Share-based Compensation

Non-qualified stock options with time-based vesting (“NQOs”)

In fiscal 2016, the Company granted 21,595 shares issuable upon the exercise of NQOs with a weighted average exercise price of $29.48 per share to eligible employees under the Amended Equity Plan which vest ratably over a three-year period.

Following are the weighted average assumptions used in the Black-Scholes valuation model for NQOs granted during the fiscal years ended June 30, 2016, 2015 and 2014



	Year Ended June 30,
	2016			2015			2014
Weighted average fair value of NQOs	$	12.63		$	10.38		$	9.17
Risk-free interest rate	1.6		%	1.5		%	1.7		%
Dividend yield	—		%	—		%	—		%
Average expected term	5.1 years			5.1 years			6 years
Expected stock price volatility	47.1		%	47.9		%	50.4		%

The Company’s assumption regarding expected stock price volatility is based on the historical volatility of the Company’s stock price. The risk-free interest rate is based on U.S. Treasury zero-coupon issues at the date of grant with a remaining term equal to the expected life of the stock options. The average expected term is based on historical weighted time outstanding and the expected weighted time outstanding calculated by assuming the settlement of outstanding awards at the midpoint between the vesting date and the end of the contractual term of the award. Currently, management estimates an annual forfeiture rate of 4.8% based on actual forfeiture experience. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The following table summarizes NQO activity for the three most recent fiscal years:



Outstanding NQOs:	Number of NQOs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2013	557,427		12.81	5.44	5.1	1,620
Granted	1,927		18.68	9.17	6.4	—
Exercised	(112,964	)	13.10	5.81	—	895
Cancelled/Forfeited	(33,936	)	16.63	6.13	—	—
Outstanding at June 30, 2014	412,454		12.44	5.30	4.4	3,782
Granted	25,703		23.91	10.38	6.8	—
Exercised	(95,723	)	16.17	5.86	—	747
Cancelled/Forfeited	(13,134	)	11.26	5.00	—	—
Outstanding at June 30, 2015	329,300		12.30	5.54	3.9	3,700
Granted	21,595		29.48	12.63	6.4	—
Exercised	(112,895	)	12.35	5.37	—	1,853
Cancelled/Forfeited	(18,371	)	13.45	6.17	—	—
Outstanding at June 30, 2016	219,629		13.87	6.28	3.7	3,995
Vested and exercisable, June 30, 2016	180,298		11.06	5.13	3.1	3,800
Vested and expected to vest, June 30, 2016	217,160		13.72	6.22	3.6	3,983

The aggregate intrinsic values outstanding at the end of each fiscal period in the table above represent the total pretax intrinsic value, based on the Company’s closing stock price of $32.06 at June 30, 2016, $23.50 at June 30, 2015 and $21.61 at June 30, 2014, representing the last trading day of the respective fiscal years, which would have been received by NQO holders had all award holders exercised their NQOs that were in-the-money as of those dates. The aggregate intrinsic value of stock option exercises in each fiscal period above represents the difference between the exercise price and the value of the Company’s common stock at the time of exercise. NQOs outstanding that are expected to vest are net of estimated forfeitures.

Total fair value of NQOs vested during fiscal 2016, 2015 and 2014 was $0.3 million, $0.5 million and $0.7 million, respectively. The Company received $1.4 million in proceeds from exercises of vested NQOs in fiscal 2016, and $1.5 million in proceeds from exercises of vested NQOs in each of fiscal 2015 and 2014.

The following table summarizes nonvested NQO activity for the three most recent fiscal years:



Nonvested NQOs:	Number of NQOs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)
Outstanding at June 30, 2013	315,661		10.80	5.12	6.1
Granted	1,927		18.68	9.17	6.4
Vested	(133,957	)	11.02	5.21	—
Forfeited	(15,833	)	11.48	5.49	—
Outstanding at June 30, 2014	167,798		10.65	5.06	5.3
Granted	25,703		23.91	10.38	6.8
Vested	(101,172	)	9.87	4.72	—
Forfeited	(12,134	)	10.31	4.91	—
Outstanding at June 30, 2015	80,195		15.94	7.21	5.2
Granted	21,595		29.48	12.63	6.4
Vested	(47,418	)	14.05	6.44	—
Forfeited	(15,641	)	12.95	6.09	—
Outstanding at June 30, 2016	38,731		27.02	11.63	6.1

As of June 30, 2016 and 2015, there was $0.4 million of unrecognized compensation cost related to NQOs. The unrecognized compensation cost related to NQOs at June 30, 2016 is expected to be recognized over the weighted average period of 2.2 years. Total compensation expense for NQOs was $0.2 million, $0.4 million and $0.6 million in fiscal 2016, 2015 and 2014, respectively.

