Share-Based Compensation

6 Months Ended

Jul. 01, 2011

Share-Based Compensation

8. Share-Based Compensation

Equity Compensation Plans

As of July 1, 2011, the Company has one active equity compensation plan, the GSI Group Inc. 2010 Incentive Award Plan (the “2010 Incentive Plan”), under which it may grant stock-based compensation awards to employees, consultants and directors. As of July 1, 2011, there are 2,092,659 shares available for future issuance under the 2010 Incentive Plan. Additionally, the Company has other equity compensation plans under which there are awards outstanding, but under which no further awards may be made as such plans were cancelled upon the Company’s emergence from bankruptcy on July 23, 2010 (collectively referred to herein as the “Pre-2010 Incentive Plans”). Such equity compensation plans are described in Note 10 in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2010, filed with the SEC on March 30, 2011. There have been no material modifications made to the Company’s equity compensation plans during the three or six months ended July 1, 2011.

2010 Incentive Plan

The table below summarizes activity relating to restricted stock units issued and outstanding under the 2010 Incentive Plan during the six months ended July 1, 2011:

	Number of  Shares (In thousands)			Weighted Average  Grant Date Fair Value
Unvested at December 31, 2010		333		$	9.87
Granted		435			11.62
Vested		—			—
Forfeited		(5	)		10.30
Unvested at July 1, 2011		763		$	10.86
Expected to vest as of July 1, 2011		760		$	10.87

Pre-2010 Incentive Plans

The table below summarizes activity relating to restricted stock awards issued and outstanding under the Pre-2010 Incentive Plans during the six months ended July 1, 2011:

	Number of  Shares (In thousands)			Weighted Average Grant Date Fair Value
Unvested at December 31, 2010		31		$	11.36
Granted		—			—
Vested		(10	)		24.30
Forfeited		(6	)		8.12
Unvested at July 1, 2011		15		$	3.84

Share-Based Compensation Expense

The Company recognized share-based compensation expense totaling $0.8 million and $0.4 million during the three months ended July 1, 2011 and July 2, 2010, respectively, and $1.8 million and $1.1 million during the six months ended July 1, 2011 and July 2, 2010, respectively. Stock compensation expense is primarily included in selling, general, and administrative expense in the Company’s consolidated statements of operations and as an increase to additional paid-in capital on the Company’s consolidated balance sheets. As the awards granted are issuable to the holder, typically subject to vesting provisions, with no consideration payable by the holder, the grant date fair value per share is based on the quoted price of the Company’s common stock on the date of the grant and is generally the basis for which compensation expense is recognized. The restricted stock awards and restricted stock units for which the Company has recorded expense during the three and six months ended July 1, 2011 and July 2, 2010, have generally been issued with a three-year vesting period and vest based solely on service conditions. Accordingly, the Company recognizes compensation expense on a straight-line basis over the requisite service period. The Company reduces the compensation expense by an estimated forfeiture rate which is based on anticipated forfeitures and actual experience.

Additionally, the expense recorded during the six months ended July 1, 2011 includes compensation expense for 42,536 deferred stock units granted to the members of the Company’s Board of Directors, pursuant to the Company’s 2010 Incentive Plan, of approximately $0.6 million, which was recognized in full on the date of grant, as the deferred stock units are fully vested and nonforfeitable on the date of grant. There were no deferred stock units granted during the three months ended July 1, 2011 or the three or six months ended July 2, 2010. Approximately $0.1 million and $0.4 million of the compensation expense recognized during the three and six month periods ended July 1, 2011 and July 2, 2010, respectively, relates to expense recognized upon the acceleration of vesting of all outstanding but unvested restricted stock awards or units that had previously been granted to certain of the Company’s former executives as of the respective effective dates of termination. The expense recorded during the three and six months ended July 2, 2010 includes ($0.1) million and $0.2 million, respectively, of compensation expense related to awards granted under the Pre-2010 Incentive Plans that were accounted for as share-based liabilities under ASC 718, “Stock Compensation”, until settled through the issuance of common shares, forfeited due to termination of service or reclassified to additional paid in capital, upon the Company’s emergence from bankruptcy on July 23, 2010. Accordingly, no share-based liability remains as of July 1, 2011 or December 31, 2010. No awards were accounted for as share-based liabilities during the three or six months ended July 1, 2011.

As of July 1, 2011, there was $7.2 million of unrecognized compensation related to unvested restricted stock units and unvested restricted stock awards. This amount is expected to be recognized over a weighted-average period of 2.6 years. To the extent the actual forfeiture rate is different from what the Company has anticipated, the share-based compensation expense related to these awards will differ from these expectations.