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Share-Based Employee Compensation | 12 Months Ended
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Oct. 02, 2022
Share-based Payment Arrangement, Noncash Expense [Abstract] |
Share-Based Employee Compensation | SHARE-BASED EMPLOYEE COMPENSATION Stock incentive plans — We offer share-based compensation plans to attract, retain, and motivate key officers, employees, and non-employee directors to work toward the financial success of the Company. Our stock incentive plans are administered by the Compensation Committee of the Board of Directors and have been approved by the stockholders of the Company. The terms and conditions of our share-based awards are determined by the Compensation Committee for each award date and may include provisions for the exercise price, expirations, vesting, restriction on sales, and forfeitures, as applicable. We issue new shares to satisfy stock issuances under our stock incentive plans. Our Amended and Restated 2004 Stock Incentive Plan authorizes the issuance of up to 11,600,000 common shares in connection with the granting of stock options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, or performance units to our employees and directors. There were 1,479,033 shares of common stock available for future issuance under this plan as of October 2, 2022. In connection with the Merger Agreement, on the Closing Date, the Company assumed the Del Taco Restaurants, Inc. 2015 Omnibus Incentive Plan which authorized the issuance of common shares in connection with the granting of stock options, stock appreciation rights, restricted stock and restricted stock units, or performance awards to their employees, directors, and consultants. There were 174,553 shares of common stock available for future issuance under this plan as of October 2, 2022. We also maintain a deferred compensation plan for non-management directors under which those who are eligible to receive fees or retainers may choose to defer receipt of their compensation. The deferred amounts are converted to stock equivalents. The plan requires settlement in shares of our common stock based on the number of stock equivalents and dividend equivalents at the time of a participant’s separation from the Board of Directors. This plan provides for the issuance of up to 350,000 shares of common stock in connection with the crediting of stock equivalents. There were 142,918 shares of common stock available for future issuance under this plan as of October 2, 2022. Compensation expense — The components of share-based compensation expense, included within “Selling, general, and administrative expenses” in our consolidated statements of earnings, in each fiscal year are as follows (in thousands):
|  | 2022 |  | 2021 |  | 2020
Nonvested stock units |  | $ | 4,544 |  |  | $ | 2,969 |  |  | $ | 3,526 |
Stock options |  | 19 |  |  | 25 |  |  | 351 |
Performance share awards |  | 1,835 |  |  | 830 |  |  | 254 |
Nonvested restricted stock awards |  | 434 |  |  | — |  |  | — |
Non-management directors’ deferred compensation |  | 290 |  |  | 224 |  |  | 263 |
Total share-based compensation expense |  | $ | 7,122 |  |  | $ | 4,048 |  |  | $ | 4,394 |
Nonvested restricted stock units — Nonvested restricted stock units (“RSUs”) are generally issued to employees and non-employee directors. Grants to executive officers of time-vesting RSUs vest ratably over four years and are subject to a stock holding requirement of 50% of after-tax net shares resulting from the vesting of RSUs and must be held until the multiple of base salary stock ownership is met. There were 75,791 of such RSUs outstanding as of October 2, 2022. RSUs issued to non-management directors vest 12 months from the date of grant, or upon termination of board service, including RSUs for which the director elected to defer receipt until termination of board service, and totaled 74,830 units outstanding as of October 2, 2022. RSUs issued to certain other employees either cliff vest or vest ratably over three years and totaled 85,985 units outstanding as of October 2, 2022. These awards are amortized to compensation expense over the estimated vesting period based upon the fair value of our common stock on the award date discounted by the present value of the expected dividend stream over the vesting period. The following is a summary of RSU activity for fiscal 2022:
|  | Shares |  | Weighted- Average Grant Date Fair Value
