11.) STOCK-BASED COMPENSATION

Stock-based Compensation Plans

At the 2016 Annual Meeting of Stockholders held on May 24, 2016, the Company’s stockholders approved the Company’s 2016 Stock Incentive Plan (the “2016 Plan”). The 2016 Plan provides for the granting of stock options, shares of restricted stock, restricted stock units, stock appreciation rights and stock bonuses to employees, non-employee directors, consultants, and service providers. The 2016 Plan supplements the Company’s existing 2009 Stock Incentive Plan (“2009 Plan”), as amended, and 2011 Stock Incentive Plan (“2011 Plan”), as amended.

Stock options remain outstanding under the 2005 Stock Incentive Plan, but the plan has been frozen to any new award issuances.

The 2009 Plan authorizes the issuance of up to 1,350,000 shares of equity incentive awards including nonqualified and incentive stock options, restricted stock, restricted stock units, stock bonuses and stock appreciation rights subject to the terms of the 2009 Plan. The 2009 Plan limits the amount of restricted stock, restricted stock units and stock bonuses that may be awarded in the aggregate to 200,000 shares of the 1,350,000 shares authorized.

The 2011 Plan authorizes the issuance of up to 1,350,000 shares of equity incentive awards including nonqualified and incentive stock options, restricted stock, restricted stock units, stock bonuses and stock appreciation rights, subject to the terms of the 2011 Plan. The 2011 Plan does not limit the amount of restricted stock, restricted stock units or stock bonuses that may be awarded.

The 2016 Plan authorizes the issuance of up to 1,450,000 shares of equity incentive awards including nonqualified and incentive stock options, restricted stock, restricted stock units, stock bonuses and stock appreciation rights, subject to the terms of the 2016 Plan.

As of December 30, 2016, there were 1,316,690, 120,676 and 65,910 shares available for future grants under the 2016 Plan, 2011 Plan and 2009 Plan, respectively. Due to plan sub-limits, of the shares available for grant, only 10,261 shares may be awarded under the 2009 Plan in the form of restricted stock, restricted stock units or stock bonuses.

(11.) STOCK-BASED COMPENSATION (Continued)

In connection with the Spin-off, under the provisions of the 2009 Plan and 2011 Plan, employee stock options, restricted stock awards, and restricted stock unit awards were adjusted to preserve the fair value of the awards immediately before and after the Spin-off. As such, the Company did not record any modification expense related to the conversion of the awards. Certain awards granted to employees who transferred to Nuvectra in connection with the Spin-off were canceled. As required, the Company accelerated the remaining expense related to these canceled awards of $0.5 million during the first quarter of 2016, which was classified as Other Operating Expenses, Net. The stock awards held as of March 14, 2016 were modified as follows:

•

Stock options: Holders of the Company’s stock option awards continued to hold stock options to purchase the same number of shares of Integer common stock at an adjusted exercise price and one new Nuvectra stock option for every three Integer stock options held as of the Record Date, which, in the aggregate, preserved the fair value of the overall awards granted. The adjusted exercise price for Integer stock options was equal to approximately 93% of the original exercise price. The stock option awards will continue to vest over their original vesting period.

•

Restricted stock and restricted stock units: Holders of the Company’s restricted stock and restricted stock unit awards received one new share of Nuvectra restricted stock and restricted stock unit awards for every three Integer restricted stock and restricted stock unit awards held as of the Record Date. Integer restricted stock and restricted stock unit awards will continue to vest in accordance with their original performance metrics and over their original vesting period.

During 2014, the Company recorded stock modification expense related to employee separation costs incurred during 2014 in connection with realignment initiatives. This modification expense was included within Other Operating Expenses, Net. Refer to Note 13 “Other Operating Expenses, Net” for further discussion of these initiatives.

