SHARE-BASED COMPENSATION

2013 Equity Compensation Plan

Under the terms of the Company’s 2013 Equity Compensation Plan (“2013 Plan”), the Human Resources Committee of the Company’s Board of Directors (“Board”), or other committee appointed by the Board (collectively with the Human Resources Committee, the “2013 Equity Plan Committee”), may grant incentive stock options, non-qualified stock options, stock units, restricted stock grants, stock appreciation rights, stock bonus awards and dividend equivalents to officers and other employees and non-employee directors. Grants under the 2013 Plan may be made through July 29, 2023. The term of each grant is at the discretion of the 2013 Equity Plan Committee, but in no event greater than ten years from the date of grant. The 2013 Equity Plan Committee has discretion to determine the date or dates on which granted options become exercisable. Service-based options outstanding as of June 30, 2016 become exercisable at the rate of 25% per year commencing one year after the date of grant. Market-based stock options outstanding as of June 30, 2016 will become exercisable only if certain market conditions and service requirements are satisfied, and the date(s) on which they become exercisable will depend on the period in which such market conditions and service requirements are met, if at all, except that vesting and exercisability are accelerated upon a change of control. Market-based restricted stock units (“RSUs”) outstanding at June 30, 2016 will vest only if certain market conditions and service requirements have been met, and the date(s) on which they vest will depend on the period in which such market conditions and service requirements are met, if at all, except that vesting and redemption are accelerated upon a change of control. At June 30, 2016, there were 590,115 shares available for grant.

The fair value of each stock option and market-based RSU granted under the above plan was estimated on the date of grant using either a Black-Scholes option pricing model (service-based awards) or a Monte Carlo simulation model (market-based awards) with the following average assumptions:



	Stock Options				RSUs
	Three Months Ended June 30,				Three Months Ended June 30,
	2016		2015		2016		2015
Risk-free interest rate	1.66	%	1.96	%	1.20	%	1.29	%
Volatility	35.12	%	36.90	%	33.08	%	36.86	%
Dividend yield	2.91	%	2.59	%	2.99	%	2.60	%
Expected life of option (in years)	4.75		4.75

The fair value of each service-based RSU granted was estimated on the day of grant based on the closing price of the Company's common stock reduced by the present value of the expected dividend stream during the vesting period using the risk-free interest rate.

During the three months ended June 30, 2016 and 2015, the Company granted 151,350 and 134,100 stock options, respectively, with a weighted average fair value of $6.25 and $7.35, respectively. During the three months ended June 30, 2016 and 2015, the Company granted 47,250 and 44,100 RSUs, respectively, with a weighted average fair value of $19.50 and $18.46, respectively. As of June 30, 2016, there were 654,675 and 176,660 outstanding stock options and RSUs, respectively.

As of June 30, 2016, there was $2,184,000 of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of 3.1 years. As of June 30, 2016, there was $1,940,000 of total unrecognized compensation cost related to non-vested RSUs granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of 2.7 years.

On August 11, 2015, the Company granted 10,000 RSUs to the new Chair of the Company's Board of Directors. On August 15, 2017, the RSUs will become vested and convertible into a lump sum cash payment equal to the then fair market value of corresponding shares of common stock of the Company if, and only to the extent that, certain service-based vesting conditions and other terms and conditions are satisfied, or upon occurrence of a change of control. The RSUs are classified as liability awards because they will be paid in cash upon vesting. The RSU award liability is measured at its fair market value at the end of each reporting period and, therefore, will fluctuate based on the performance of the Company's stock. The total amount accrued related to this grant as of June 30, 2016 was $117,000 and is included in long-term obligations in the condensed consolidated balance sheet. There were no such liability classified awards as of June 30, 2015. During the three months ended June 30, 2016, dividend equivalents of $2,000 were paid in cash related to these liability classified awards and were charged to selling, general and administrative expenses.

Compensation cost related to stock options and RSUs (inclusive of the liability classified awards described above) recognized in operating results (included in selling, general and administrative expenses) was $442,000 and $457,000 in the three months ended June 30, 2016 and 2015, respectively.