STOCK PLANS AND STOCK COMPENSATION EXPENSE

The Company recognizes compensation expense relating to share-based payments based on the fair value of the equity instrument issued and records such expense in selling and administrative expenses in the Company's Consolidated Statements of Operations. The number of shares to be issued is determined by dividing the specified dollar value of the award by the market value per share on the grant date. The Company's stock compensation expense (credit) was $(29) in 2018, $940 in 2017 and $1,324 in 2016. The credit in 2018 is related to the reversal of stock compensation that did not vest.

2016 Incentive Compensation Plan

On May 3, 2016, the Company's shareholders' approved and adopted the Company's 2016 Incentive Compensation Plan (the "2016 Incentive Compensation Plan") which provides for the issuance of a maximum of 800,000 shares of Common Stock and/or Class B Common Stock for the grant of options, and/or other stock-based or stock-denominated awards to employees, officers, directors, and agents of the Company and its participating subsidiaries. The 2016 Incentive Compensation Plan and the allocation of shares thereunder superseded and replaced The Dixie Group, Inc. Stock Awards Plan, as amended (the "2006 Plan") and the allocation of shares thereunder. The 2006 Plan was terminated with respect to new awards. Awards previously granted under the 2006 Plan continue to be governed by the terms of that plan and are not affected by its termination.

2006 Stock Awards Plan

The Company had a Stock Awards Plan, ("2006 Plan"), as amended, which provided for the issuance of up to 1,800,000 shares of Common Stock and/or Class B Common Stock as stock-based or stock-denominated awards to directors of the Company and to salaried employees of the Company and its participating subsidiaries.

Restricted Stock Awards

Each executive officer has the opportunity to earn a Primary Long-Term Incentive Award of restricted stock and separately receive an award of restricted stock denominated as “Career Shares.” The number of shares issued, if any, is based on the market price of the Company’s Common Stock at the time of grant of the award, subject to a $5.00 per share minimum value. Primary Long-Term Incentive Awards vest over three years. For participants over age 60, Career Share Awards fully vest when the participant becomes (i) qualified to retire from the Company and (ii) has retained such shares two years following the grant date. For the participants under age 60, Career Shares vest ratably over five years beginning on the participant's 61st birthday.

On March 12, 2018, the Company granted 297,292 shares of restricted stock to certain key employees. The grant-date fair value of the awards was $832, or $2.80 per share, and will be recognized as stock compensation expense over a weighted-average period of 6.1 years from the date the awards were granted. Each award is subject to a continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.

On July 30, 2018, the Company granted 10,000 shares of restricted stock to an employee. The grant-date fair value of the award was $20, or $2.00 per share and will be recognized as stock compensation over a three-year vesting period from the date the award was granted. The award is subject to a continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.

On March 10, 2017, the Company granted 40,000 shares of restricted stock to certain key employees. The grant-date fair value of the awards was $140, or $3.50 per share, and will be recognized as stock compensation expense over a three-year vesting period from the date the awards were granted. Each award is subject to a continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.

On September 1, 2017, the Company granted 10,000 shares of restricted stock to a key employee. The grant-date fair value of the award was $42, or $4.15 per share, and will be recognized as stock compensation expense over a three-year vesting period from the date the award was granted. The award is subject to a continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.

On September 18, 2017, the Company granted 10,000 shares of restricted stock to a key employee. The grant-date fair value of the award was $41, or $4.05 per share, and will be recognized as stock compensation expense over a three-year vesting period from the date the award was granted. The award is subject to a continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.

On March 11, 2016, the Company issued 149,215 shares of restricted stock to officers and other key employees. The grant-date

fair value of the awards was $651, or $4.360 per share, and is expected to be recognized as stock compensation expense over a weighted-average period of 8.7 years from the date the awards were granted. Each award is subject to a continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.

