Share-Based Compensation

We have two active share-based stock plans, the Luby's Incentive Stock Plan, as amended and restated effective December 5, 2015 (the "Employee Stock Plan") and the Nonemployee Director Stock Plan. Both plans authorize the granting of stock options, restricted stock, and other types of awards consistent with the purpose of the plans.

Of the aggregate 2.1 million shares approved for issuance under the Nonemployee Director Stock Plan, (which amount includes shares authorized under the original plan and shares authorized pursuant to the amended and restated plan effective as of February 9, 2018), 1.3 million options, restricted stock units and restricted stock awards were granted, 0.1 million options were cancelled or expired and added back into the plan, since the plans inception. Approximately 0.9 million shares remain available for future issuance as of August 29, 2018. Compensation cost for share-based payment arrangements under the Nonemployee Director Stock Plan, recognized in selling, general and administrative expenses for fiscal 2018, 2017, and 2016 was approximately $0.5 million, $0.7 million, and $0.7 million, respectively.

Of the 4.1 million shares approved for issuance under the Employee Stock Plan (which amount includes shares authorized under the original plan and shares authorized pursuant to the amended and restated plan effective as of December 5, 2015), 7.2 million options and restricted stock units were granted, 3.8 million options and restricted stock units were cancelled or expired and added back into the plan, since the plans inception in 2005. Approximately 0.7 million shares remain available for future issuance as of August 29, 2018. Compensation cost for share-based payment arrangements under the Employee Stock Plan, recognized in selling, general and administrative expenses for fiscal 2018, 2017, and 2016 was approximately $0.9 million, $0.9 million, and $1.0 million, respectively. Included in these costs for fiscal 2016 was approximately $252 thousand, which represented accelerated share-based compensation expense as a result of the rescission of 312,663 stock options.

Stock Options

Stock options granted under either the Employee Stock Plan or the Nonemployee Director Stock Plan have exercise prices equal to the market price of the Company’s common stock at the date of the grant. The market price under the Employee Stock Plan is the closing price at the date of the grant. The market price under the Nonemployee Director Plan is the average of the high and the low price on the date of the grant.

Option awards under the Nonemployee Director Stock Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date. No options were granted under the Nonemployee Director Stock Plan in fiscal 2018, 2017, or 2016. No options to purchase shares remain outstanding under this plan, as of August 29, 2018.

Options granted under the Employee Stock Plan generally vest 50% on the first anniversary of grant date, 25% on the second anniversary of the grant date and 25% on the third anniversary of the grant date, with all options expiring ten years from the grant date. All options granted in fiscal 2018, 2017, and 2016 were granted under the Employee Stock Plan. Options to purchase 1,653,414 shares at options prices from $2.82 to $5.95 per share remain outstanding as of August 29, 2018.

The Company has segregated option awards into two homogenous groups for the purpose of determining fair values for its options because of differences in option terms and historical exercise patterns among the plans. Valuation assumptions are determined separately for the two groups which represent, respectively, the Employee Stock Plan and the Nonemployee Director Stock Option Plan. The assumptions are as follows:


•	The Company estimated volatility using its historical share price performance over the expected life of the option. Management believes the historical estimated volatility is materially indicative of expectations about expected future volatility.


•	The Company uses an estimate of expected lives for options granted during the period based on historical data.


•	The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.


•	The expected dividend yield is based on the Company’s current dividend yield and the best estimate of projected dividend yield for future periods within the expected life of the option.

The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model which determine inputs as shown in the following table for options granted under the Employee Stock Plan:



	Fiscal Year Ended
	August 29, 2018		August 30, 2017		August 31, 2016
	(In thousands, except percentages)
Dividend yield	0	%	0	%	0	%
Volatility	34.80	%	37.65	%	39.64	%
Risk-free interest rate	2.19	%	1.99	%	1.82	%
Expected life (in years)	5.87		5.87		5.58

A summary of the Company’s stock option activity for fiscal 2018, 2017, and 2016 is presented in the following table:



