Share-Based Compensation

We have two share-based compensation plans as of December 31, 2016: (1) the 2014 Stock Option and Incentive Plan (the "2014 Plan") and (2) the Amended and Restated 1999 Stock Option and Incentive Plan (the "1999 Plan"). The 2014 Plan was adopted by our Board of Directors on February 12, 2014 and approved by our shareholders at the Company's annual meeting held on April 30, 2014. As of April 30, 2014, no new awards will be granted under the 1999 Plan. As a result, any shares subject to outstanding awards under the 1999 Plan that expire, are canceled or otherwise terminate, or are withheld to satisfy tax withholding obligations, will not be available for award grant purposes under the 2014 Plan. Both plans permit the grant of the following types of awards to our officers, other employees and non-employee directors: incentive stock options; nonqualified stock options; deferred stock awards; restricted stock awards; unrestricted stock awards; performance share awards; cash-based awards; stock appreciation rights ("SARs") and dividend equivalent rights. The 2014 Plan provides for the issuance of up to 1,700,000 shares of common stock (subject to adjustment for stock splits and similar events). Under the 2014 Plan, shares issued for awards other than stock options or SARs count against the aggregate share limit as 1.9 shares for every share actually issued. New options granted under the 2014 Plan could have varying vesting provisions and exercise periods. All options and Restricted Stock Units ("RSUs") granted under the 1999 Plan are either 100% vested or have been terminated. Restricted stock units granted under the 2014 Plan generally vest within three years. Vested restricted stock units will be settled in shares of our common stock.

As of December 31, 2016, there were 736,319 stock options (including the CEO and CFO stock option awards noted below) and 206,685 restricted stock units outstanding. In addition, there were 1,039,568 shares available for grant under the 2014 Plan as of December 31, 2016. As of December 31, 2016, there were 3,040 outstanding restricted stock units that contain rights to nonforfeitable dividend equivalents and are considered participating securities that are included in our computation of basic and fully diluted earnings per share. There is no difference in the earnings per share amounts between the two class method and the treasury stock method, which is why we continue to use the treasury stock method.

During the twelve months ended December 31, 2016, we granted 210,633 stock option awards compared with 118,992 in 2015 and 164,503 in 2014. On April 9, 2013, we granted stock options to purchase 200,000 shares of common stock to our newly appointed President and Chief Executive Officer at an exercise price of $41.17 per share ("2013 CEO Option Award"). On December 2, 2013, we granted stock options to purchase 100,000 shares of common stock to our newly appointed Executive Vice President and Chief Financial Officer at an exercise price of $79.33 per share ("2013 CFO Option Award"). On March 5, 2014, we granted stock options to purchase 100,000 shares of common stock to our President and Chief Executive Officer at an exercise price of $70.42 per share ("2014 CEO Option Award"). The 2013 CEO Option Award, the 2013 CFO Option Award, and the 2014 CEO Award were considered inducement awards and were granted outside of the Company's 1999 Plan. All three of these option awards include a service period and a market performance vesting condition. The stock options will vest if the following stock price targets are met based on the stock price closing at or above these targets for 60 consecutive trading days:



2013 CEO Option Award:
	Stock Price Target	Cumulative Vested Portion of Stock Options (in Shares)
	$50.00	50,000
	$60.00	100,000
	$70.00	150,000
	$80.00	200,000



2013 CFO and 2014 CEO Option Awards:
	Stock Price Target	Cumulative Vested Portion of Stock Options (in Shares)
	$87.50	25,000
	$100.00	50,000
	$112.50	75,000
	$125.00	100,000

As the CEO Option Awards and the CFO Option Award vest, they may be exercised 25% at the time of vesting, 50% one year from the date of vesting and 100% two years from the date of vesting. On August 8, 2013, the $50.00 Stock Price Target for the 2013 CEO Option Award was achieved. On January 6, 2014 and January 28, 2014, the $60.00 and $70.00 Price targets for the 2013 CEO Option Award were achieved, respectively. Therefore, 150,000 options have vested and are exercisable under the 2013 CEO Option Award. As of December 31, 2016, none of the options awarded in connection with the 2013 CFO Option Award or the 2014 CEO Option Award have vested. These stock option awards are being expensed utilizing a graded method and are subject to forfeiture in the event of employment termination (whether voluntary or involuntary) prior to vesting. All three of these option awards have a 10 year term but to the extent that the market conditions above (Stock Price Targets) are not met within 5 years, these options will not vest and will forfeit 5 years from grant date. The Company used a Monte Carlo simulation option pricing model to value these option awards.

