Share-Based Compensation

We have two share-based compensation plans covering officers, directors and certain employees and consultants: the 2004 Equity Incentive Plan (the “2004 Plan”) and the 2006 Long Term Equity Incentive Plan (the “2006 Plan”). The plans are designed to motivate and retain individuals who are responsible for the attainment of our primary long-term performance goals. The plans provide a means whereby our employees and directors develop a sense of proprietorship and personal involvement in our development and financial success and encourage them to devote their best efforts to our business. Although we do not have a formal policy on the matter, we issue new shares of our common stock to participants upon the exercise of options, settlement of restricted stock units, granting of restricted stock, or vesting of performance shares, out of the total amount of common shares authorized for issuance under the 2004 Plan or the 2006 Plan.

The 2004 Plan provides for the grant of nonqualified stock options, incentive stock options and restricted shares of our common stock to participants of the plan selected by our Board of Directors or a committee of the Board that administers the 2004 Plan. We reserved 2,222,222 shares of our common stock for issuance under the 2004 Plan. The terms and conditions of awards under the 2004 Plan are determined by the Compensation Committee.

The 2006 Plan permits the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards, and other share-based awards to participants of the 2006 Plan selected by our Board of Directors or a committee of the Board that administers the 2006 Plan. We reserved 12,200,000 shares of our common stock for issuance under the 2006 Plan. The terms and conditions of awards under the 2006 Plan are determined by the Compensation Committee. Some of the awards issued under the 2006 Plan are subject to accelerated vesting in the event of a change in control as such an event is defined in the 2006 Plan.

We recognize compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest. This expense is recorded on a straight-line basis over the requisite service period of the entire award, unless the awards are subject to market or performance conditions, in which case we recognize compensation expense over the requisite service period of each separate vesting tranche, to the extent the occurrence of such conditions are probable. All compensation expense related to our share-based payment awards is recorded in “Selling, general, and administrative” expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Restricted Stock

During fiscal 2014, the Board of Directors granted certain of our employees, executive officers, and directors restricted stock awards. The restricted stock awards vest in equal annual increments over three years, vest in one year, or vest three years after the date of grant. These awards are time-based and are not based upon attainment of performance goals.

As of January 3, 2015, there was $1.9 million of total unrecognized compensation expense related to restricted stock. The unrecognized compensation expense is expected to be recognized over a weighted average term of 1.9 years. As of January 3, 2015, the weighted average remaining contractual term for our restricted stock was 1.7 years and the maximum contractual term is 3.0 years.

The following table summarizes activity for our restricted stock awards during fiscal 2014:



	Restricted Stock
	Number of Awards		Weighted Average Fair Value
Outstanding at January 4, 2014	1,618,283		$	2.50
Granted	1,969,712		1.53
Vested (1)	(1,256,147	)	1.93
Forfeited	(142,670	)	1.99
Outstanding at January 3, 2015	2,189,178		$	1.68


(1)	The total fair value vested in fiscal 2014, fiscal 2013, and fiscal 2012 was $2.4 million, $6.4 million, and $2.3 million, respectively.

Performance shares

During fiscal 2013, the Board of Directors granted certain of our executive officers and directors awards of performance shares of our common stock. The performance shares are released only upon the successful achievement of specific, measurable performance criteria approved by the Compensation Committee. The performance shares, when earned, vest in three equal tranches. If the performance targets are not met, the awards will be canceled, although 2013 performance criteria for the first tranche of the performance shares granted in fiscal 2013 was waived.

As of January 3, 2015, there was $0.5 million of total unrecognized compensation expense related to performance shares. The unrecognized compensation expense is expected to be recognized over weighted average term of 0.9 years. As of January 3, 2015, the weighted average remaining contractual term for our performance shares was 0.7 years and the maximum contractual term is 3.0 years.

The following table summarizes activity for our performance share awards during fiscal 2014:



	Performance Shares
	Number of Awards		Weighted Average Fair Value
Outstanding at January 4, 2014	2,192,868		$	2.50
Granted	—		—
Vested (1) (2)	(1,038,958	)	1.64
Forfeited	(51,821	)	2.49
Outstanding at January 3, 2015 (2)	1,102,089		$	1.56


(1)	The total fair value vested in fiscal 2014 and fiscal 2013 was $1.7 million and $1.5 million, respectively.

(2)

During fiscal 2014, four employees participating in the plan no longer were employed by the Company, and one director did not stand for re-election. The Compensation Committee approved an amendment to their Performance Share Award Agreements to allow their shares to vest, when they vest for individuals still employed by the Company. These amendments were determined to be modifications of the awards, and an adjustment related to the difference in fair value was recorded in fiscal 2014. The awards were classified as liability awards, and were marked to market. As of January 3, 2015, the fair value of these awards was based on the opening price of our common stock on January 2, 2015, of $1.14. There were 161,024 of these shares that vested in fiscal 2014, and 828,568 of these shares remaining as of January 3, 2015.

Options

The tables below summarize activity and include certain additional information related to our outstanding employee stock options for the year ended January 3, 2015. The maximum contractual term for stock options is ten years. There have been no new employee stock option grants and no stock option exercises during fiscal years 2014, 2013, and 2012.



	Options
	Shares	Weighted Average Exercise Price
Outstanding at January 4, 2014	784,500	$	5.05
Granted	—	—
Exercised	—	—
Forfeited	—	—
Expired	—	—
Outstanding at January 3, 2015	784,500	5.05
Exercisable at January 3, 2015	784,500	$	5.05



	Outstanding				Exercisable
Price Range	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)
$4.66	750,000	$	4.66	3.2	750,000	$	4.66	3.2
$11.40-$14.01	34,500	$	13.25	1.3	34,500	$	13.25	1.3
	784,500			3.1	784,500			3.1

Compensation Expense

Share-based compensation expense is recognized only for those awards that are expected to vest, with forfeitures estimated at the date of grant based on our historical experience and future expectations. We recognize the effect of adjusting the estimated forfeiture rates in the period in which we change such estimated rates. Total share-based compensation expense from restricted stock, performance shares, and stock options, net of estimated forfeitures, was as follows:



	Fiscal Year Ended January 3, 2015 (1)		Fiscal Year Ended January 4, 2014 (2)		Fiscal Year Ended December 29, 2012
	(In thousands)
Restricted Stock	$	1,941	$	3,521	$	2,730
Performance Shares	1,725		2,596		—
Options and other (3)	174		—		67
Total	$	3,840	$	6,117	$	2,797

(1)

During fiscal 2014, four employees participating in the plan no longer were employed by the Company, and one director did not stand for re-election. See “Performance shares” above. The Compensation Committee approved an amendment to their Restricted Share Award Agreements to accelerate the vesting of their restricted shares. These amendments were determined to be modifications of the awards, and an adjustment related to the difference in fair value was recorded in fiscal 2014. Share-based compensation expense of $1.2 million was accordingly recorded during fiscal 2014.


(2)	Approximately $2.9 million of total share-based compensation during fiscal 2013 is related to the 2013 restructuring and change in executive leadership.


(3)	As of January 3, 2015, there was no future compensation expense remaining for options.

We recognized related income tax benefits in fiscal years 2014, 2013, and 2012 of $1.5 million, $2.4 million, and $1.1 million, respectively, which have been offset by a valuation allowance. We present the benefits of tax deductions in excess of recognized compensation expense as both a financing cash inflow and an operating cash outflow in our Consolidated Statements of Cash Flows when present. There were no material excess tax benefits in fiscal years 2014, 2013, and 2012.