The components and classification of stock-based compensation expense for fiscal years 2016, 2015 and 2014 were as follows (in thousands):



	2016		2015		2014
Stock options	$	2,499	$	2,708	$	2,523
Restricted stock and units	5,909		6,668		6,417
401(k) stock contribution	—		—		4,246
Total stock-based compensation expense	$	8,408	$	9,376	$	13,186

Cost of sales	$	332	$	795	$	3,530
Selling, general and administrative expenses	6,246		7,510		7,923
Research, development and engineering costs, net	355		982		1,440
Other operating expenses, net (Note 13)	1,475		89		293
Total stock-based compensation expense	$	8,408	$	9,376	$	13,186

Weighted Average Fair Values and Black-Scholes Valuation Assumptions

The following table provides the weighted average grant date fair values of the Company's restricted stock awards, restricted stock units and performance-based restricted stock units during fiscal years 2016, 2015 and 2014:



	2016		2015		2014
Weighted average grant date fair values:
Restricted stock and restricted stock units	$	47.95	$	49.84	$	44.78
Performance-based restricted stock units	30.83		32.92		31.33

(11.) STOCK-BASED COMPENSATION (Continued)

The following table includes the weighted average grant date fair value of stock options granted to employees during fiscal years 2016, 2015 and 2014 and the related weighted average assumptions used in the Black-Scholes model:



	2016			2015			2014
Fair value of options granted:	$	8.52		$	12.18		$	16.43
Assumptions:
Expected life of option from grant date (in years)	4.7			4.7			5.3
Risk-free interest rate	1.49		%	1.55		%	1.73		%
Expected volatility	27		%	26		%	39		%
Expected dividend yield	0		%	0		%	0		%

Stock-Based Compensation Activity

The following table summarizes stock option activity under all stock-based compensation plans during the fiscal year ended December 30, 2016:



	Number of Stock Options		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2016	1,678,900		$	28.32
Granted	316,678		42.82
Exercised	(130,459	)	21.61
Forfeited or expired	(125,147	)	44.76
Adjustment due to Spin-off	—		(2.02		)
Outstanding at December 30, 2016	1,739,972		$	28.26		5.7	$	11.0
Vested and expected to vest at December 30, 2016	1,723,137		$	28.07		5.7	$	11.0
Exercisable at December 30, 2016	1,484,481		$	26.26		5.7	$	10.3

Intrinsic value is calculated for in-the-money options (exercise price less than market price) as the difference between the market price of the Company’s common shares as of December 30, 2016 ($29.45) and the weighted average exercise price of the underlying stock options, multiplied by the number of options outstanding and/or exercisable. As of December 30, 2016, $1.4 million of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of 1.4 years. Shares are distributed from the Company’s authorized but unissued reserve upon the exercise of stock options or treasury stock if available. The Company does not intend to purchase treasury shares to fund the future exercises of stock options.

The following table provides certain information relating to the exercise of stock options during fiscal years 2016, 2015 and 2014 (in thousands):



	2016		2015		2014
Intrinsic value	$	690	$	8,231	$	7,997
Cash received	2,821		6,583		8,278
Tax benefit realized	—		1,954		1,704

(11.) STOCK-BASED COMPENSATION (Continued)

Restricted Stock and Restricted Stock Units

The following table summarizes time-vested restricted stock and restricted stock unit activity under all stock-based compensation plans during the fiscal year ended December 30, 2016:



	Time-Vested Restricted Stock Units and Awards		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2016	39,235		$	47.40
Granted	52,697		47.95
Vested	(40,304	)	49.64
Forfeited	(12,234	)	48.46
Nonvested at December 30, 2016	39,394		$	45.51

The following table summarizes performance-vested restricted stock and restricted stock unit activity under all stock-based compensation plans during the fiscal year ended December 30, 2016:



	Performance- Vested Restricted Stock Units and Awards		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2016	577,825		$	25.11
Granted	163,651		30.83
Vested	(254,340	)	16.19
Forfeited	(130,550	)	31.16
Nonvested at December 30, 2016	356,586		$	31.87

Performance-based restricted stock units granted only vest if certain market-based performance metrics are achieved. The amount of shares that ultimately vest range from 0 shares to 356,586 shares based upon the total shareholder return of the Company relative to the Company’s compensation peer group over a three-year performance period beginning in the year of grant. The fair value of the restricted stock units were determined by utilizing a Monte Carlo simulation model, which projects the value of the Company’s stock versus the peer group under numerous scenarios and determines the value of the award based upon the present value of these projected outcomes.

The realized tax benefit from the vesting of restricted stock and restricted stock units was $2.3 million, $3.4 million and $2.3 million for 2016, 2015 and 2014, respectively. As of December 30, 2016, there was $4.6 million of total unrecognized compensation cost related to the restricted stock and restricted stock unit awards. That cost is expected to be recognized over a weighted-average period of approximately 1.4 years. The fair value of shares vested in 2016, 2015 and 2014 was $11.8 million, $16.1 million and $12.5 million, respectively.