Share-Based Compensation

The Company recognizes expense related to the fair value of its share-based compensation awards using the Black-Scholes model to estimate the fair value of awards on the date of grant, except for unvested restricted stock unit awards, which are valued at the fair market value of the Company’s stock on the date of award. The Company recognizes compensation expense for all share-based compensation awards on a straight-line basis over the requisite service period of the award.

Stock Plans

In October 2004, the shareholders approved the adoption of the 2004 Stock Incentive Plan (the 2004 Plan) that replaced various stock compensation plans that were previously approved by the shareholders or the Board of Directors (the Replaced Plans), except with respect to options and other awards previously outstanding. Outstanding options and awards remained subject to the terms of the Replaced Plans under which they were originally granted. At that time, the shareholders also approved the reservation of 3,000,000 shares of common stock for issuance under the 2004 Plan. These shares are in addition to any shares of common stock that, at the time the 2004 Plan was approved by shareholders, were available for grant under the Replaced Plans or that may subsequently become available for grant under any of the Replaced Plans through the expiration, termination, forfeiture or cancellation of grants. In January 2005, the Board of Directors approved certain amendments to the 2004 Plan. These amendments prohibit grants of stock options or SARs with an exercise price less than fair market value, require that time-based restricted stock awards have a minimum vesting period of at least three years, with the subject shares vesting no more quickly than one-third annually over the three-year period, and expressly prohibit the reservation of additional shares under the 2004 Plan without shareholder approval. In October 2007, the shareholders approved an additional amendment to the 2004 Plan to permit awards to non-employee service providers and implement certain claw-back provisions. In August 2014, the 2004 Plan was amended to reduce the shares reserved for issuance by 1,000,000 shares and the 1990 Employee Stock Purchase Plan was amended to increase the shares reserved for issuance thereunder by 1,000,000 shares.

The 2004 Plan allows for grants of stock options, stock appreciation rights, stock bonuses (including restricted stock units), restricted stock, performance-based awards and dividend equivalents. Stock options and SARs outstanding under the 2004 Plan and the Replaced Plans vest over variable periods determined at the grant date, generally with terms of immediate vesting or up to four years, and expire ten years from the date of grant. Options and SARs issued under the 2004 Plan and the Replaced Plans are exercisable at prices not less than fair market value on the date of the grant. The 2004 Plan prohibits repricing of options and SARs granted without prior shareholder approval. Certain restricted stock units awarded under the 2004 Plan vest based on performance criteria that are tied to the Company’s results of operations, personal performance criteria, and, in certain cases, length of service. Unvested restricted stock unit awards are credited with dividend equivalents in the form of additional unvested restricted stock units at the same time and in the same amount as dividends paid to shareholders of the Company. The dividend equivalents have the same vesting and terms as the underlying restricted stock unit award and are subject to forfeiture if related awards do not vest.

In September 1990, the shareholders approved the adoption of the 1990 Employee Stock Purchase Plan, as amended in September 1998, October 2003, October 2004, January 2008, August 2009 and August 2014 (the ESPP), pursuant to which 4,400,000 shares of common stock have been reserved for issuance to participating employees. Eligible employees may elect to contribute up to 15 percent of their base wage and commissions during each pay period. The ESPP provides for separate overlapping twenty-four month offerings starting every three months. Each offering has eight purchase dates occurring every three months on designated dates. The offerings under the ESPP commence on February 15, May 15, August 15 and November 15 of each calendar year. Any eligible employee may participate in only one offering at a time and may purchase shares only through payroll deductions permitted under the ESPP. At the end of each three-month purchase period, the purchase price is determined and the accumulated funds are used to automatically purchase shares of common stock. The purchase price per share is equal to 85 percent of the lower of the fair market value of the common stock on (a) the first day of the offering period or (b) the date of purchase. The ESPP also provides that if the fair market value of the common stock on the first day of the new offering period is less than or equal to the fair market value of the common stock on the first date of any ongoing offering, employees participating in any such ongoing offering will be automatically withdrawn from it and enrolled in the new offering.

The Company granted SARs starting in the first quarter of 2010. SARs grant the right to receive shares of the Company’s stock equivalent to the increase in stock value of a specified number of shares over a specified period of time, divided by the stock price at the time of exercise. The Company uses the Black-Scholes model to estimate the fair value of SARs. Similar to options, SARs are recorded at the fair value of the award at grant date and the expense is recognized on a straight-line basis over the requisite service period of the award. The Company granted 634,523 and 63,853 SARs in 2015 and 2014 respectively, and did not grant any SARs in 2013.

Share-based compensation expense was included in the Company’s Consolidated Statements of Operations as follows:



(In thousands)	2015		2014		2013
Cost of sales	$	586	$	722	$	898
Selling, service and administration	2,847		4,213		5,330
Research, development and engineering	1,109		1,170		1,860
Total share-based compensation expense	$	4,542	$	6,105	$	8,088

Share-based compensation expense decreased in 2015 compared to 2014 primarily due to fewer restricted stock unit awards granted and lower stock price on grant dates, partially offset by an increased number of stock settled stock appreciation right awards granted. The share-based compensation expense decrease in 2014 compared to 2013 was primarily due to decreased attainment of performance-based grants in 2014, award cancellations and to a lesser extent, fewer overall awards granted.

