Share-Based Compensation

MRV records share-based compensation expense at fair value. The following table summarizes the impact on MRV's results of continuing operations of recording share-based compensation for the years ended December 31, 2016, 2015 and 2014 (in thousands):



Year Ended December 31:	2016		2015		2014
Cost of goods sold	$	105	$	131	$	113
Product development and engineering	222		232		166
Selling, general and administrative	1,177		756		653
Total share-based compensation expense ⁽¹⁾	$	1,504	$	1,119	$	932


(1)	Income tax benefits realized from stock option exercises and similar awards were immaterial in all periods.

Equity Incentive Plans

In May 2015, MRV's stockholders approved the 2015 Long Term Incentive Plan (LTIP) to replace MRV's outstanding equity compensation plan, the Omnibus Plan. Upon adoption of the 2015 Long Term Incentive Plan, no further shares were available for future grants of options or warrants under its predecessor plans including shares that become available as a consequence of the cancellation or forfeiture of outstanding options granted under such plans.

All stock options granted under the 2015 LTIP have a maximum contractual life of ten years from the date of the grant and typically vest over a period of one to three years from the date of the grant.

Share-Based Payment Awards

The Company granted 245,539, 255,914 and 198,647 stock options during the years ended December 31, 2016, 2015 and 2014, respectively, with the related average grant date fair value of $4.89, $4.48 and $6.95 per share, respectively. The Company granted restricted shares of 90,869, 95,587 and 100,355 at average grant date fair values of $10.95, $10.58 and $13.91 per share during the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, the total unrecognized share-based compensation balance for unvested securities, net of expected forfeitures, was $2.0 million, which is expected to be amortized over a weighted-average period of 1.8 years.

Stock Options

Valuation Assumptions

MRV uses the Black-Scholes option pricing model to estimate the fair value of stock option awards. The Black-Scholes model requires the use of subjective and complex assumptions including the option's expected life and the underlying stock price volatility. MRV bases volatility on the Company's historical quoted prices and peer company data. The expected term of options granted is based on the simplified method, using the mid-point between the vesting term and the original contractual term. The risk free interest rate is determined based on U.S. Treasury yields with equivalent remaining terms in effect at the time of the grant.

The following weighted average assumptions were used for estimating the fair value of options granted during the years ended December 31, 2016, 2015 and 2014:



Year ended December 31:	2016		2015		2014
Risk-free interest rate	1.4	%	1.7	%	2.0	%
Dividend yield ₍₁₎	—		—		—
Volatility	46	%	43	%	50	%
Expected life (in years)	5.9		5.9		5.9


(1)	As the Company does not pay a dividend on a regular basis, and dividends paid in the past have been special in nature, a dividend rate of zero was used.

Share-Based Payment Award Activity

The following table summarizes option share-based payment award activity for the three-year period ended December 31, 2016:



	Shares under option		Weighted average exercise price			Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Balance as of December 31, 2013	349,454			$	28.15		4.34	$	48,939
Granted	198,647			$	14.11
Exercised	(6,812	)		$	10.55
Forfeited	(133,339	)		$	26.58
Balance as of December 31, 2014	407,950			$	22.12		4.89	$	22,479
Granted	255,914			$	10.46
Exercised	(16,878	)		$	11.27
Forfeited	(183,073	)		$	23.84
Balance as of December 31, 2015	463,913			$	15.10		7.96	$	614,591
Granted	245,539			$	10.93
Exercised	(15,415	)		$	9.42
Forfeited	(94,064	)		$	20.77
Outstanding, December 31, 2016	599,973			$	12.68		8.05	$	—

Vested and expected to vest, December 31, 2016	544,232			$	12.86		7.94	$	—
Exercisable, December 31, 2016	219,956			$	15.57		6.48	$	—

The following table summarizes significant ranges of outstanding and exercisable options at December 31, 2016:



Range of Exercise prices	Options outstanding as of December 31, 2016	Weighted average remaining contractual life (years)	Weighted average exercise price		Options exercisable as of December 31, 2016	Weighted average exercise price of exercisable options
$9.10 - $9.20	21,998	6.86	$	9.12	18,609	$	9.10
$9.63 - $9.63	155,636	8.26	$	9.63	64,315	$	9.63
$9.72 - $10.55	14,007	5.59	$	10.06	12,675	$	10.09
$10.95 - $10.95	225,650	9.42	$	10.95	—	$	—
$12.12 - $13.40	63,416	8.38	$	12.78	30,086	$	12.94
$13.46 - $14.51	81,030	6.81	$	14.27	57,701	$	14.23
$16.80 - $27.60	19,461	4.75	$	23.79	17,795	$	24.18
$29.80 - $29.80	4,150	0.92	$	29.80	4,150	$	29.80
$32.00 - $32.00	1,200	1.33	$	32.00	1,200	$	32.00
$52.60 - $52.60	13,425	0.54	$	52.60	13,425	$	52.60
$9.10 - $52.60	599,973	8.05	$	12.68	219,956	$	15.57

Restricted Stock Awards

The Company accounts for the fair value of the restricted shares using the closing market price of the Company’s Common Stock on the date of grant.

The following table summarizes restricted stock award activity for the three-year period ended December 31, 2016:



	Number of Restricted Stock Awards		Weighted Average Grant Date Fair Value Per Share			Aggregate intrinsic value
Balance as of December 31, 2013	81,193			$	9.94	$	870,399
Granted	100,355			$	13.91
Released	(39,238	)		$	10.08
Canceled	(39,276	)		$	12.45
Balance as of December 31, 2014	103,034			$	12.80	$	1,023,128
Granted	95,587			$	10.58
Released	(41,136	)		$	12.58
Canceled	(14,306	)		$	12.79
Balance as of December 31, 2015	143,179			$	11.38	$	1,749,647
Granted	90,869			$	10.95
Released	(65,766	)		$	11.23
Canceled	(22,326	)		$	11.94
Outstanding, December 31, 2016	145,956			$	11.14	$	1,189,541

The following table summarizes certain stock option exercise and restricted share activity during the periods presented (in thousands):



Year ended December 31:	2016		2015		2014
Total intrinsic value of stock options exercised	$	34	$	42	$	17
Cash received from stock options exercised	$	145	$	190	$	72
Total value of restricted shares vested	$	697	$	380	$	525