11. Capital Stock and Share-Based Compensation

Capital Stock

The authorized capital of the Company consists of an unlimited number of common shares without nominal or par value. Holders of common shares are entitled to one vote per share. Holders of common shares are entitled to receive dividends, if and when declared by the Board of Directors, and to share ratably in its assets legally available for distribution to the stockholders in the event of liquidation. Holders of common shares have no redemption or conversion rights.

2010 Incentive Award Plan

In November 2010, the Company’s stockholders approved the 2010 Incentive Award Plan (the “2010 Incentive Plan”) under which the Company may grant share-based compensation awards to employees, consultants and directors. In May 2014, the Company’s stockholders approved the amended and restated 2010 Incentive Award Plan and, in July 2016, the Company approved a further amended and restated 2010 Incentive Award Plan (as amended, the “Amended and Restated 2010 Incentive Plan”). The maximum number of shares which can be issued pursuant to the Amended and Restated 2010 Incentive Plan is 4,398,613, subject to adjustment as set forth in the Amended and Restated 2010 Incentive Plan. The Amended and Restated 2010 Incentive Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, deferred stock, deferred stock units, dividend equivalents, performance awards and stock payments (collectively referred to as “Awards”). The Amended and Restated 2010 Incentive Plan allows the Company to continue to grant Awards intended to constitute “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, and includes certain provisions that reflect good corporate governance practices. The Amended and Restated 2010 Incentive Plan provides for specific limits on the number of shares with respect to Awards that may be granted to any person during any calendar year and the amount of cash that can be paid with respect to Awards to any one person during any calendar year. The Amended and Restated 2010 Incentive Plan will expire and no further Awards may be granted after April 9, 2024. As of December 31, 2016, there were 1,581,527 shares available for future awards under the Amended and Restated 2010 Incentive Plan.

Shares subject to Awards that have expired, forfeited or settled in cash, or repurchased by the Company at the same price paid by the awardee may be added back to the number of shares available for grant under the Amended and Restated 2010 Incentive Plan and may be granted as new Awards. Notwithstanding the foregoing, the following shares will not be added back to the number of shares available for grant: (a) shares that are used to pay the exercise price for an option, (b) shares tendered or withheld to pay taxes with respect to any Award (other than options and stock appreciation rights) to the extent they exceed the number of shares with a fair market value equal to the tax liability based on minimum withholding rates, (c) shares tendered or withheld to pay taxes with respect to options and stock appreciation rights, (d) shares subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right on exercise thereof, and (e) shares purchased on the open market with the cash proceeds from the exercise of options. Shares issued to satisfy Awards under the Amended and Restated 2010 Incentive Plan may be previously authorized but unissued shares, treasury shares or shares repurchased on the open market.

Share-Based Compensation Expense

The table below summarizes share-based compensation expense recorded in income from continuing operations (in thousands):

	Year Ended December 31,
	2016		2015			2014
Selling, general and administrative	$	3,920	$	3,960		$	3,967
Research and development and engineering		117		170			196
Cost of revenue		256		257			166
Restructuring, acquisition and divestiture related costs		—		(322	)		322
Total share-based compensation expense	$	4,293	$	4,065		$	4,651

The expense recorded during each of the years ended December 31, 2016, 2015 and 2014 included $0.5 million, related to deferred stock units granted to the members of the Company’s Board of Directors pursuant to the Company’s Amended and Restated 2010 Incentive Plan.

As of December 31, 2016, the Company’s outstanding equity awards for which compensation expense will be recognized in the future consist of time-based restricted stock units, performance stock units, and stock options granted under the Amended and Restated 2010 Incentive Plan. The Company expects to record aggregate share-based compensation expense of $6.8 million, net of estimated forfeitures, subsequent to December 31, 2016, over a weighted average period of 3.05 years, for all outstanding equity awards.

Restricted Stock Units and Deferred Stock Units

The Company’s restricted stock units (“RSUs”) have generally been issued with a three-year or five-year vesting period and vest based solely on service conditions. Accordingly, the Company recognizes compensation expense on a straight-line basis over the requisite service period. The Company reduces the compensation expense by an estimated forfeiture rate which is based on anticipated forfeitures and actual experience.

Deferred stock units (“DSUs”) are granted to the members of the Company’s Board of Directors. The compensation expense associated with the DSUs is recognized in full on the respective date of grant, as DSUs are fully vested and non-forfeitable upon grant.