The total amount of net cash received from the stock plan awards was insignificant in 2015 and was $0.7 million and $0.6 million for 2014 and 2013, respectively. All stock plan awards are settled with newly issued shares.

No share-based compensation costs were capitalized during 2015, 2014 or 2013. As of March 28, 2015, the Company had $5.9 million of total unrecognized share-based compensation costs, net of estimated forfeitures, which are expected to be recognized over a weighted average period of 2.0 years.

Valuation Assumptions

The Black-Scholes option pricing model is utilized to determine the fair value of SARs granted. The following weighted average assumptions were used in calculating the fair value of SARs during the periods presented:



	2015		2014		2013
Risk-free interest rate	2.04	%	1.88	%	1.63	%
Expected dividend yield	4.6	%	3.5	%	2.6	%
Expected lives	7.0 years		6.0 years		1.5 years
Expected volatility	47	%	45	%	47	%

The following weighted average assumptions were used to estimate the fair value of ESPP shares issued in the periods presented:



	2015		2014		2013
Risk-free interest rate	0.24	%	0.16	%	0.18	%
Expected dividend yield	3.2	%	3.3	%	3.0	%
Expected lives	1.1 years		1.1 years		1.1 years
Expected volatility	41	%	37	%	43	%

The risk-free interest rates used are based on the U.S. Treasury yields over the expected terms. In December 2011, the Board of Directors adopted a dividend policy under which the Company made quarterly cash dividends payments. Accordingly, the Company paid a dividend of $0.08 per outstanding common share in first three quarters of 2015 and all four quarters of 2014 and 2013. In the fourth quarter of 2015, the Board of Directors suspended the quarterly dividend payment. The expected dividend yield used is derived using a mathematical formula which uses the expected Company annual dividend rate over the expected term divided by the fair value of the Company’s common stock at the grant date.

The expected term and forfeiture estimates for stock options and SARs are based on an analysis of actual exercise behavior. The expected term for the ESPP is the weighted average length of the purchase periods. The Company uses its historical volatility over the estimated expected term as the expected volatility.

At March 28, 2015, the Company had 6,045,139 shares of its common stock reserved for issuance under all of the above plans combined. Of those shares, 3,658,591 are subject to issuance under currently outstanding stock options, SARs and stock awards and 2,386,548 shares, including 945,645 shares available for issuance under the ESPP, are available for future grants. The total fair value of stock option and SARs awards granted and vested during the period, unvested restricted stock unit awards granted and vested during the period, the intrinsic value of stock options and SARs exercised during the period and the total grant date fair value were:



(In thousands, except per share data)	2015		2014		2013
Stock-Option and SAR Awards:
Grant date fair value per share	$	2.12	$	2.94	$	4.82
Total fair value of options and SARs granted	$	1,291	$	188	$	25
Total fair value of options and SARs vested	$	409	$	1,305	$	2,050
Total intrinsic value of options and SARs exercised	$	18	$	183	$	230
Unvested Restricted Stock Unit Awards:
Grant date fair value per share	$	6.80	$	10.19	$	8.05
Total fair value of awards granted	$	5,832	$	6,865	$	7,026
Total fair value of awards vested	$	7,532	$	5,251	$	6,266
Employee Stock Purchase Plan:
Grant date fair value per share	$	1.72	$	2.61	$	3.22
Total grant date fair value	$	559	$	699	$	869

Share-Based Payment Award Activity

Information with respect to stock option and SAR activity was as follows:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Exercisable at March 29, 2014	1,898,409		$	15.27
Granted	634,523		6.91
Exercised	(8,250	)	7.26
Expired or forfeited	(295,636	)	18.30
Outstanding at March 28, 2015	2,229,046		$	12.52	4.45	$	—
Vested and expected to vest at March 28, 2015	2,195,313		$	12.60	4.37	$	—
Exercisable at March 28, 2015	1,556,978		$	14.61	2.43	$	—

Information with respect to unvested time-based restricted stock unit awards activity was as follows:



	Shares		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at March 29, 2014	1,115,601		$	11.47
Awarded	459,295		6.33
Vested	(672,930	)	11.19
Forfeited	(66,125	)	9.82
Outstanding at March 28, 2015	835,841		$	8.90	1.91	$	5,149

Information with respect to unvested performance-based restricted stock unit awards activity was as follows:



	Shares		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at March 29, 2014	396,533		$	10.33
Awarded	398,905		7.33
Vested	(234	)	—
Forfeited	(201,500	)	11.63
Outstanding at March 28, 2015	593,704		$	7.88	1.81	$	3,657

Additionally, the Company will grant approximately 513,328 shares valued at $2.3 million, as compensation to a Principal in the Company who was also a former shareholder of Topwin. The compensation will be recognized over the term of the principle's employment agreement with the Company per the purchase contract. See Note 6 "Business Acquisition” for discussion.