Red Robin Gourmet Burgers, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock Incentive Plans

Stock Incentive Plans

12 Months Ended

Dec. 25, 2022

Share-Based Payment Arrangement [Abstract]

In May 2017, the Company's stockholders approved the 2017 Performance Incentive Plan (the "2017 Stock Plan"). Following the date of approval, all grants are made under the 2017 Stock Plan and no new awards may be granted under the Second Amended and Restated 2007 Performance Plan (the "2007 Stock Plan"). The 2017 Stock Plan authorizes the issuance of stock options, stock appreciation rights (SARs), and other forms of awards granted or denominated in the Company common stock or unit of the Company's common stock, as well as cash performance awards pursuant to the plan. Persons eligible to receive awards under the 2017 Stock Plan include officers, employees, directors, consultants, and other service providers or any affiliate of the Company. The maximum number of shares of the Company's common stock that may be issued or transferred pursuant to awards under the 2017 Stock Plan was 630,182 shares. The 2017 Stock Plan was amended in May 2019, and again in May 2020 to add an additional 660,000 and 275,000 shares, respectively, bringing the total to 1,565,182 shares as of December 25, 2022.

Vesting of the awards under the 2017 Stock Plan is determined at the date of grant by the plan administrator. Each award granted under the 2017 Stock Plan and 2007 Stock Plan fully vests, becomes exercisable and/or payable, as applicable, upon a change in control event. However, unless the individual award agreement provides otherwise, with respect to executive and certain other high level officers, upon the occurrence of a change in control, no award will vest unless such officers' employment with the Company is terminated by the Company without cause during the two years following such change in control event. Each award expires on such date as shall be determined at the date of grant; however, the maximum term of options, SARs, and other rights to acquire common stock under the plan is ten years after the initial date of the award, subject to provisions for further deferred payment in certain circumstances. Vesting of awards under these plans were generally time based over a period of one year to four years. As of December 25, 2022, 198,958 options and awards to acquire the Company's common stock remained outstanding under the 2007 Stock Plan; all remaining options and awards are outstanding under the 2017 Stock Plan.

Stock-based compensation costs recognized in 2022, 2021, and 2020 were $6.3 million, $6.6 million, and $4.3 million with related income tax benefits of $0.6 million, $1.4 million, and $0.3 million. The 2022 costs were comprised of $9.6 million stock-based compensation, partially offset by a $3.3 million reduction due to executive team forfeitures recorded in Other charges in the Consolidated Statements of Operations and Comprehensive Loss.

As of December 25, 2022, there was $8.7 million of unrecognized compensation cost, excluding estimated forfeitures. Unrecognized compensation costs are expected to be recognized over the weighted average remaining vesting period of approximately 0.25 years for stock options, 0.92 years for the restricted stock units ("RSU"), and 1.71 years for the performance stock units ("PSU").

Stock Options

The tables below summarize the status of the Company's stock option plans (in thousands, except exercise price):


	Stock Options
	Shares	Weighted Average Exercise Price
Outstanding, December 26, 2021	453	$	36.91
Granted	—	—
Forfeited/expired	(33)	27.95
Exercised	(1)	12.61
Outstanding, December 25, 2022	419	$	37.69


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Years of Contractual Life	Aggregate Intrinsic Value
Outstanding as of December 25, 2022	419	$	37.69	3.67	$	—
Vested and expected to vest as of December 25, 2022(1)	416	$	37.82	3.65	—
Exercisable as of December 25, 2022	361	$	41.68	3.10	$	—

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(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options. The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards.

The estimated fair value of each option granted is calculated using the Black-Scholes multiple option-pricing model, and expense is recognized straight line over the vesting period. No options were granted during 2022 or 2021. The average assumptions used in the model for the fiscal years ended December 25, 2022, December 26, 2021 and December 27, 2020 were as follows:


	2020
Risk-free interest rate	0.5		%
Expected years until exercise	4.7
Expected stock volatility	61.0		%
Dividend yield	—		%
Weighted average Black-Scholes fair value per share at date of grant	$	6.28

Total intrinsic value of options exercised was $4 thousand, $89 thousand, and $30 thousand in 2022, 2021, and 2020, respectively.

The risk-free interest rate was based on the rate for zero coupon U.S. Government issues with a remaining term similar to the expected life. The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends and Team Member exercise patterns. The expected stock price volatility represents an average of the Company's historical volatility measured over a period approximating the expected life. The dividend yield assumption is based on the Company's history and expectations of dividend payouts.