The table below summarizes activities relating to restricted and deferred stock units issued and outstanding under the Amended and Restated 2010 Incentive Plan during the year ended December 31, 2016:

	Restricted and Deferred Stock Units (In thousands)			Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Period (in years)	Aggregate Intrinsic Value (1) (In thousands)
Unvested at December 31, 2015		619		$	12.32
Granted		531		$	14.29
Vested		(373	)	$	12.01
Forfeited		(142	)	$	13.11
Unvested at December 31, 2016		635		$	13.97	2.07 years	$	13,335
Expected to vest as of December 31, 2016		608		$	14.00	2.07 years	$	12,767

(1)	The aggregate intrinsic value is calculated based on the fair value of $21.00 per share of the Company’s common stock on December 31, 2016 due to the fact that the restricted stock units carry a $0 purchase price.

The total fair value of restricted stock units that vested in 2016 and deferred stock units that were granted and vested in 2016, based on the market price of the underlying stock on the day of vesting, was $5.1 million.

Performance Stock Units

On March 30, 2016, the Company granted 46 thousand performance stock units (“PSUs”) to certain members of the executive management team. The performance objective is measured using cumulative Non-GAAP EPS over a three-year performance cycle. The Company recognizes compensation expense for PSUs on a straight-line basis. Compensation expense is determined based on the number of shares that are deemed probable of vesting at the end of the three-year performance cycle. This probability assessment is performed each quarter. The cumulative effect of the changes in the estimated compensation expense will be recognized in the consolidated statement of operations in the period in which such determination is made.

The table below summarizes activities relating to PSUs issued and outstanding under the Amended and Restated 2010 Incentive Plan during the year ended December 31, 2016:

	Performance Stock Units (2) (In thousands)			Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Period (in years)	Aggregate Intrinsic Value (1) (In thousands)
Unvested at December 31, 2015		—		$	—
Granted		46		$	14.13
Vested		—		$	—
Forfeited		(17	)	$	14.13
Unvested at December 31, 2016		29		$	14.13	2.00 years	$	615
Expected to vest as of December 31, 2016		29		$	14.13	2.00 years	$	615

(1)	The aggregate intrinsic value is calculated based on the fair value of $21.00 per share of the Company’s common stock on December 31, 2016 due to the fact that the performance stock units carry a $0 purchase price.

(2)	The unvested PSUs are shown in this table at target, except for the number of shares vested, which reflect the shares earned. As of December 31, 2016, the maximum number of PSUs available to be earned is approximately 59 thousand.

Stock Options

On March 30, 2016, the Company granted 193 thousand stock options to certain members of the executive management team to purchase common shares of the Company at a price equal to the closing market price of the Company’s common shares on the date of grant. The stock options vest ratably over a three-year period beginning on the anniversary date of the date of grant and expire on the tenth anniversary of the date of grant. We estimate the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the expected option term, the expected volatility of our common stock over the expected term of the options, the risk-free interest rate, and our expected dividend yield. The Company recognizes the compensation expense of stock options on a straight-line basis in the consolidated statement of operations over the vesting period.

The table below summarizes activities relating to stock options issued and outstanding under the Amended and Restated 2010 Incentive Plan during the year ended December 31, 2016:

	Stock Options (In thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (1) (In thousands)
Unvested at December 31, 2015		—		$	—
Granted		193		$	14.13
Exercised		(13	)	$	14.13
Forfeited		(77	)	$	14.13
Unvested at December 31, 2016		103		$	14.13	9.25 years		$	707
Exercisable as of December 31, 2016		—		$	-		-		-
Expected to vest as of December 31, 2016		103		$	14.13	9.25 years		$	707

(1)	The aggregate intrinsic value is calculated as the difference between the market price of $21.00 per share of the Company’s common stock on December 31, 2016 and the grant date exercise price.

The fair value of stock options granted during 2016 was estimated as of the grant date using the Black-Scholes valuation model with the following assumptions:

	2016
Expected option term in year (1)		6.0
Expected volatility (2)		33.8	%
Risk-free interest rate (3)		1.6	%
Expected annual dividend yield (4)		—

(1)	The expected option term was calculated using the simplified method provided by Codification of Staff Accounting Bulletin Topic 14: “Share-Based Payment”.

(2)	The expected volatility was determined based on the historical volatility of the Company’s common stock over the expected option term.

(3)	Risk-free interest rate was based upon treasury instrument whose term was one year longer than the expected option term.

(4)	The expected annual dividend yield is zero, as the Company does not have plans to issue dividends.

The total fair value of stock options that exercised in 2016, based on the difference between market price on the date of exercise and the grant date, was less than $0.1 million. The total amount of cash received from the exercise of these stock options was $0.2 million.

The actual tax benefit realized for the tax deductions from option exercises was less than $0.1 million in 2016.