Stock and Stock-Based Compensation Plans

Prior to the Separation, KAR issued equity awards from time to time to select employees and non-employee directors of IAA. Subsequent to the Separation, IAA created its own equity plan - the 2019 Omnibus Stock and Incentive Plan (as amended, the "2019 OSIP"), as described below under 2019 Omnibus Stock and Incentive Plan.

The employee matters agreement required that the outstanding KAR equity awards held by IAA employees and non-employee directors be converted into adjusted awards of IAA pursuant to the 2019 OSIP. The awards were adjusted based on the following principles:


•	For each award recipient, the intent was to maintain the economic value of those awards before and after the Separation Date; and

•

The terms of the equity awards, such as the vesting schedule, will generally continue unchanged, except that the performance criteria for certain performance-based restricted stock units ("PRSUs") granted in 2019 will be subject to adjusted performance criteria and such PRSUs will be converted into time-based restricted stock units with two-year cliff vesting, if adjusted performance criteria are met.

2019 Omnibus Stock and Incentive Plan

On June 27, 2019, the Company's board of directors approved the 2019 OSIP. The purpose of the 2019 OSIP is to provide an additional incentive to selected management employees, directors, independent contractors, and consultants of the Company whose contributions are essential to the growth and success of the Company, in order to strengthen the commitment of such persons, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability for the Company.

Benefits granted under the 2019 OSIP may be granted in any one or a combination of (i) options to purchase IAA common stock; (ii) IAA share appreciation rights (“SARs”); (iii) restricted shares of IAA common stock; (iv) other IAA stock-based awards; or (v) other cash-based awards. Options, restricted shares and other share-based awards or cash awards may constitute performance-based awards. The granting or vesting of any performance-based awards will be based on achievement of performance objectives that are based on one or more business criteria, with respect to one or more business units or IAA and its subsidiaries as a whole. Such business criteria may be adjusted to account for unusual or infrequently occurring items or changes in accounting.

Participants include any employee, director, independent contractor or consultant of IAA or any affiliate of IAA selected to receive awards under the 2019 OSIP, and, upon his or her death, his or her successors, heirs, executors and administrators, as the case may be. As of December 29, 2019, the number of common shares reserved and available for awards under the 2019 OSIP is 4,897,256 shares, subject to adjustment made in accordance with the 2019 OSIP. Upon the occurrence of certain corporate events that affect the common stock, including but not limited to extraordinary cash dividend, stock split, reorganization or other relevant changes in capitalization, appropriate adjustments may be made with respect to the number of shares available for grants under the 2019 OSIP, the number of shares covered by outstanding awards and the maximum number of shares that may be granted to any participant.

The aggregate awards granted during any calendar year to any single individual will not exceed: (i) 1,000,000 shares subject to options or SARs, (ii) 500,000 shares subject to restricted shares or other share-based awards and (iii) $5,000,000 with respect to any cash-based award. A non-employee director of IAA may not be granted awards under the 2019 OSIP during any calendar year that, when aggregated with such non-employee director’s cash fees received with respect to such calendar year, exceed $750,000 in total value.

The following table summarizes the Company's stock-based compensation expense by type of award granted under both the KAR and IAA plans (in millions):



	Fiscal Years Ended
	December 29, 2019		December 30, 2018		December 31, 2017
Performance-based Restricted Stock Units	$	0.4	$	—	$	—
Restricted Stock Units and Awards	3.9		3.7		3.6
Stock Options	0.4		0.1		0.2
Total stock-based compensation expense	$	4.7	$	3.8	$	3.8

As of December 29, 2019, an estimated $8.5 million of unrecognized expense related to non-vested awards under both KAR and IAA plans that is expected to be recognized over a weighted average term of approximately 1.7 years.

