Stock-Based Compensation

The Company recognizes compensation expense based on estimated grant date fair values for all stock-based awards issued to employees and directors. The Company estimates the fair value of stock-based awards based on assumptions as of the grant date. The Company recognizes these compensation costs for only those awards expected to vest, on a straight-line basis over the requisite service period of the award. The Company estimates the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover within the specific employee groups receiving the awards. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates.

2015 Omnibus Incentive Plan

In connection with the approval of the Business Combination, the Del Taco Restaurants, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”) was approved by shareholders to offer eligible employees, directors and consultants cash and stock-based incentive awards. Awards under the 2015 Plan are generally not restricted to any specific form or structure and could include, without limitation, stock options, stock appreciation rights, restricted stock, other stock-based awards, other cash-based compensation and performance awards. Under the 2015 Plan, there are 3,300,000 shares of common stock reserved and authorized. At January 3, 2017, there were 1,666,842 shares of common stock available for grant under the 2015 Plan.

Stock-Based Compensation Expense (Successor)

The total compensation expense related to the 2015 Plan was $4.1 million for the fifty-three weeks ended January 3, 2017 (Successor) and $1.5 million for the twenty-six weeks ended December 29, 2015 (Successor).

Restricted Stock Awards (Successor)

During the fifty-three weeks ended January 3, 2017, 461,124 shares of restricted stock were granted to certain directors, officers and employees of the Company under the 2015 Plan. These restricted stock awards vest on a straight-line basis in equal annual installments over four years from the grant date.

A summary of outstanding and unvested restricted stock activity as of January 3, 2017 (Successor) and changes during the period from December 29, 2015 through January 3, 2017 (Successor) are as follows:



	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 29, 2015 (Successor)	946,494		$	11.16
Granted	461,124		9.30
Vested	(265,046	)	11.25
Forfeited	(8,750	)	9.66
Nonvested at January 3, 2017 (Successor)	1,133,822		$	10.40

During the fifty-two weeks ended January 3, 2017, the Company made payments of $0.9 million related to tax withholding obligations for the vesting of restricted stock awards in exchange for 100,710 shares withheld. As of January 3, 2017 (Successor), there was $9.3 million of unrecognized compensation expense, net of estimated forfeitures, related to restricted stock, which is expected to be recognized over a weighted-average period of 2.6 years. The weighted average grant date fair value of restricted stock awards granted was $9.30 and $11.16 during the fifty-three weeks ended January 3, 2017 (Successor) and twenty-six weeks ended December 29, 2015 (Successor), respectively. The total fair value of awards that became fully vested during the fifty-three weeks ended January 3, 2017 (Successor) and twenty-six weeks ended December 29, 2015 (Successor) was $2.4 million and zero, respectively.

Stock Options

During the fifty-two weeks ended January 3, 2017, 122,000 stock options were granted to certain employees of the Company under the 2015 Plan. The stock options vest on a straight-line basis in equal annual installments over four years from the grant date.

A summary of stock option activity as of January 3, 2017 (Successor) and changes during the period from December 29, 2015 through January 3, 2017 (Successor) are as follows:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 29, 2015 (Successor)	224,000		$	10.40	6.5	$	67
Granted	122,000		9.14
Exercised	(500	)	10.40
Forfeited	(11,000	)	10.40
Options outstanding at January 3, 2017 (Successor)	334,500		$	9.94	6.1	$	1,464
Options exercisable at January 3, 2017 (Successor)	54,500		$	10.38	6.0	$	215
Options exercisable and expected to vest at January 3, 2017 (Successor)	308,919		$	9.95	6.1	$	1,349

The aggregated intrinsic value in the table above is the amount by which the current market price of the Company's stock exceeds the exercise price on January 3, 2017 and December 29, 2015, respectively.

The following table reflects the weighted-average assumptions used in the Black-Scholes option-pricing model to value the stock options granted in the fifty-three weeks ended January 3, 2017 (Successor) and the twenty-six weeks ended December 29, 2015 (Successor):



	53 Weeks Ended January 3, 2017			26 Weeks Ended December 29, 2015
Expected volatility	37.64		%	38.01		%
Risk-free rate of return	1.12		%	1.84		%
Expected life (in years)	5.5			5.5
Dividend yield	—			—
Fair value per share at date of grant	$	3.31		$	3.93

Since the Company does not have a history of traded common stock activity, expected volatility was based on historical data from selected peer public company restaurants. The risk-free rate is based on published U.S. Treasury rates in effect at the time of grant with a similar duration of the expected life of the options. The expected life of options granted is derived from the average of the contractual term of the option and the vesting periods. The Company has not paid any dividends to date, therefore, the Company used an expected dividend yield of zero for option valuation purposes.

As of January 3, 2017 (Successor), there was $0.8 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock options grants which is expected to be recognized over a weighted-average remaining period of 2.9 years. The total intrinsic value of stock options exercised was $2,000 and zero during the fifty-three weeks ended January 3, 2017 (Successor) and twenty-six weeks ended December 29, 2015 (Successor), respectively.

Stock-Based Compensation Expense (Predecessor)

In connection with Step 1 of the Business Combination consummated on March 20, 2015, all unvested restricted stock units (“RSUs”) under the Predecessor plan became fully vested and all vested RSUs were then immediately settled for shares of DTH common stock, net of shares withheld for minimum statutory employee tax withholding obligations and all unvested stock options under the Predecessor plan became fully vested and all vested stock options were also exercised and shares were issued, net of shares withheld for the applicable option strike price and employee tax withholding obligations. An aggregate of 237,948 shares of DTH common stock were issued and 247,552 shares of DTH common stock were redeemed for applicable option strike price and employee tax withholding obligations. In exchange for the shares withheld, DTH made payments of $7.5 million related to employee tax withholding obligations.

No RSUs or stock options remained outstanding under the Predecessor plan after March 20, 2015 or as of January 3, 2017. DTH recorded stock-based compensation expense of $0.5 million, which included all remaining unrecognized compensation expense related to the accelerated vesting on RSUs and stock options on March 20, 2015, for the twenty-six weeks ended June 30, 2015 (Predecessor) and DTH recorded stock-based compensation expense totaling $1.0 million during the fifty-two weeks ended December 30, 2014 (Predecessor).

A summary of RSUs activity as of June 30, 2015 (Predecessor) and changes during the period from December 31, 2013 to June 30, 2015 (Predecessor) are as follows:



	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2013 (Predecessor)	173,200		$	25.00
Granted	—		—
Vested	(79,100	)	25.00
Forfeited	—		—
Nonvested at December 30, 2014 (Predecessor)	94,100		25.00
Granted	—		—
Vested	(94,100	)	25.00
Forfeited	—		—
Nonvested at June 30, 2015 (Predecessor)	—		$	—

A summary of stock option activity as of June 30, 2015 (Predecessor) and changes during the period from December 31, 2013 to June 30, 2015 (Predecessor) are as follows:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2013 (Predecessor)	20,000		$	25.00	7.7	$	—
Granted	70,000		22.60		9.3
Exercised	—		—
Forfeited	—		—
Options outstanding at December 30, 2014 (Predecessor)	90,000		23.10		8.7	1,400
Granted	—		—
Exercised	(90,000	)	23.10
Forfeited	—		—
Options outstanding at June 30, 2015 (Predecessor)	—		$	—	—	$	—
Options exercisable at June 30, 2015 (Predecessor)	—		$	—	—	$	—
Options exercisable and expected to vest at June 30, 2015 (Predecessor)	—		$	—	—	$	—