RSUs outstanding at October 3, 2021 |  | 141,197 |  |  | $ | 76.84 |
Granted |  | 130,862 |  |  | $ | 78.28 |
Released |  | (28,600) |  |  | $ | 89.02 |
Forfeited |  | (6,853) |  |  | $ | 83.34 |
RSUs outstanding at October 2, 2022 |  | 236,606 |  |  | $ | 75.98 |
As of October 2, 2022, there was approximately $9.5 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 2.4 years. The weighted-average grant date fair value of awards granted was $78.28, $95.44, and $73.94 in fiscal years 2022, 2021, and 2020, respectively. In fiscal years 2022, 2021, and 2020, the total fair value of RSUs that vested and were released was $2.5 million, $4.3 million, and $8.7 million, respectively. Modification of RSU awards — In fiscal 2020, we entered into a Retention, Transition and Separation Agreement with our former Chairman and Chief Executive Officer, which sets forth the terms of his transition and certain benefits he is eligible to receive, pro-rated through the duration of the transition period, which included vesting of his final tranche of unvested restricted stock units remaining under his November 2015 restricted stock unit award scheduled to vest in November 2020. Consequently, 23,128 shares vested on his last day of employment on July 31, 2020. This was accounted for as an equity award modification under ASC Topic 718, and as the fair value of the modified award was less than previously recognized compensation, no incremental compensation costs were recorded by the Company. Stock options — Option grants have contractual terms of seven years and employee options vest over a three-year period. Options may vest sooner upon retirement from the Company for employees meeting certain age and years of service thresholds. All option grants provide for an option exercise price equal to the closing market value of the common stock on the date of grant. The following is a summary of stock option activity for fiscal 2022:
| Shares |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value (in thousands)
Options outstanding at October 3, 2021 | 33,117 |  |  | $ | 92.44 |  |  |  |  |
Granted | — |  |  | N/A |  |  |  |
Exercised | (667) |  |  | $ | 75.23 |  |  |  |  |
Forfeited | — |  |  | N/A |  |  |  |
Expired | — |  |  | N/A |  |  |  |
Options outstanding at October 2, 2022 | 32,450 |  |  | $ | 92.80 |  |  | 2.33 |  | $ | — |
Options exercisable at October 2, 2022 | 29,446 |  |  | $ | 94.59 |  |  | 2.14 |  | $ | — |
The aggregate intrinsic value in the table above is the amount by which the current market price of our stock on October 2, 2022 exceeds the weighted-average exercise price. We use a valuation model to determine the fair value of options granted that requires the input of highly subjective assumptions, including the expected volatility of the stock price. The following table presents the weighted-average assumptions used for stock option grants in each fiscal year, along with the related weighted-average grant date fair value:
| 2022 (1) |  | 2021 (1) |  | 2020
Risk-free interest rate | N/A |  | N/A |  | 1.7%
Expected dividends yield | N/A |  | N/A |  | 2.1%
Expected stock price volatility | N/A |  | N/A |  | 28.1%
Expected life of options (in years) | N/A |  | N/A |  | 3.47
Weighted-average grant date fair value | N/A |  | N/A |  | $13.97
________________________ (1)No stock option awards were granted in fiscal 2022 or fiscal 2021. The risk-free interest rate was determined by a yield curve of risk-free rates based on published U.S. Treasury spot rates in effect at the time of grant and has a term equal to the expected life of the related options. The dividend yield assumption is based on the Company’s history and expectations of dividend payouts at the grant date. The expected stock price volatility in all years represents the Company’s historical volatility. The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends. As of October 2, 2022, there was less than $0.1 million of total unrecognized compensation cost related to stock options grants that is expected to be recognized over a weighted-average period of 0.2 years. The total intrinsic value of stock options exercised was less than $0.1 million, $1.6 million, and $0.7 million in fiscal years 2022, 2021, and 2020, respectively. Performance share awards — Performance share awards, granted in the form of stock units, represent a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. Performance share awards