Time-Based RSUs

During 2022, 2021, and 2020, the Company issued time-based restricted stock units ("RSUs") to certain employees as permitted under the 2017 Stock Plan. The Company can grant RSUs to its directors, executive officers, and other key employees. The RSUs granted to employees typically vest in equal installments over three to four years. For the Company's board of directors, RSUs vest in full on the earlier of the one-year anniversary of the grant date or the next annual stockholder meeting. Upon vesting, one share of the Company's common stock is issued for each RSU. The fair value of each RSU granted is equal to the market price of the Company's stock at the date of grant, and expense is recognized straight line over the vesting period.

The table below summarizes the status of the Company's time-based RSUs under the 2017 and 2007 Stock Plans (shares in thousands):


	Restricted Stock Units
	Shares	Weighted Average Grant-Date Fair Value (per share)
Outstanding, December 26, 2021	419	$	28.89
Awarded	339	14.70
Forfeited	(113)	23.68
Vested	(213)	29.04
Outstanding, December 25, 2022(1)	432	$	19.05

(1) Awards expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options. The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards.

Performance Stock Units

During 2022, 2021, and 2020, the Company granted performance stock unit awards ("PSUs") to certain employees as permitted under the 2017 Stock Plan. Each PSU represents the right to receive one share of the Company's common stock on the payment date.

Prior to 2020, each PSU was divided into three equal tranches with applicable performance periods, typically consisting of a fiscal year, subject to the achievement of the applicable performance goals at target and applicable vesting conditions. Fair value of each PSU granted was equal to the market price of the Company's stock at the grant date, and expense is recognized ratably across the total performance period based on probability of achieving applicable performance goals. PSUs remain unvested until the end of the third performance period and are forfeited in the event of termination of employment of a grantee prior to the last day of the third performance period.

Beginning in 2020, the Company began granting PSU awards based on relative total stockholder return defined as increases in the Company's stock price during a performance period of three years as compared to the total stockholder return of a group of peer companies. Fair value of each PSU granted is determined by a Monte Carlo valuation model, and expense is recognized straight line over the performance period. PSUs remain unvested until the last day of the three year performance period and are generally forfeited in the event of termination of employment of a grantee prior to the last day of the three year performance period. If the relative total stockholder return target is not met, compensation cost for these PSUs is not reversed.

The table below summarizes the status of the Company's performance stock units under the 2017 Stock Plan (shares in thousands):


	Performance Stock Units
	Shares	Weighted Average Grant-Date Fair Value (per share)
Outstanding, December 26, 2021	380	$	28.54
Awarded	206	26.72
Forfeited	(350)	23.25
Vested	(3)	29.40
Outstanding, December 25, 2022(1)	233	$	34.82

Inducement Grants

The Company granted stock-based awards to certain of the Company’s new executive officers as inducements material to their commencement of employment and entry into an employment agreement with the Company. The inducement grants were made in accordance with Nasdaq Listing Rule 5635(c)(4) and were not made under the 2017 Plan.

The inducement grants, which include PSU and RSU awards, are generally subject to substantially the same terms and conditions as grants that are made under the 2017 Plan and fair value is determined in the same manner as described for each grant type above.

The table below summarizes the status of the Company' inducement grants (shares in thousands):


	Restricted Stock Units			Performance Stock Units
	Shares	Weighted Average Grant-Date Fair Value (per share)		Shares	Weighted Average Grant-Date Fair Value (per share)
Outstanding, December 26, 2021	—	$	—	—	$	—
Awarded	188	7.57		124	6.13
Forfeited	—	—		—	—
Vested	—	—		—	—
Outstanding, December 25, 2022(1)	188	$	7.57	124	$	6.13

Long-Term Cash Incentive Plan

Beginning in 2020, the long-term cash incentive plan is based on relative total stockholder return defined as increases in the Company's stock price during a performance period of 3 years as compared to the total stockholder return of a group of peer

companies. Compensation is recognized variably over the 3-year performance period based on a Monte Carlo valuation model. Beginning in 2017, the long-term cash incentive plan was based on operational metrics with 3 one-year performance periods. Compensation expense for awards granted before 2020 is recognized variably over the performance period based on the plan-to-date performance achievement. All long-term cash incentive awards cliff vest after 3 years at the end of each performance cycle. In 2022, 2021, and 2020, the Company recorded $(0.4) million, $0.5 million, and $0.2 million, respectively in compensation expense to Selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss related to the 2017 long-term cash incentive plan. The amounts recorded in 2022 include the reversal of the expense related to 2020 grants for which performance targets were not met.

During 2022 and 2021, the long-term cash incentive plan payout totaled $0.0 million and $0.3 million, respectively. At December 25, 2022 and December 26, 2021, a $0.6 million and $1.0 million long-term cash incentive plan liability was included in Accrued payroll and payroll-related liabilities on the consolidated balance sheets.