	Shares Under Fixed Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
					(Years)	(In thousands)
Outstanding at August 26, 2015	1,288,099		$	4.76	6.5	$	350
Granted	279,944		4.89		—	—
Exercised	(21,249	)	3.51		—	—
Forfeited	(55,893	)	4.80		—	—
Expired	(9,000	)	3.44		—	—
Outstanding at August 31, 2016	1,169,238		$	4.76	6.6	$	178
Granted	295,869		4.26		—	—
Cancelled	(9,290	)	4.49		—	—
Forfeited	(55,893	)	4.80		—	—
Expired	(37,689	)	5.39		—	—
Outstanding at August 30, 2017	1,345,916		$	4.64	6.4	$	0
Granted	449,410		2.82		—	—
Forfeited	(97,111	)	4.02		—
Expired	(44,801	)	7.89		—	—
Outstanding at August 29, 2018	1,653,414		$	4.10	6.5	$	0
Exercisable at August 29, 2018	1,066,103		$	4.53	5.2	$	0

The intrinsic value for stock options is defined as the difference between the market value at August 29, 2018 and the grant price.

At August 29, 2018, there was approximately $0.3 million of total unrecognized compensation cost related to unvested options that are expected to be recognized over a weighted-average period of 1.7 years.

The weighted-average grant-date fair value of options granted during fiscal 2018, 2017, and 2016 was $1.05, $1.66, and $1.92 per share, respectively.

During fiscal 2017 and 2018, no options were exercised. During fiscal 2016 cash received from options exercised was approximately $82 thousand.

Restricted Stock Units

Grants of restricted stock units consist of the Company’s common stock and generally vest after three years. All restricted stock units are cliff-vested. Restricted stock units are valued at market price of the Company’s common stock at the date of grant. The market price under the Employee Stock Plan is the closing price at the date of the grant. The market price under the Nonemployee Director Plan is the average of the high and the low price on the date of the grant.

A summary of the Company’s restricted stock unit activity during fiscal years is presented in the following table:



	Restricted Stock Units		Weighted Average Fair Value		Weighted- Average Remaining Contractual Term
			(Per share)		(In years)
Unvested at August 26, 2015	409,417		$	5.98	1.6
Granted	172,212		4.87		—
Vested	(257,482	)	6.19		—
Forfeited	(9,314	)	5.37		—
Unvested at August 31, 2016	314,833		$	5.23	1.9
Granted	200,549		4.26		—
Vested	(92,058	)	6.30		—
Forfeited	(18,960	)	4.55		—
Unvested at August 30, 2017	404,364		$	4.54	1.8
Granted	244,748		2.83		—
Vested	(99,495	)	4.42		—
Forfeited	(32,326	)	3.87		—
Unvested at August 29, 2018	517,291		$	3.79	1.8

At August 29, 2018, there was approximately $0.8 million of total unrecognized compensation cost related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 1.8 years.

Performance Based Incentive Plan

For fiscal years 2015 - 2018, The Company approved a Total Shareholder Return ("TSR") Performance Based Incentive Plan (“Plan”). Each Plan’s award value varies from 0% to 200% of a base amount, as a result of the Company’s TSR performance in comparison to its peers over the respective measurement period. Each Plan’s vesting period is three years.

The Plans for fiscal years 2015 - 2017 provides for a right to receive an unspecified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over the three-year vesting period, for each plan year. The number of shares at the end of the three-year period will be determined as the award value divided by the closing stock price on the last day of each fiscal year, accordingly. Each three-year measurement period is designated a plan year name based on year one of the measurement period. Since the plans provide for an undeterminable number of awards, the plans are accounted for as liability based plans. The liability valuation estimate for each plan year has been determined based on a Monte Carlo simulation model. Based on this estimate, management accrues expense ratably over the three-year service periods. A valuation estimate of the future liability associated with each fiscal year's performance award plan is performed periodically with adjustments made to the outstanding liability at each reporting period to properly state the outstanding liability for all plan years in the aggregate as of the respective balance sheet date. As of August 29, 2018, the valuation estimate which represents the fair value of the performance awards liability for all plan years 2016 and 2017, resulted in an approximate $0.3 million decrease in the aggregate liability. The 2015 TSR Performance Based Incentive Plan vested for each active participant on August 30, 2017 and a total of 187,883 shares were awarded under the Plan at 50% of the original target. The fair value of the 2015 plan's liability in the amount of $496 thousand was converted to equity and the number of shares awarded for the 2015 TSR Performance Based Incentive Plan was based on the Company's stock price at closing on the last day of fiscal 2017. The fair value of the 2016 TSR Plan was zero at the end of the three-year measurement period and at August 29, 2018 no shares vested due to the relative ranking of the Company's stock performance. The number of shares at the end of each plan's three-year periods will be determined as the award value divided by the Company's closing stock price on the last day of the plan's fiscal year.

