We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended and/or restated from time to time (the "Plan") and our 2001 Employee Stock Purchase Plan, as amended and/or restated from time to time (the "ESPP"), and recognize related stock-based compensation in our condensed consolidated financial statements. The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants): (i) incentive and non-qualified stock options, (ii) restricted stock units ("RSUs"), (iii) RSUs with performance measures (which we refer to as "performance shares"), (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, "share units") and (vi) stock appreciation rights ("SARs"), among other types of awards. Our non-employee directors, excluding Fred Kornberg our former CEO, are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations.

As of October 31, 2022, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,962,500. Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a stockholder who owns stock representing more than 10.0% of the voting power, no more than five years. We expect to settle all outstanding awards under the Plan and employee purchases under the ESPP with the issuance of new shares of our common stock.

As of October 31, 2022, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 10,183,915 shares (net of 5,466,293 expired and canceled awards), of which an aggregate of 8,107,927 have been exercised or settled.

Our ESPP provides for the issuance of up to 1,050,000 shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85% of fair market value on the first or last day of each calendar quarter, whichever is lower. Through October 31, 2022, we have cumulatively issued 958,926 shares of our common stock to participating employees in connection with our ESPP.


	Three months ended October 31,
		2022		2021
Cost of sales		$	158,000	73,000
Selling, general and administrative expenses		648,000		772,000
Research and development expenses		98,000		76,000
Stock-based compensation expense before CEO transition costs		904,000		921,000
CEO transition costs related to equity-classified stock-based awards		3,764,000		—
Total stock-based compensation expense before income tax benefit		4,668,000		921,000
Estimated income tax benefit		(493,000)		(193,000)
Net stock-based compensation expense		$	4,175,000	728,000

Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. At October 31, 2022, unrecognized stock-based compensation of $11,988,000, net of estimated forfeitures of $812,000, is expected to be recognized over a weighted average period of 2.8 years. Total stock-based compensation capitalized and included in ending inventory at both October 31, 2022 and July 31, 2022 was $48,000. There are no liability-classified stock-based awards outstanding as of October 31, 2022 or July 31, 2022.


	Three months ended October 31,
		2022		2021
Stock options		$	25,000	78,000
Performance shares		74,000		349,000
RSUs, restricted stock and share units		774,000		439,000
ESPP		31,000		55,000

Stock-based compensation expense before CEO transition costs		904,000		921,000
CEO transition costs related to equity-classified stock-based awards		3,764,000		—
Total stock-based compensation expense before income tax benefit		4,668,000		921,000
Estimated income tax benefit		(493,000)		(193,000)
Net stock-based compensation expense		$	4,175,000	728,000

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled. Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Condensed Consolidated Balance Sheet as of October 31, 2022 and July 31, 2022. The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting.


	Awards (in Shares)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2022	483,480	$	24.43

Expired/canceled	(9,460)	26.55








Outstanding at October 31, 2022	474,020	$	24.38	2.70	$	—

Exercisable at October 31, 2022	428,900	$	25.07	2.19	$	—

Vested and expected to vest at October 31, 2022	471,742	$	24.42	2.67	$	—

Stock options outstanding as of October 31, 2022 have exercise prices ranging from $17.88 - $33.94, representing the fair market value of our common stock on the date of grant, a contractual term of ten years and a vesting period of five years.


	Awards (in Shares)	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at July 31, 2022	1,110,750	$	19.05
Granted	785,092	11.13
Settled	(256,069)	24.55
Canceled/Forfeited	(37,805)	16.44








Outstanding at October 31, 2022	1,601,968	$	14.35	$	17,702,000

Vested at October 31, 2022	532,533	$	15.68	$	5,884,000

Vested and expected to vest at October 31, 2022	1,547,797	$	14.33	$	17,103,000

The performance shares granted to employees principally vest over a three-year performance period, if pre-established performance goals are attained, or as specified pursuant to the Plan and related agreements. As of October 31, 2022, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

RSUs and restricted stock granted to non-employee directors prior to August 2022 had a vesting period of five years and are convertible into shares of our common stock generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. Commencing in August 2022, such awards have a vesting period of one year. Also, restricted stock granted to Fred Kornberg, pursuant to his Senior Technology Advisor consulting agreement, vests 1/12 on the date of grant and in eleven (11) equal monthly installments thereafter.

RSUs granted to employees prior to August 2022 have a vesting period of five years and are convertible into shares of our common stock generally at the time of vesting, on a one-for-one basis for no cash consideration. RSUs granted to employees commencing in August 2022 have a vesting period of three years.

The fair value of performance shares, RSUs, restricted stock and share units is determined using the closing market price of our common stock on the date of grant, less the present value of any estimated future dividend equivalents such awards are not entitled to receive and an applicable estimated discount for any post-vesting transfer restrictions. RSUs, performance shares and restricted stock are entitled to dividend equivalents unless forfeited before vesting occurs. Share units are entitled to dividend equivalents while the underlying shares are unissued.

Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of settlement of the underlying award. During the three months ended October 31, 2022 and 2021, we accrued $201,000 and $88,000, respectively, of dividend equivalents (net of forfeitures) and paid out $346,000 and $315,000, respectively. Accrued dividend equivalents were recorded as a reduction to retained earnings. As of October 31, 2022 and July 31, 2022, accrued dividend equivalents were $597,000 and $742,000, respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the three months ended October 31, 2022 and 2021, we recorded an income tax expense of $363,000 and an income tax benefit of $53,000, respectively.

At our Fiscal 2022 Annual Meeting of Stockholders, scheduled to be held on December 15, 2022, our stockholders will be asked to approve an amendment to our Plan to increase the share reserve available under the Plan by 1,000,000 shares of common stock. Also, our stockholders will be asked to approve an amendment to our ESPP to increase the maximum number of shares of our common stock that are reserved for issuance under the ESPP by 250,000. See Proposal Nos. 4 and 5 included in our definitive proxy statement filed with the SEC on November 18, 2022.