Restricted stock activity for the three years ended December 29, 2018 is summarized as follows:



	Number of Shares		Weighted-Average Grant-Date Fair Value
Outstanding at December 26, 2015	416,795		$	8.90
Granted	149,215		4.36
Vested	(107,318	)	8.88
Forfeited	(1,314	)	15.68
Outstanding at December 31, 2016	457,378		7.41
Granted	60,000		3.70
Vested	(78,908	)	8.79
Forfeited	(4,629	)	5.96
Outstanding at December 30, 2017	433,841		6.66
Granted	307,292		2.77
Vested	(64,939	)	6.58
Forfeited	(106,196	)	9.51
Outstanding at December 29, 2018	569,998		$	4.04

As of December 29, 2018, unrecognized compensation cost related to unvested restricted stock was $1,458. That cost is expected to be recognized over a weighted-average period of 7.7 years. The total fair value of shares vested was approximately $173, $276 and $456 during 2018, 2017 and 2016, respectively.

Stock Performance Units

The Company's non-employee directors receive an annual retainer of $18 in cash and $18 in value of Stock Performance Units (subject to a $5.00 minimum per unit). If market value at the date of the grants is above $5.00 per share; there is no reduction in the number of units issued. However, if the market value at the date of the grants is below $5.00, units will be reduced to reflect the $5.00 per share minimum. Upon retirement, the Company issues the number of shares of Common Stock equivalent to the number of Stock Performance Units held by non-employee directors at that time. As of December 29, 2018, 123,321 Stock Performance Units were outstanding under this plan. As of December 29, 2018, unrecognized compensation cost related to Stock Performance Units was $24. That cost is expected to be recognized over a weighted-average period of 0.3 years.

Stock Options

Options granted under the Company's 2006 Plan and the 2016 Plan were exercisable for periods determined at the time the awards are granted. Effective 2009, the Company established a $5.00 minimum exercise price on all options granted.

On May 30, 2017, the Company granted 203,000 options with a market condition to certain key employees of the Company at a weighted-average exercise price of $4.30. The grant-date fair value of these options was $306. These options vest over a two-year period and require the Company's stock to trade at or above $7.00 for five consecutive trading days after the two-year period and within five years of issuance to meet the market condition.

The fair value of each option was estimated on the date of grant using a lattice model. Expected volatility was based on historical volatility of the Company's stock, using the most recent period equal to the expected life of the options. The risk-free interest rate was based on the U.S. Treasury yield for a term equal to the expected life of the option at the time of grant. The Company uses historical exercise behavior data of similar employee groups to determine the expected life of options.

The following weighted-average assumptions were used to estimate the fair value of stock options granted during the year ended December 29, 2018:



	2018 (1)		2017		2016 (1)
Expected Volatility	—	%	47.80	%	—	%
Risk-free interest rate	—	%	1.79	%	—	%
Dividend yield	—	%	—	%	—	%
Expected life of options (yrs)	0		5		0

(1) No options were granted during the years ended December 29, 2018 and December 31, 2016.

Option activity for the three years ended December 29, 2018 is summarized as follows:



	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)	Weighted-Average Fair Value of Options Granted During the Year
Outstanding at December 26, 2015	103,500		$	5.00		$	—
Granted	—		—			—
Exercised	—		—			—
Forfeited	—		—			—
Outstanding at December 31, 2016	103,500		5.00			—
Granted	203,000		4.30			1.51
Exercised	—		—			—
Forfeited	—		—			—
Outstanding at December 30, 2017	306,500		4.54			—
Granted	—		—			—
Exercised	—		—			—
Forfeited	(8,000	)	4.17			—
Outstanding at December 29, 2018	298,500		4.55		2.5	$	—

Options exercisable at:
December 31, 2016	103,500		$	5.00		—
December 30, 2017	103,500		5.00			—
December 29, 2018	103,500		5.00		0.8	—

At December 29, 2018, there was no intrinsic value of outstanding stock options and no intrinsic value of exercisable stock options. The intrinsic value of stock options exercised during 2018, 2017 and 2016 was $0, $0 and $0, respectively. At December 29, 2018, unrecognized compensation expense related to unvested stock options was $72 and is expected to be recognized over a weighted-average period of 0.4 years.