SHARE-BASED COMPENSATION

Stock Options and Restricted Stock

In December 2013, the board of directors adopted the 2013 Long-Term Incentive Plan (the "2013 Plan"). Under the 2013 Plan team members, directors and consultants of the Company may receive incentive stock options and other awards. A total of 900,000 shares of common stock of BG Staffing, Inc. were initially reserved for issuance pursuant to the 2013 Plan. To the extent any option or award expires unexercised or is canceled, terminated or forfeited in any manner without the issuance of common stock thereunder, such shares shall again be available for issuance under the 2013 Plan.

On May 16, 2017, stockholders of the Company approved and made effective an amendment to the 2013 Plan to add an additional 250,000 shares of common stock reserved for issuance. The board of directors of the Company had previously approved the amendment subject to stockholder approval.

The term of each option is determined by the board of directors but does not exceed 10 years. Unless otherwise specified in an option agreement, options vest and become exercisable on the following schedule: 20% immediately and 20% on each anniversary date of the grant date. Each option shall be designated as an incentive stock option (“ISO”) or a non-qualified option (“NQO”). The exercise price of an ISO shall not be less than the fair market value of the stock covered by the ISO at the grant date; provided, however, the exercise price of an ISO granted to any person who owns, directly or indirectly, stock of the Company constituting more than 10% of the total combined voting power of all classes of outstanding stock of the Company or of any affiliate of the Company, shall not be less than 110% of such fair market value.

The fair value of each option award was estimated on the date of grant using a Black-Scholes option pricing model and the assumptions in the following table. Because this option valuation model incorporates ranges of assumptions for inputs, those ranges are disclosed below. The Company bases the estimate of expected volatility on the historical volatility of similar entities whose share prices are publicly available. The volatilities of those entities will continue to be considered unless circumstances change such that the identified entities are no longer similar to the Company or until there is sufficient information available to utilize the Company’s own stock volatility. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company expects to use historical data to estimate team member termination within the valuation model; separate groups of team members that have similar historical termination behavior are considered separately for valuation purposes. The Company believes these estimates and assumptions are reasonable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.

On May 31, 2018, the Company entered into a stock option cancellation agreement (the "Option Cancellation Agreement") with L. Allen Baker, Jr., the Company's former President and Chief Executive Officer, pursuant to which the Company agreed to pay Mr. Baker $18.00 per share of common stock underlying his vested in-the-money stock options granted under the Company’s 2013 Plan, less the exercise price per share thereof, in exchange for the cancellation and termination of such stock options. Pursuant to the terms of the Option Cancellation Agreement, the Company paid $3.3 million to Mr. Baker in exchange for the cancellation of 284,888 stock options granted to him under the 2013 Plan.

For Fiscal 2018, 2017 and 2016, the Company recognized $1.1 million, $0.4 million and $0.3 million of compensation expense related to stock awards, respectively. Unamortized share-based compensation expense as of December 30, 2018 amounted to $1.3 million which is expected to be recognized over the next 3.0 years.

The following assumptions were used to estimate the fair value of share options and restricted stock for the years ended:



	2018			2017			2016
Weighted-average fair value of awards	$	12.27		$	3.94		$	4.05
Weighted-average risk-free interest rate	2.7		%	1.8		%	1.1		%
Weighted-average dividend yield	$	1.00		$	1.00		$	1.00
Weighted-average volatility factor	42.3		%	43.2		%	43.2		%
Weighted-average expected life	8.6		yrs	6.0		yrs	6.0		yrs

A summary of stock option and restricted stock activity is presented as follows:



	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Total Intrinsic Value of Options (in thousands)
Awards outstanding at December 27, 2015	775,666		$	8.19	8.7	$	5,246
Granted	50,000		$	17.46
Exercised	(103,055	)	$	6.91
Forfeited / Canceled	(44,200	)	$	9.94
Awards outstanding at December 25, 2016	678,411		$	8.95	7.8	$	4,511
Granted	128,000		$	16.76
Exercised	(28,800	)	$	7.71
Forfeited / Canceled	(12,200	)	$	11.00
Awards outstanding at December 31, 2017	765,411		$	10.27	7.3	$	4,521
Granted	217,000		$	20.73
Exercised	(163,338	)	$	10.47
Forfeited / Canceled	(292,088	)	$	6.71
Awards outstanding at December 30, 2018	526,985		$	16.49	7.7	$	2,932

Awards exercisable at December 31, 2017	498,611		$	8.74	6.8	$	3,640
Awards exercisable at December 30, 2018	238,085		$	13.96	7.2	$	1,684



	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested outstanding at December 31, 2017	266,800	$	3.09
Non-vested outstanding at December 30, 2018	288,900	$	8.34

For Fiscal 2018, 2017 and 2016, the Company issued 49,541, 5,221, and 55,974 shares of common stock upon the cashless exercise of 86,053, 13,800, and 87,655 stock options, respectively.

Included in awards outstanding are 31,500 shares of restricted stock, at a weighted average price per share of $28.61, issued under the 2013 Plan as of December 30, 2018. For Fiscal 2018, 2017 and 2016, the Company recognized $0.4 million, $-0- million, and $-0- million of compensation expense related to restricted stock, respectively.

As of December 30, 2018, a total of 864,516 shares remain available for issuance under the 2013 Plan.

Warrant Activity

For Fiscal 2018, 2017 and 2016, the Company did not recognize of compensation cost related to warrants. There was no unamortized stock compensation expense remaining to be recognized as of December 30, 2018.

The following assumptions were used to estimate the fair value of warrants for the years ended:



	2016
Weighted-average fair value of warrants	$	2.48
Weighted-average risk-free interest rate	0.6		%
Weighted-average dividend yield	$	1.00
Weighted-average volatility factor	43.2		%
Weighted-average expected life	3.0		yrs

A summary of warrant activity is presented as follows:



	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Total Intrinsic Value of Warrants (in thousands)
Warrants outstanding at December 27, 2015	133,833		$	10.21	3.5	$	634
Granted	32,250		$	16.80
Exercised	(42,099	)	$	11.42
Expired	—		$	—
Warrants exercisable at December 25, 2016	123,984		$	11.51	2.8	$	532
Granted	—		$	—
Exercised	—		$	—
Expired	—		$	—
Warrants outstanding at December 31, 2017	123,984		$	11.51	2.2	$	577
Granted	—		$	—
Exercised	(30,768	)	$	11.27
Expired	—		$	—
Warrants outstanding at December 30, 2018	93,216		$	11.59	1.3	$	805

Warrants exercisable at December 31, 2017	123,984		$	11.51	2.2	$	577
Warrants exercisable at December 30, 2018	93,216		$	11.59	1.3	$	805

There were no non-vested warrants outstanding at December 30, 2018 and December 31, 2017.

For Fiscal 2018, 2017 and 2016, the Company issued 16,623, -0- and 17,910 shares of common stock upon the cashless exercise of 30,768, -0- and 42,099 warrants, respectively.

The intrinsic value in the table above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options or warrants, before applicable income taxes and represents the amount holders would have realized if all in-the-money options or warrants had been exercised on the last business day of the period indicated.