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				Six Months Ended
	June 30, 2017		July 1, 2016		June 30, 2017		July 1, 2016
Stock options	$	283	$	585	$	993	$	1,194
Restricted stock and restricted stock units	2,998		1,542		6,957		3,768
Total stock-based compensation expense	$	3,281	$	2,127	$	7,950	$	4,962

Cost of sales	$	339	$	150	$	481	$	347
Selling, general and administrative expenses	2,733		1,528		4,892		3,183
Research, development and engineering costs, net	179		116		284		293
Other operating expenses, net	30		333		2,293		1,139
Total stock-based compensation expense	$	3,281	$	2,127	$	7,950	$	4,962

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 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:



	Six Months Ended
	June 30, 2017			July 1, 2016
Weighted average fair value	$	10.58		$	9.41
Risk-free interest rate	1.69		%	1.58		%
Expected volatility	37		%	26		%
Expected life (in years)	4.1			5.0
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	57,407		32.99
Exercised	(406,588	)	21.46
Forfeited or expired	(33,958	)	45.95
Outstanding at June 30, 2017	1,356,833		$	30.05	6.4	$	19.5
Exercisable at June 30, 2017	1,162,235		$	29.28	5.8	$	17.4

During the six months ended June 30, 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 six months ended June 30, 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	264,111		32.45
Vested	(49,263	)	32.14
Forfeited	(11,658	)	38.19
Nonvested at June 30, 2017	242,584		$	34.34

The following table summarizes PSU activity:



	Performance- Vested Activity		Weighted Average Fair Value
Nonvested at December 30, 2016	356,586		$	31.87
Granted	378,219		30.74
Forfeited	(284,183	)	30.75
Nonvested at June 30, 2017	450,622		$	31.63