Performance-based Restricted Stock Units (PRSU)

The PRSUs granted to certain executive officers and management of the Company vest at the end of a three-year performance period if and to the extent that the Company's three years cumulative operating adjusted net income per share attains certain specified goals. The following table summarizes the Company's PRSU activity:



Performance-based Restricted Stock Units^*	Awards		Weighted Average Grant Date Fair Value
Outstanding at June 28, 2019 (converted from KAR in connection with the Separation)	281,320		$	29.27
Vested	(4,320	)	29.18
Forfeited	(15,000	)	29.23
Outstanding at the end of fiscal year	262,000		29.31

^*IAA awards, including those held by KAR employees

The fair value of shares that vested during fiscal 2019 was $0.1 million.

Restricted Stock Units (RSU)

The RSUs granted by the Company to certain executive officers and management of the Company are contingent upon continued employment and generally vest in three equal annual installments. The following table summarizes the Company's RSU activity:



Restricted Stock Units^*	Awards		Weighted Average Grant Date Fair Value
Outstanding at June 28, 2019 (converted from KAR in connection with the Separation)	1,059,180		$	30.57
Granted	19,430		44.85
Vested	(42,845	)	29.56
Forfeited	(48,145	)	30.74
Outstanding at December 29, 2019	987,620		30.88

^*IAA awards, including those held by KAR employees

The fair value of shares that vested during fiscal 2019 was $1.3 million.

Restricted Stock Awards (RSA)

The RSAs granted by the Company to non-employee directors vest in four equal installments over a one year vesting term. The following table summarizes the Company's RSA activity:



Restricted Stock Awards	Awards		Weighted Average Grant Date Fair Value
Outstanding at June 28, 2019 (converted from KAR in connection with the Separation)	—		$	—
Granted	13,840		46.97
Vested	(3,460	)	46.97
Outstanding at December 29, 2019	10,380		46.97

The fair value of shares that vested during fiscal 2019 was $0.2 million.

Stock Options

The following table summarizes stock option activity:



Stock Options *	Number of Awards		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Average Intrinsic Value (in millions)
Outstanding at June 28, 2019 (converted from KAR in connection with the Separation)	812,791		$	15.01
Granted	189,237		46.97
Exercised	(100,454	)	16.42
Canceled/Expired	(563	)	17.11
Outstanding at December 29, 2019	901,011		21.57		4.6	$	22.9

Exercisable at December 29, 2019	711,774		14.81		3.3	$	22.9

^*IAA awards, including those held by KAR employees.

The grant date fair value of stock options granted to certain employees during fiscal 2019 was $13.76 per option. The fair value of each option was estimated on the grant date using Black-Scholes Merton option pricing model. Assumptions included in that model were following: stock price at date of grant of $46.97; 3 years graded vesting period; term of 10 years; risk-free interest rate of 1.88%; volatility of 26% based on peer public companies; expected life of 6 years; and a dividend yield of 0%.

The total intrinsic value of service options exercised during the fiscal years ended December 29, 2019 was $2.8 million.

Employee Stock Purchase Plan

The Company adopted the IAA, Inc. Employee Stock Purchase Plan ("ESPP") on August 1, 2019. The ESPP is designed to provide an incentive to attract, retain and reward eligible employees and is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. A maximum of 1,000,000 shares of the Company's common stock have been reserved for issuance under the ESPP, of which 989,496 shares remained available for future purchases as of December 29, 2019. The ESPP provides for one month offering periods with a 15% discount from the fair market value of the Company's share on the date of purchase. A participant's annual contribution to the ESPP may not exceed $25,000 per year. Unless terminated earlier, the ESPP will terminate on December 31, 2028. In accordance with ASC 718, Compensation—Stock Compensation, the entire 15% purchase discount is recorded as compensation expense in the period of purchase. The Company's stock purchased through the ESPP is considered outstanding and is included in the weighted-average outstanding shares for purposes of computing basic and diluted earnings per share. Prior to the adoption of the ESPP, eligible employees participated in KAR's employee stock purchase plan which also provided for one month offering periods with a 15% discount from the fair market value of KAR's share on the date of purchase. Stock-based compensation expense recorded during the fiscal years ended 2019, 2018 and 2017, in connection with the compensatory elements of the Company's and KAR's employee stock purchase plan, was not significant.