Share-Based Compensation

We have three stock-based compensation plans covering officers, directors, certain employees, and consultants: the 2004 Equity Incentive Plan (the “2004 Plan”), the 2006 Long-Term Equity Incentive Plan (the “2006 Plan”), and the 2016 Amended and Restated Long-Term Incentive Plan (the “2016 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 the participants develop a further sense of proprietorship and personal involvement in our development and financial success, thereby advancing the interests of the Company and its stockholders. 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 or upon the vesting of restricted stock, restricted stock units, or performance shares, out of the total amount of common shares applicable for issuance or vesting under the aforementioned plans. Shares are available for new issuance only under the 2016 Plan. The 2006 and 2004 Plans have no shares remaining for issuance. Remaining 2006 Plan shares are outstanding only for the vesting of outstanding equity awards and the exercise of currently outstanding options; and 2004 Plan shares are outstanding only for the exercise of currently outstanding options.

The 2016 Plan permits the grant of nonqualified stock options, incentive stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance shares, performance units, cash-based awards, and other share-based awards to participants of the 2016 Plan selected by our Board of Directors or a committee of the Board that administers the 2016 Plan. We reserved 263,500 shares of our common stock for issuance under the 2016 Plan. The terms and conditions of awards under the 2016 Plan are determined by the Compensation Committee. Some of the awards issued under both the 2016 and 2006 Plans are subject to accelerated vesting in the event of a change in control as such an event is defined in the respective Plan documents.

For all awards designated as equity awards, we recognize compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest, as described further below, in “Compensation Expense”. 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.

For outstanding awards designated as liability awards, which, as of December 31, 2016, solely consisted of awards where we intend to settle the awards in cash at the end of the vesting period, we utilize the Black-Scholes-Merton option pricing model (“Black-Scholes”), and record quarterly expense attributions of the awards based on estimates of the fair market value of the awards at the end of each quarter during the service period. The Black-Scholes model requires the input of highly subjective assumptions such as the expected stock price volatility.

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).

Liability Awards - Cash-Settled SARs

During fiscal 2016, we granted certain executives and employees cash-settled SARs, which vest on July 16, 2018, at which time half of any appreciation over the $7.00 exercise price will become payable within thirty days of the vesting date, and the remainder payable within one year. At December 31, 2016, there were 493,000 cash-settled SARs issued and outstanding, and we recognized expense of approximately $0.4 million in fiscal 2016 related to these awards.

The following table summarizes the assumptions used to compute the current fair value of our cash-settled SARs:



Expected volatility	71.81	%
Risk-free interest rate	1.04	%
Expected term (in years)	1.54
Expected dividend yield	Not applicable

Equity Awards - Restricted Stock, Restricted Stock Units, Performance Shares, and Stock Options

Restricted Stock

During fiscal 2016, we did not grant any restricted stock awards. Our outstanding restricted stock awards vest either in equal annual increments over three years or cliff vest three years after the date of grant. These awards are time-based and are not based upon attainment of performance goals.

As of December 31, 2016, there was approximately $0.3 million of total unrecognized compensation expense related to restricted stock. The unrecognized compensation expense is expected to be recognized over the first six months of fiscal 2017. As of December 31, 2016, the weighted average remaining contractual term for our restricted stock was six months and the maximum contractual term was 3.0 years.

The following table summarizes activity for our restricted stock awards during fiscal 2016:



	Restricted Stock Awards
	Number of Awards		Weighted Average Fair Value
Outstanding as of January 2, 2016	170,335		$	14.60
Granted	—		—
Vested ⁽¹⁾	(69,825	)	16.32
Forfeited	(1,950	)	18.29
Outstanding as of December 31, 2016	98,560		$	13.19


⁽¹⁾	The total fair value vested in fiscal 2016, fiscal 2015, and fiscal 2014 was $1.1 million, $1.5 million, and $2.4 million, respectively.

Restricted Stock Units

During fiscal 2016, the Board of Directors granted certain of our executive officers and directors restricted stock units. These awards are time-based and are not based upon attainment of performance goals. The awards granted in fiscal 2016 have a two-year cliff vesting for the executive officer award, and a one-year vesting period for the director grants. All vested director grants settle at the earlier of ten years from the vesting date or retirement from the Board of Directors, with the exception of a grant for 8,186 shares which was granted to a Board member with an immediate vesting, and settlement on March 31, 2017, or as soon as reasonably practicable within thirty days of March 31, 2017.

Restricted stock units granted prior to fiscal 2016 to employees and executive officers vest either in equal annual increments over three years or three years after the date of grant. Restricted stock unit awards granted in fiscal 2015 to directors had the one-year vesting period and extended settlement period as described above.

As of December 31, 2016, there was approximately $1.0 million of total unrecognized compensation expense related to restricted stock units. The unrecognized compensation expense is expected to be recognized over a weighted average term of 1.02 years. As of December 31, 2016, the weighted average remaining contractual term for our restricted stock units was 1.02 years, and the maximum contractual term was 3.0 years.

The following table summarizes activity for our restricted stock units during fiscal 2016:



	Restricted Stock Units
	Number of Awards		Weighted Average Fair Value
Outstanding as of January 2, 2016	140,179		$	10.00
Granted	200,732		6.24
Vested ⁽¹⁾	(65,711	)	9.61
Forfeited	(4,750	)	9.80
Outstanding as of December 31, 2016	270,450		$	7.32


⁽¹⁾	The total fair value of restricted stock units vested in fiscal 2016 was $0.6 million. No restricted stock units vested in fiscal years 2015 or 2014.