issued to executives vest at the end of a three-year period and vested amounts may range from 0% to a maximum of 150% of targeted amounts depending on the achievement of performance measures at the end of a three-year period. If the awardee ceases to be employed by the Company prior to the last day of the performance period due to retirement, disability, or death, the performance share awards become vested pro-rata based on the number of full accounting periods the awardee was continuously employed by the Company during the performance period. The expected cost of the shares is based on the fair value of our stock on the date of grant and is reflected over the vesting period with a reduction for estimated forfeitures. These awards may be settled in cash or shares of common stock at the election of the Company on the date of grant. It is our intent to settle these awards with shares of common stock. The following is a summary of performance share award activity for fiscal 2022:
| Shares |  | Weighted- Average Grant Date Fair Value
Performance share awards outstanding at October 3, 2021 | 35,097 |  |  | $ | 79.92 |
Granted | 37,822 |  |  | $ | 78.95 |
Issued | (6,905) |  |  | $ | 82.80 |
Forfeited | — |  |  | $ | — |
Performance adjustments | (632) |  |  | $ | 70.56 |
Performance share awards outstanding at October 2, 2022 | 65,382 |  |  | $ | 79.14 |
As of October 2, 2022, there was approximately $2.7 million of total unrecognized compensation cost related to performance share awards, which is expected to be recognized over a weighted-average period of 1.8 years. The weighted-average grant date fair value of awards granted was $78.95, $88.88, and $81.02 in fiscal years 2022, 2021, and 2020, respectively. The total fair value of awards that became fully vested during fiscal years 2022, 2021, and 2020 was $0.1 million, $0.6 million, and $0.5 million, respectively. Nonvested restricted stock awards — As part of the Merger Agreement, on the Closing Date, the Company assumed Del Taco’s historical equity compensation plans. The awards under Del Taco’s historical equity compensation plans that were not subject to accelerated vesting were exchanged for replacement awards of the Company, which included Del Taco’s non-accelerating restricted stock awards. Immediately following the Merger, these replacement awards were modified to accelerate the remaining vesting period to be one year following the Closing Date, other than the awards already scheduled to vest on June 30, 2022. The following is a summary of nonvested restricted stock awards for fiscal 2022:
| Shares |  | Weighted- Average Grant Date Fair Value
Restricted stock awards outstanding at October 3, 2021 | — |  |  | $ | — |
Granted | 21,152 |  |  | $ | 82.33 |
Issued | (8,368) |  |  | $ | 82.33 |
Forfeited | (8,114) |  |  | $ | 82.33 |
Restricted stock awards outstanding at October 2, 2022 | 4,670 |  |  | $ | 82.33 |
As of October 2, 2022, there was approximately $0.2 million of total unrecognized compensation cost related to nonvested stock awards, which is expected to be recognized over a weighted-average period of 0.4 years. The weighted-average grant date fair value of awards granted was $82.33 in fiscal 2022. The total fair value of awards that vested and were released during fiscal 2022 was $0.7 million. Non-management directors’ deferred compensation — All awards outstanding under our directors’ deferred compensation plan are accounted for as equity-based awards and deferred amounts are converted into stock equivalents based on a per share price equal to the average of the closing price of our common stock for the 10 trading days immediately preceding the date the deferred compensation is credited to the director’s account. During fiscal 2022 and 2021, no shares of common stock were issued in connection with director retirements. During fiscal 2020, 204 shares of common stock were issued in connection with director retirements with a fair value of less than $0.1 million. The following is a summary of the stock equivalent activity for fiscal 2022:
| Stock Equivalents |  | Weighted- Average Grant Date Fair Value
Stock equivalents outstanding at October 3, 2021 | 109,463 |  |  | $ | 43.06 |
Deferred directors’ compensation | 3,438 |  |  | $ | 84.35 |
Dividend equivalents | 3,373 |  |  | $ | 77.44 |
Stock equivalents outstanding at October 2, 2022 | 116,274 |  |  | $ | 45.28 |

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