon the termination of an employee stockholder’s employment or engagement with the Company for any reason, the Purchaser is required to purchase and the employee is required to sell all of the shares held at a price per share equal to the greater of (i) the original cost of such repurchased shares or (ii) the fair market value of such repurchased shares; provided that, if the separation is the result of a termination by the Company with cause or the resignation of the employee stockholder (other than for good reason in certain situations), then the purchase price for such repurchase shares equals the lesser of (i) the original cost or (ii) fair market value. The Company does not have a contractual obligation to fund the repurchase of these shares; however, the Company may be called upon to provide a distribution to the Purchaser upon such time a triggering event should occur that would require a repurchase of outstanding shares.

As of September 25, 2012, no options had been exercised by management. Based on the provisions of the 2011 Stock Option Plan and the award agreements thereunder, all options granted have clearly defined and limited scenarios in which the option has value to the option holder. Specifically, the Purchaser is not publicly traded so there is no market for shares acquired upon exercise of options. In addition, the Stockholders Agreement prohibits the transfer of shares to third parties without consent which may be withheld in the sole discretion of the Purchaser and its majority owners. Further, there are no provisions in place under which an employee may sell the shares back to the Company absent the occurrence of a triggering event (termination of employment or a Purchaser sale transaction). Therefore, the holder of options or shares acquired upon exercise of such options can generally only cash-out the options and/or sell the underlying shares upon occurrence of such an event, and upon the occurrence of such an event the options granted have the potential to yield value to each option holder only if the holder’s employment is terminated by the Company without cause or by the holder with good reason in certain situations (“Good Leaver Scenario”) or upon a Purchaser sale transaction. Additionally, due to the fact that an option holder would have no value for termination of employment for any other reason, and currently the Good Leaver scenario and Purchaser sale transaction are not deemed probable, the Company has concluded a 100% forfeiture rate is appropriate as there is no assurance that these options will achieve any value under these conditions prior to forfeiture or expiration. As no triggering events have been deemed probable as of September 25, 2012, the Company has recorded no compensation expense for options granted during 2012.