STOCK-BASED COMPENSATION

The Company maintains certain stock-based compensation plans that were approved by the Company’s stockholders and are administered by the Board of Directors, or the Compensation and Organization Committee of the Board. The stock-based compensation plans provide for the granting of stock options, shares of restricted stock, restricted stock units (“RSUs”), stock appreciation rights and stock bonuses to employees, non-employee directors, consultants, and service providers.

The components and classification of stock-based compensation expense were as follows (in thousands):



	Three Months Ended
	March 31, 2017		April 1, 2016
Stock options	$	710	$	609
Restricted stock and restricted stock units	3,959		2,226
Total stock-based compensation expense	$	4,669	$	2,835

Cost of sales	$	142	$	197
Selling, general and administrative expenses	2,159		1,655
Research, development and engineering costs, net	105		177
Other operating expenses, net	2,263		806
Total stock-based compensation expense	$	4,669	$	2,835

During the first quarter of 2017, the Company recorded $2.2 million of accelerated stock-based compensation expense in connection with the transition of its former Chief Executive Officer (“CEO”) per the terms of his contract, which was classified as Other Operating Expenses, Net. In connection with the Spin-off, certain awards granted to employees who transferred to Nuvectra 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 weighted average fair value and assumptions used to value options granted are as follows:



	Three Months Ended
	March 31, 2017			April 1, 2016
Weighted average fair value	$	9.14		$	12.81
Risk-free interest rate	1.63		%	1.69		%
Expected volatility	38		%	26		%
Expected life (in years)	4			5
Expected dividend yield	—		%	—		%

(8.) STOCK-BASED COMPENSATION (Continued)

The following table summarizes the Company’s stock option activity:



	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value (In Millions)
Outstanding at December 30, 2016	1,739,972		$	28.26
Granted	33,636		29.55
Exercised	(343,898	)	21.66
Forfeited or expired	(9,490	)	45.82
Outstanding at March 31, 2017	1,420,220		$	29.77	6.4	$	17.8
Exercisable at March 31, 2017	1,164,993		$	27.94	5.8	$	16.1

During the three months ended March 31, 2017, the Company awarded grants of 0.6 million RSUs to certain members of management, of which 0.4 million are performance-based RSUs (“PSUs”) and the remainder are time-based RSUs that vest over three years. Of the PSUs, 0.3 million of the shares subject to each grant will be earned based upon achievement of specific Company performance metrics for the Company’s fiscal year ending December 29, 2017, and 0.1 million of the shares subject to each grant will be earned based on the Company’s achievement of a relative total shareholder return (“TSR”) performance requirement, on a percentile basis, compared to a defined group of peer companies over a two-year performance period ending December 28, 2018. The number of PSUs earned based on the achievement of the Company performance metrics and TSR performance requirements, if any, will vest based on the recipient’s continuous service to the Company over a period of generally one to three years from the grant date. The time-based RSUs generally vest ratably over a three-year period. The RSUs do not have rights to dividends or dividend equivalents.

The grant-date fair value of the TSR portion of the PSUs granted during the three months ended March 31, 2017 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 1.89 years, (ii) risk free interest rate of 1.12%, (iii) expected dividend yield of 0.0% and (iv) expected stock price volatility over the expected term of the TSR award of 48.9%. The grant-date fair value of all other restricted stock awards is equal to the closing market price of Integer common stock on the date of grant.

The following table summarizes time-vested restricted stock and RSU activity:



	Time-Vested Activity		Weighted Average Fair Value
Nonvested at December 30, 2016	39,394		$	45.51
Granted	250,132		32.10
Vested	(7,797	)	29.55
Forfeited	(2,321	)	40.72
Nonvested at March 31, 2017	279,408		$	33.99

The following table summarizes PSU activity:



	Performance- Vested Activity		Weighted Average Fair Value
Nonvested at December 30, 2016	356,586		$	31.87
Granted	370,815		30.58
Forfeited	(134,223	)	31.40
Nonvested at March 31, 2017	593,178		$	31.18