Stock-Based Compensation Arrangements:

Predecessor Restricted Stock Plans

Prior to the Merger, our stock-based compensation plans permitted us to grant awards of restricted stock to our employees and non-employee directors. Certain of these awards were subject to performance-based criteria. Our stock-based compensation plans had provisions allowing for the automatic vesting of awards granted under those plans following a change of control, as defined in the applicable plan. The fair value of all stock-based awards, less estimated forfeitures, if any, and portions capitalized as described below, was recognized as stock-based compensation expense in “General and administrative expenses” in the Consolidated Statements of Earnings over the period that services were required to be provided in exchange for the award.

In connection with the Merger, all unvested restricted stock awards to our employees and non-employee directors became fully vested, and at the effective time of the Merger, each such share of restricted stock was canceled and converted into the right to receive an amount equal to the offer price of $54.00 per share, plus an amount in cash equal to all accrued but unpaid dividends relating to such shares, without interest and less any withholding required by applicable tax laws. We recorded $11.1 million in stock-based compensation expense related to the acceleration of restricted stock awards in “Transaction, severance and related litigation costs” in the Consolidated Statements of Earnings during the 47 day period ended February 14, 2014

Stock Options Plan

The 2014 Equity Incentive Plan provides Parent authority to grant equity incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards or performance compensation awards to certain directors, officers or employees of the Company.

During 2015 and the 317 day period ended December 28, 2014, Parent granted options to purchase 519,412 shares and 2,324,870 shares, respectively, of its common stock to certain directors, officers and employees of the Company. The options are subject to certain service and performance based vesting criteria, and were split evenly between Tranches A, B and C, which have different vesting requirements. The options in Tranche A are service based, and vest and become exercisable in equal installments on each of the first five anniversaries of the respective grant dates. The Black-Scholes model was used to estimate the fair value of Tranche A stock options. Tranche B and Tranche C options are performance based and vest and become exercisable when certain market conditions are met. The Monte Carlo simulation model was used to estimate the fair value of Tranche B and Tranche C stock options. Unvested Tranche A options are also subject to accelerated vesting and exercisability on the first anniversary of a change in control of Queso Holdings Inc. or within 12 months following such a change in control. Tranche B and C options may also vest and become exercisable if applicable hurdles are achieved in connection with an initial public offering. Compensation costs related to options in the Parent were recorded by the Company.

The weighted-average fair value of the options granted in 2015 and for the 317 day period ended December 28, 2014 was estimated at $2.83, $1.44 and $0.84 per option and $3.06, $1.58 and $1.01 per option, respectively, for Tranches A, B and C, respectively, on the date of grant based on the following assumptions:



	Successor
	2015		2014

Dividend yield	—	%	—	%
Volatility	30	%	30	%
Risk-free interest rate for Tranche A	1.30	%	1.58	%
Risk-free interest rate for Tranches B and C	1.30	%	1.32	%
Expected life - years	3.7		4.0

A summary of the option activity under the equity incentive plan as of January 3, 2016 and the activity for 2015 is presented below:



	Stock Options			Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
				($ per share)		($ in thousands)
Outstanding stock options, December 28, 2014	$	2,287,463		$8.12
Options Granted	519,412			$10.57
Options Forfeited	(413,791		)	$8.51
Outstanding stock options, January 3, 2016	$	2,393,084		$8.59	8.1	9,388
Stock options expected to vest, January 3, 2016	$	2,153,777		$8.59	8.1	8,449
Exercisable stock options, January 3, 2016	$	160,088		$8.24	8.1	683

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⁽¹⁾ The weighted average exercise price reflects the original grant date fair value per option as adjusted for the dividend payment made in August 2015.

As of January 3, 2016, we had $2.9 million of total unrecognized share based compensation expense related to unvested options, net of expected forfeitures, which is expected to be amortized over the remaining weighted average period of 3.4 years.

In February 2016, the Parent granted additional options to purchase 101,110 shares of its common stock to certain officers and employees of the Company.

A summary of stock based compensation costs recognized and capitalized is presented below:



	Successor						Predecessor
	Fiscal Year			For the 317 Day Period Ended			For the 47 Day Period Ended		Fiscal Year
	January 3, 2016			December 28, 2014			February 14, 2014		December 29, 2013
	(in thousands)
Stock-based compensation costs	$	855		$	713		$	1,117	$	8,660
Portion capitalized as property and equipment ⁽¹⁾	(17		)	(10		)	—		(179		)
Stock-based compensation costs related to the accelerated vesting of restricted stock awards in connection with the Merger	—			—			11,108		—
Stock-based compensation expense recognized	$	838		$	703		$	12,225	$	8,481
Tax benefit recognized from stock-based compensation awards⁽²⁾	$	18		$	4,874		$	—	$	3,377

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(1)

We capitalize the portion of stock-based compensation costs related to our design, construction, facilities and legal departments that are directly attributable to our store development projects, such as the design and construction of a new store and the remodeling and expansion of our existing stores. Capitalized stock-based compensation costs attributable to our store development projects are included in “Property and equipment, net” in the Consolidated Balance Sheets.


(2)	We recorded the tax benefit related to the accelerated vesting of restricted stock awards in the 317 day period ended December 28, 2014, the period the related expense is deductible for income tax purposes.