The 2018 TSR Performance Based Incentive Plan provides for a specified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over a three-year cycle. The Fair Value of the 2018 Plan has been determined based on a Monte Carlo simulation model for the three-year period. The target number of shares for distribution at 100% of the plan is 373,294. The 2018 TSR Performance Based Incentive Plan is accounted for as an equity award since the Plan provides for a specified number of shares. The expense for this Plan year is amortized over the three-year period based on 100% target award.

Non-cash compensation expense related to the Company's TSR Performance Based Incentive Plans in fiscal 2018, 2017, and 2016 was a credit to expense of $15 thousand, and expenses of $38 thousand, and approximately $684 thousand, respectively, and is recorded in Selling, general and administrative expenses.

A summary of the Company’s restricted stock Performance Based Incentive Plan activity during fiscal 2018 is presented in the following table:



	Units		Weighted Average Fair Value
			(Per share)
Unvested at August 30, 2017	—		—
Granted	561,177		3.33
Vested	(187,883	)	2.64
Forfeited	—		—
Unvested at August 29, 2018	373,294		3.68

At August 29, 2018, there was approximately $1.1 million of total unrecognized compensation cost related to 2018 TSR Performance Based Incentive Plan that is expected to be recognized over a weighted-average period of 2.0 years.

Restricted Stock Awards

Under the Nonemployee Director Stock Plan, directors are granted restricted stock in lieu of cash payments, for all or a portion of their compensation as directors. Directors may receive a 20% premium of additional restricted stock by opting to receive stock over a minimum required amount of stock, in lieu of cash. The number of shares granted is valued at the average of the high and low price of the Company’s stock at the date of the grant. Restricted stock awards vest when granted because they are granted in lieu of a cash payment. However, directors are restricted from selling their shares until after the third anniversary of the date of the grant.

Supplemental Executive Retirement Plan

The Company has an unfunded Supplemental Executive Retirement Plan (“SERP”). In 2005, the Board of Directors voted to amend the SERP and suspend the further accrual of benefits and participation. The net benefit recognized for the SERP for the years ended August 29, 2018, August 30, 2017, and August 31, 2016, was zero, and the unfunded accrued liability included in “Other Liabilities” on the Company’s consolidated Balance Sheets as of August 29, 2018 and August 30, 2017 was approximately $39 thousand and $45 thousand, respectively.

Nonemployee Director Phantom Stock Plan

The Company’s has a Nonemployee Director Phantom Stock Plan (“Phantom Stock Plan”). Authorized shares (100,000 shares) under the Phantom Stock Plan were fully depleted in early fiscal 2003; since that time, no deferrals, incentives or dividends have been credited to phantom stock accounts. As participants cease to be directors, their phantom shares are converted into an equal number of shares of common stock and issued from the Company’s treasury stock. As of August 29, 2018, 17,801 phantom shares remained outstanding and unconverted under the Phantom Stock Plan.

401(k) Plan

The Company has a voluntary 401(k) employee savings plan to provide substantially all employees of the Company an opportunity to accumulate personal funds for their retirement. The Company matches 25% of participants’ contributions made to the plan up to 6% of their salary. The net expense recognized in connection with the employer match feature of the voluntary 401(k) employee savings plan for the years ended August 29, 2018, August 30, 2017, and August 31, 2016, was approximately $243 thousand, $359 thousand, and $350 thousand, respectively.