Performance shares

During fiscal years 2015 and 2013, the Board of Directors granted certain of our directors, executive officers, and employees 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, and, unless waived by the Compensation Committee as was done for certain 2013 performance share awards, the satisfaction of a service condition. The performance shares, when earned, vest in three equal tranches, though all tranches of the 2015 performance share awards will all vest if certain criteria determinable at the end of fiscal year 2017 is met, despite the criteria not having been met for fiscal 2015 or 2016. If the performance targets are not met at the end of fiscal 2017, the awards will be canceled.

Performance criteria for the 2013 awards was either met or waived, and all remaining 2013 awards vested in the first and second quarters of fiscal 2016. Performance criteria for the 2015 awards has not been met to date, and, as performance for fiscal year 2017 is currently not determinable, achievement of any such criteria cannot be considered “probable,” at this time.

As of December 31, 2016, there was approximately $0.6 million of total unrecognized compensation expense related solely to the 2015 performance share awards. No compensation expense has been recorded on these shares, as the likelihood of meeting the performance criteria is not determinable at this time. This determination will be re-evaluated in the second and third quarters of fiscal 2017, as information regarding the likelihood of achieving the final performance target will become more available. If the final performance criteria for these shares is met, the outstanding performance shares would vest in July and September of 2018, with a weighted average contractual term remaining of approximately 1.6 years on the original three-year contractual term.

The following table summarizes activity for our performance share awards during fiscal 2016:



	Performance Shares
	Number of Awards		Weighted Average Fair Value
Outstanding as of January 2, 2016	126,306		$	9.00
Granted	—		—
Vested ^{(1) (2)}	(54,556	)	29.06
Forfeited	(4,750	)	9.80
Outstanding at December 31, 2016	67,000		$	9.35


⁽¹⁾	The total fair value vested in each of fiscal 2016 and fiscal 2015 was $1.6 million. In fiscal 2014, the total fair value vested was $1.7 million.

⁽²⁾

In prior fiscal years, certain participants in the 2013 performance share awards were no longer employed by the Company or otherwise eligible to meet the service condition of these awards. The Compensation Committee approved an amendment to the applicable Performance Share Award Agreements to allow these shares to vest, if and when they vested for individuals employed by the Company. These amendments were determined to be modifications of the awards, from equity-based awards to liability awards, and adjustments related to the difference in fair value were recorded in the prior fiscal years when this determination was made. These liability awards were subsequently marked to market on a quarterly basis. The final remaining 46,941 shares of this type outstanding as of the fiscal 2015 year-end vested on or before June 2016, and no such shares remained outstanding as of December 31, 2016.

Stock Options

The tables below summarize activity and include certain additional information related to our outstanding stock options granted under the 2004 Plan and 2006 Plan for the year ended December 31, 2016. The maximum contractual term for stock options was ten years from the grant date, and the remaining outstanding final tranche of options as of December 31, 2016, presented below, expire on March 10, 2018. There were no new employee stock option grants and no stock option exercises during fiscal years 2016, 2015, and 2014.



	Options
	Shares		Weighted Average Exercise Price
Outstanding as of January 2, 2016	75,900		$	47.70
Granted	—		—
Exercised	—		—
Forfeited	—		—
Expired	(900	)	140.10
Outstanding and exercisable as of December 31, 2016	75,000		$	46.60

Compensation Expense

Share-based compensation expense is recognized only for those awards that are expected to vest. At the beginning of fiscal 2016, we determined that our forfeiture rate was effectively zero, due to our re-evaluation of historical forfeiture experience at the end of fiscal 2015. In both fiscal 2015 and fiscal 2014, our forfeiture rate was estimated at approximately 13%, based on a prior historical forfeiture rate experience. We recognized the effect of adjusting the estimated forfeiture rate to zero in the beginning of fiscal 2016, in accordance with our revised estimate. Therefore, our early adoption of ASU 2016-09 in the fourth quarter of fiscal 2016 had no material effect on our recognition of compensation expense.

Total share-based compensation expense from our share-based awards, net of estimated forfeitures, as described above, was as follows:



	Fiscal Year Ended December 31, 2016 ⁽¹⁾		Fiscal Year Ended January 2, 2016 ⁽¹⁾		Fiscal Year Ended January 3, 2015 ⁽¹⁾
	(In thousands)
Restricted Stock	$	983	$	1,606	$	1,941
Performance Shares ⁽²⁾	92		127		1,725
Cash-settled Stock Appreciation Rights ⁽⁴⁾	375		—		—
Restricted Stock Units and Options ⁽³⁾	889		94		174
Total	$	2,339	$	1,827	$	3,840

⁽¹⁾

See “Performance shares”, above, for a discussion of the modifications to certain 2013 performance share awards originally recorded as equity awards and subsequently recorded as liability awards. This modification resulted in an adjustment to then immediately fully expense the awards reclassified as liability awards in the fiscal year modified, and to subsequently mark to market all outstanding liability awards on a quarterly basis. Share-based compensation expense relating to these shares was immaterial for fiscal 2016, and all of these awards fully vested in June 2016. A credit to share-based compensation expense of $0.2 million was recorded during fiscal 2015 on these performance shares, and expense of $1.2 million was recorded in fiscal 2014.


⁽²⁾	All compensation expense for performance shares is related to the 2013 Performance Share Awards, as no compensation expense is being recorded on the 2015 Performance Shares.


⁽³⁾	For all fiscal years presented, there was no compensation expense for options. All compensation expense presented pertains to Restricted Stock Units.


⁽⁴⁾	We began issuing these awards in fiscal 2016; therefore, there is no such expense for fiscal 2015 or fiscal 2014.

We recognized related income tax benefits in fiscal years 2016, 2015, and 2014 of $0.9 million, $0.7 million, and $1.5 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 2016, 2015, and 2014.