Stock Based Compensation

The Company recognizes all stock-based compensation to employees and directors, including awards of stock options and restricted stock awards, in the financial statements as compensation cost over the applicable vesting periods based on their fair value on the date of grant. Total stock-based compensation expense included in selling, general and administrative expense in 2017 and 2016 was $0.7 million and $0.5 million, respectively. The amount recorded for the years ended December 31, 2017 and 2016 was recorded net of benefits of $21,000 and $0.3 million, as the result of forfeitures of unvested stock awards prior to the completion of the requisite service period or failure of the Company to meet certain performance measures. The amount of total stock based compensation includes $0.4 million and $0.2 million in 2017 and 2016, respectively, relating to restricted stock awards. No compensation expense has been capitalized during 2017 and 2016.

The Company has reserved 1.0 million shares under its 2015 Equity Incentive Plan (“Plan”). Stock options under this Plan may be incentive stock options or nonqualified stock options. The Plan also provides for restricted stock awards, including performance based awards. Stock options are nontransferable other than upon death. Option grants generally vest over a one to three year period after the grant and typically expire ten years after the date of the grant. The Plan provides for the grant of several different forms of stock-based compensation, including stock options to purchase shares of PAR common stock. The Compensation Committee of the Board of Directors (Compensation Committee) has discretion to determine the material terms and conditions of option awards under the Plan, provided that (i) the exercise price must be no less than the fair market value of PAR common stock (defined as the closing price) on the date of grant, (ii) the term must be no longer than ten years, and (iii) in no event shall the normal vesting schedule provide for vesting in less than one year. Other terms and conditions of an award of stock options will be determined by the Compensation Committee as set forth in the agreement relating to that award. The Compensation Committee has authority to administer the Plan.

Prior to the Plan, the Company reserved 1.0 million shares under its 2005 Equity Incentive Plan (the “2005 Plan”). Stock options available for grant under the 2005 Plan were incentive stock options or nonqualified stock options. The 2005 Plan also provided for restricted stock awards, including both time and performance vesting awards. Stock options granted under the 2005 Plan are nontransferable other than upon death, generally vest over a one to three year period after grant and typically expire ten years from grant. No new grants of stock options or restricted stock awards under the 2005 Plan were made in 2017 or 2016.

The below table presents information with respect to stock options under the Plan and the 2005 Plan:



	No. of Shares (in thousands)		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2016	949		$	5.22	$	264
Options granted	149		8.82
Options exercised	(271	)	9.06
Forfeited and canceled	(31	)	5.64
Expired	(35	)	5.17
Outstanding at December 31, 2017	761		$	5.80	$	2,748
Vested and expected to vest at December 31, 2017	272		$	7.30	$	558
Total shares exercisable as of December 31, 2017	41		$	5.46	$	159
Shares remaining available for grant	687

The weighted average grant date fair value of stock options granted during the years 2017 and 2016 was $3.26 and $1.81, respectively. The total intrinsic value of stock options exercised during the year ended December 31, 2017 was $1,043,000. The total intrinsic value of stock options exercised during the year ended December 31, 2016 was $5,800. New shares of the Company’s common stock are issued as a result of stock option exercises in 2017 and for options exercised in 2016. The fair value of options at the date of the grant was estimated using the Black-Scholes model with the following assumptions for the respective period ending December 31:



	2017		2016
Expected option life	3.7 years		5.7 years
Weighted average risk-free interest rate	2.2	%	1.3	%
Weighted average expected volatility	36	%	33	%
Expected dividend yield	0	%	0	%

For the years ended 2017 and 2016, the expected option life was based on the Company’s historical experience with similar type options. Expected volatility is based on historical volatility levels of the Company’s common stock over the preceding period of time consistent with the expected life. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life. Stock options outstanding at 2017 are summarized as follows:



Range of Exercise Prices	Number Outstanding (in thousands)	Weighted Average Remaining Life	Weighted Average Exercise Price

$7.15 - $11.01	761	7.41 years	$	5.80

At 2017, the aggregate unrecognized compensation cost of unvested equity awards, as determined using a Black-Scholes option valuation model, was $1.0 million (net of estimated forfeitures) which is expected to be recognized as compensation expense in fiscal years 2018 through 2020. The Company has not paid cash dividends on its common stock, and the Company presently intends to continue to retain earnings for reinvestment in growth opportunities. Accordingly, it is anticipated no cash dividends will be paid in the foreseeable future.

Current year activity with respect to the Company’s non-vested restricted stock awards is as follows:



Non-vested restricted stock awards (in thousands)	Shares		Weighted Average grant- date fair value
Balance at January 1, 2017	163		$	5.22
Granted	92		8.61
Vested	(75	)	8.42
Forfeited and canceled	(22	)	8.34
Balance at December 31, 2017	158		$	6.49

The Plan also provides for the issuance of restricted stock, as well as restricted stock units. These types of awards can have either service based or performance based vesting with performance goals being established by the Compensation Committee. Grants of restricted stock with service based vesting are subject to vesting periods ranging from 1 to 3 years. Grants of restricted stock with performance based vesting are subject to a vesting period of 1 to 3 years and performance conditions as defined by the Compensation Committee. The Company assesses the likelihood of achievement throughout the performance period and recognizes compensation expense associated with its performance awards based on this assessment. Other terms and conditions applicable to any award of restricted stock will be determined by the Compensation Committee and set forth in the agreement relating to that award.

During 2017 and 2016, the Company issued 92,000 and 168,000 restricted stock awards, respectively, at a per share price of $0.02. For the periods ended 2017 and 2016, the Company recognized compensation expense related to the performance awards based on its estimate of the probability of achievement in accordance with ASC Topic 718.

The fair value of restricted stock awards is based on the average price of the Company’s common stock on the date of grant. The weighted average grant date fair value of restricted stock awards granted during the years 2017 and 2016 was $8.61 and $5.23, respectively. In accordance with the terms of the restricted stock award agreements, the Company released 75,000 and 85,000 shares during 2017 and 2016, respectively. During 2017, there were approximately 22,000 shares of restricted stock canceled, 12,000 of which were performance based restricted shares. During 2016, there were 46,000 shares of restricted stock canceled, of which 45,000 were performance based restricted shares.