The average fair value of stock options granted during the year ended December 31, 2016, 2015, and 2014 of $11.91, $17.88, and $26.32 was estimated using the following weighted-average assumptions:



	Year Ended December 31,
	2016		2015		2014
Risk-free interest rate	1.2	%	1.4	%	1.8	%
Expected life (years)	4.5		4.5		3.7
Expected stock volatility	36.2	%	40.4	%	41.4	%
Expected dividend yield	0.4	%	0.3	%	0.2	%

We account for Restricted Stock Unit Awards (“RSU Awards”) by expensing the weighted average fair value to selling, general and administrative expenses ratably over vesting periods generally ranging up to three years. During the years ended December 31, 2016 and December 31, 2015 we granted 98,942 and 62,322 RSU Awards with approximate fair values of $41.09 and $51.53 per RSU Award, respectively. During 2016 and 2015, the Company granted performance-based RSUs as part of the overall mix of RSU Awards. These performance-based RSUs include metrics for achieving Return on Invested Capital and Adjusted Operating Margin with target payouts ranging from 0% to 200%. Of the 98,942 RSUs granted during 2016, 51,026 are performance-based RSU awards. This compares to 26,094 performance-based RSU awards granted in 2015.

The CIRCOR Management Stock Purchase Plan, which is a component of both the 2014 Plan and the 1999 Plan, provides that eligible employees may elect to receive restricted stock units in lieu of all or a portion of their pre-tax annual incentive bonus and, in some cases, make after-tax contributions in exchange for restricted stock units (“RSU MSPs”). In addition, non-employee directors may elect to receive restricted stock units in lieu of all or a portion of their annual directors’ retainer fees. Each RSU MSP represents a right to receive one share of our common stock after a three-year vesting period. RSU MSPs are granted at a discount of 33% from the fair market value of the shares of common stock on the date of grant. This discount is amortized as compensation expense, to selling, general and administrative expenses, over a four-year period. RSU MSPs totaling 20,130 and 38,965 with per unit discount amounts representing fair values of $12.83 and $17.11 were granted under the CIRCOR Management Stock Purchase Plan during the years ended December 31, 2016 and December 31, 2015, respectively.

Compensation expense related to our share-based plans for the year ended December 31, 2016 , 2015, and 2014 was $5.5 million, $6.5 million, and $7.1 million respectively. Share-based compensation expense is recorded as selling, general, and administrative expense. As of December 31, 2016, there was $6.8 million of total unrecognized compensation costs related to our outstanding share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 1.8 years. This compares to $7.0 million for 2015 and $10.3 million for 2014, respectively. The decrease in total unrecognized compensation costs from 2015 and 2014 primarily relates to equity awards granted to our CEO and CFO during 2013 totaling $5 million.

A summary of the status of all stock options granted to employees and non-employee directors as of December 31, 2016, 2015, and 2014 and changes during the years are presented in the table below:



	December 31,
	2016				2015				2014
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Options outstanding at beginning of period	570,737		$	56.86	486,004		$	57.85	355,081		$	50.71
Granted	210,633		38.89		118,992		51.84		164,503		70.87
Exercised	(5,982	)	41.05		(7,717	)	33.44		(12,937	)	32.41
Forfeited	(33,014	)	45.25		(26,542	)	59.25		(20,643	)	54.72
Expired	(6,055	)	65.34		—		—		—		—
Options outstanding at end of period	736,319		$	52.30	570,737		$	56.86	486,004		$	57.85
Options exercisable at end of period	226,386		$	45.20	140,248		$	43.08	78,226		$	38.75

The weighted average contractual term for stock options outstanding and exercisable as of December 31, 2016 was 6.1 years and 5.5 years, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2016, 2015 and 2014 was $0.1 million, $0.1 million and $0.6 million, respectively. The aggregate fair value of stock-options vested during the years ended December 31, 2016, 2015 and 2014 was $1.7 million, $1.2 million and $0.9 million, respectively. The aggregate intrinsic value of stock options outstanding and exercisable as of December 31, 2016 was $11.5 million and $4.6 million, respectively. As of December 31, 2016, there was $2.8 million of total unrecognized compensation costs related to stock options that is expected to be recognized over a weighted average period of 1.7 years.

