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Note 15 - Equity-based Compensation Plans

6 Months Ended

Jul. 02, 2023

Notes to Financial Statements

Shareholders' Equity and Share-Based Payments [Text Block]

15.

EQUITY-BASED COMPENSATION PLANS

In 2021, the Company adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”), under which awards, including stock options, restricted stock units ("RSUs") and performance stock units ("PSUs") may be granted to employees and non-employee directors. The 2021 Plan authorized 8,850,000 shares of Common Stock to be available for award grants. As of July 2, 2023, 4,422,936 shares of Common Stock remained available for future issuance under the 2021 Plan. On June 6, 2023, the Company granted 1,000,000 RSUs and 1,520,000 PSUs to its new President and Chief Executive Officer. These awards were granted outside of the 2021 Plan as employment inducement awards and did not require shareholder approval under the rules of the New York Stock Exchange or otherwise.

Equity-based compensation expense included the following components:

		For the thirteen weeks ended								For the twenty-six weeks ended
		July 2, 2023				July 3, 2022				July 2, 2023				July 3, 2022
Restricted stock units		$	1,167			$	1,350			$	1,815			$	2,533
Performance stock units			322				—				374				—
Stock options			317				652				11				1,205
Profit interest units			—				1,481				—				2,907

All equity-based compensation expenses are recorded in selling, general and administrative costs in the condensed consolidated statements of comprehensive income.

Restricted Stock Units

The Compensation Committee has awarded RSUs to select employees and non-employee directors. The RSUs vest ratably over one to four years of continued employment. The fair value of a RSU at the grant date is equal to the market price of Common Stock on the grant date. Compensation expense for RSUs is recorded based on amortization of the grant date fair market value over the period the restrictions lapse. As of July 2, 2023, there was $8,849 of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a remaining weighted average period of 2.5 years. The weighted average grant date fair value for RSUs was $2.75 and $11.46 for the 26-week periods ended July 2, 2023 and July 3, 2022, respectively. The fair value of RSUs vested and converted to shares of Common Stock was $303 for the 26-week period ended July 2, 2023.

The following table summarizes RSU activity for the 26-week period ended July 2, 2023:

		Unvested Restricted Stock Units
						Weighted
		Number of				Average Grant
		RSUs				Date Fair Value
December 31, 2022			1,108,330			$	9.43
Granted			2,437,743				2.75
Vested			(126,197	)			10.56
Forfeited			(189,640	)			12.13
July 2, 2023			3,230,236			$	3.42

Performance Stock Units

The Compensation Committee has awarded PSUs to select employees. The PSUs represent shares of Common Stock that are potentially issuable in the future based on a combination of performance and service requirements. On March 8, 2023, the Company granted 949,412 PSUs under the 2021 Plan to key employees with a grant date fair value of $1.98. The PSUs granted to employees were based on salary and include annual net sales and adjusted EBITDA growth targets with threshold and stretch goals. The awards vest ratably over three years, subject to the employee’s continuous employment through the vesting date and the level of performance achieved. The number of PSUs granted reflects the target number able to be earned under a given award. Non-vested PSU compensation expense is based on the most recent performance assumption available and is adjusted as assumptions change. The fair value of a PSU at the grant date is equal to the market price of Common Stock on the grant date. The cost estimates for PSU grants represent initial target awards until the Company can reasonably forecast the financial performance of each PSU award grant. The actual number of shares of Common Stock to be issued at the end of each performance period will range from 0% to 150% of the initial target awards.

On June 6, 2023, the Company granted 1,520,000 PSUs to its new President and Chief Executive Officer as an employment inducement award, which are potentially issuable in the future based on a combination of achievement of certain stock price metrics and service requirements through the expiration date of December 31, 2030. The fair value of this award is determined using a Monte Carlo simulation as of the date of the grant and share-based compensation expense will not be adjusted should the target awards vary from actual awards. The Company's estimates of fair value may be impacted by certain variables including, but not limited to, stock price volatility, the risk-free interest rate, expected dividend yields, and the Company's performance.

As of July 2, 2023, there was $4,397 of unrecognized compensation cost related to unvested PSUs that is expected to be recognized over a remaining weighted average period of 2.35 years.

Stock Options

Stock option grants have an exercise price at least equal to the market value of the underlying Common Stock on the date of grant, have ten-year terms, and vest ratably over three years of continued employment. In general, vested options expire if not exercised within 90 days of termination of service. Compensation expense for stock options is recorded based on straight-line amortization of the grant date fair value over the requisite service period. As of July 2, 2023, there was $1,611 of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a remaining weighted-average period of 1.3 years.

The following table summarizes stock option activity for the 26-week period ended July 2, 2023:

										Weighted Average
						Weighted				Remaining
		Number of				Average				Contractual
		Stock Options				Exercise Price				Term (years)
Options outstanding on December 31, 2022			1,709,690			$	10.97
Forfeited			(592,588	)			11.11
Expired			(194,874	)			10.50
Options outstanding on July 2, 2023			922,228			$	10.98				8.26
Options exercisable on, July 2, 2023			307,401			$	10.98				8.26

Profit Interest Units

The Holley Stockholder authorized an incentive pool of 41,400,000 units of Holley Stockholder that its management had the right to grant to certain employees of the Company. The units, which are designated as Profit Interest Units (“PIUs”), are a special type of limited liability company equity unit that allows the recipient to potentially participate in a future increase in the value of the Company. The PIUs were issued for no consideration and generally provided for vesting over a requisite service period, subject to the recipient remaining an employee of the Company through each vesting date.

In the fourth quarter of 2022, the Holley Stockholder amended the vesting criteria to allow for immediate vesting of all outstanding and unvested PIUs. The changes to these awards were deemed to be modification events under ASC Subtopic 718-10, Stock Compensation. Accordingly, during the fourth quarter of 2022, the Company recognized catch-up equity-based compensation expense, including incremental fair value resulting from the modification, as applicable to each award grant. At that time all PIUs were fully vested with no remaining unrecognized compensation cost, and there are no remaining PIUs authorized for issuance.