The following table summarizes information about stock options outstanding at December 31, 2016:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Options	Weighted Average Exercise Price
$30.91 - $38.95	204,579	5.9	$	38.43	14,061	$	32.13
38.96 - 46.51	208,276	6.1	41.08		158,276	41.06
46.52 - 70.99	187,183	6.2	61.77		29,631	51.84
71.00 - 79.33	136,281	6.1	77.26		24,418	71.56
$30.91 - $79.33	736,319	6.1	$	52.30	226,386	$	45.20

A summary of the status of all RSU Awards granted to employees and non-employee directors as of December 31, 2016, 2015, and 2014 and changes during the year are presented in the table below:



	December 31,
	2016				2015				2014
	RSUs		Weighted Average Price		RSUs		Weighted Average Price		RSUs		Weighted Average Price
RSU Awards outstanding at beginning of period	109,281		$	52.90	115,949		$	52.97	176,084		$	44.39
Granted	98,942		41.09		62,322		51.53		38,899		72.11
Settled	(54,034	)	48.50		(56,865	)	48.34		(58,117	)	45.51
Canceled	(22,527	)	46.86		(19,088	)	55.08		(40,917	)	44.86
Added by Performance Factor	7,099		41.55		6,963		32.76		—		—
RSU Awards outstanding at end of period	138,761		$	46.60	109,281		$	52.90	115,949		$	52.97
RSU Awards exercisable at end of period	3,040		$	60.92	1,200		$	59.29	250		$	42.12

The aggregate intrinsic value of RSU Awards settled during the 12 months ended December 31, 2016, 2015 and 2014 was $2.5 million, $3.0 million, and $4.2 million, respectively. The aggregate fair value of RSU Awards vested during the 12 months ended December 31, 2016, 2015 and 2014 was $2.7 million, $2.4 million and $2.7 million, respectively.

The aggregate intrinsic value of RSU Awards outstanding and exercisable as of December 31, 2016 was $9.0 million and $0.2 million, respectively. As of December 31, 2016, there was $3.6 million of total unrecognized compensation costs related to RSU awards that is expected to be recognized over a weighted average period of 1.6 years.

The following table summarizes information about RSU Awards outstanding at December 31, 2016:



	RSU Awards Outstanding
Range of Grant Prices	RSUs	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price
$38.89 - $50.99	79,092	1.9	$	39.17
51.00 - 60.99	46,472	1.6	52.42
61.00 - 74.65	13,197	0.4	70.59
$38.89 - $74.65	138,761	1.6	$	46.59

A summary of the status of all RSU MSPs granted to employees and non-employee directors as of December 31, 2016, 2015, and 2014 and changes during the year are presented in the table below:



	December 31,
	2016				2015				2014
	RSUs		Weighted Average Exercise Price		RSUs		Weighted Average Exercise Price		RSUs		Weighted Average Exercise Price
RSU MSPs outstanding at beginning of period	78,732		$	37.46	69,293		$	35.81	62,896		$	25.67
Granted	20,130		26.06		38,965		34.73		32,752		47.95
Settled	(27,375	)	29.94		(22,403	)	27.87		(23,258	)	25.94
Canceled	(3,563	)	35.35		(7,123	)	36.65		(3,097	)	32.35
RSU MSPs outstanding at end of period	67,924		$	36.50	78,732		$	37.46	69,293		$	35.81

There are no RSU MSPs exercisable at December 31, 2016, 2015, and 2014. The aggregate intrinsic value of RSU MSPs settled during the year ended December 31, 2016, 2015, and 2014 was $0.4 million, $0.5 million and $1.1 million, respectively. The aggregate fair value of RSU MSPs vested during the year ended December 31, 2016, 2015, and 2014 was $0.4 million, $0.3 million and $0.3 million, respectively. The aggregate intrinsic value of RSU MSPs outstanding as of December 31, 2016 was $1.9 million. As of December 31, 2016 there was $0.4 million of total unrecognized compensation costs related to RSU MSPs that is expected to be recognized over a weighted average period of 1.1 years.

The following table summarizes information about RSU MSPs outstanding at December 31, 2016:



	RSU MSPs Outstanding
Range of Grant Prices	RSUs	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price
$26.06 - 33.99	16,727	2.1	$	26.06
34.00 - 45.99	31,154	1.1	34.73
46.00 - 47.95	20,043	0.2	47.95
$26.06 - $47.95	67,924	1.1	$	36.50

We also grant Cash Settled Stock Unit Awards to our international employee participants. These Cash Settled Stock Unit Awards typically cliff-vest in three years and are settled in cash based on our closing stock price at the time of vesting. As of December 31, 2016, there were 33,320 Cash Settled Stock Unit Awards outstanding compared with 28,660 Cash Settled Stock Unit Awards as of December 31, 2015. During 2016, the aggregate cash used to settle Cash Settled Stock Unit Awards was $0.5 million. As of December 31, 2016, the Company had $1.0 million in accrued expenses classified as current liabilities for Cash Settled Stock Unit Awards compared with $0.7 million as of December 31, 2015. Cash Settled Stock Unit Award related compensation costs for the twelve month periods ended December 31, 2016, 2015, and 2014 totaled $0.9 million, $0.2 million, and $0.3 million, respectively and was recorded as selling, general and administrative expense.