Non-qualified stock options with performance-based and time-based vesting (“PNQs”)

In the fiscal year ended June 30, 2016, the Company granted a total of 143,466 shares with an exercise price of $29.48 per share to eligible employees under the Amended Equity Plan. With the exception of a portion of the award to the Company’s President and Chief Executive Officer as described below, these PNQs vest over a three-year period with one-third of the total number of shares subject to each such PNQ becoming exercisable each year on the anniversary of the grant date, based on the Company’s achievement of modified net income targets for fiscal 2016 ("Fiscal 2016 Target") as approved by the Compensation Committee, subject to the participant’s employment by the Company or service on the Board of Directors of the Company on the applicable vesting date and the acceleration provisions contained in the Amended Equity Plan and the applicable award agreement. But if actual modified net income for fiscal 2016 is less than the Fiscal 2016 Target, then 20% of the total shares issuable under such grant will be forfeited.

On June 3, 2016, the Compensation Committee of the Board of Directors of the Company determined that a portion of the non-qualified stock option granted to Michael H. Keown, the Company's President and Chief Executive Officer, on December 3, 2015 (the “Original Option”) was invalid because such portion caused the total number of option shares granted to Mr. Keown in calendar year 2015 to exceed the limit of 75,000 shares that may be granted to a participant in a single calendar year under the Amended Equity Plan by 22,862 shares. Therefore, the Compensation Committee reduced the total number of shares of common stock issuable under the Original Option by 22,862 shares. The reduction of the 22,862 excess option shares brought the total number of option shares granted to Mr. Keown in calendar 2015 within the limitation of the Amended Equity Plan.

In addition, on June 3, 2016, the Compensation Committee, in accordance with the provisions of the Amended Equity Plan, granted Mr. Keown a non-qualified stock option to purchase 22,862 shares of the Company's common stock (the “New Option”) with an exercise price of $29.48 per share, which was the greater of the exercise price of the Original Option and the closing price of the Company's common stock as reported on the NASDAQ Global Market on June 3, 2016, the date of grant. The New Option is subject to the same terms and conditions of the Original Option including an expiration date of December 3, 2022, and the three-year vesting schedule, except that to comply with the Amended Equity Plan's minimum vesting schedule of one year from the grant date, one-third of shares issuable under the New Option will vest on June 3, 2017, and the remainder of the New Option shares will vest one-third each on the second and third anniversaries of the grant date of the Original Option, based on the Company’s achievement of the same performance goals as the Original Option, subject to Mr. Keown’s continued employment on the applicable vesting date.

In the fiscal year ended June 30, 2015, the Company granted 121,024 shares issuable upon the exercise of PNQs with an exercise price of $23.44 per share to eligible employees under the Amended Equity Plan. These PNQs vest over a three-year period with one-third of the total number of shares subject to each such PNQ becoming exercisable each year on the anniversary of the grant date, based on the Company’s achievement of modified net income targets for fiscal years within the performance period as approved by the Compensation Committee, subject to catch-up vesting of previously unvested shares in a subsequent year within the three year period in which a cumulative modified net income target as approved by the Compensation Committee is achieved, in each case, subject to the participant’s employment by the Company or service on the Board of Directors of the Company on the applicable vesting date and the acceleration provisions contained in the Amended Equity Plan and the applicable award agreement.

In the fiscal year ended June 30, 2014, the Company granted a total of 112,442 shares issuable upon the exercise of PNQs with a weighted average exercise price of $21.27 per share to eligible employees under the Amended Equity Plan. These PNQs vest over a three-year period with one-third of the total number of shares subject to each such PNQ vesting on the first anniversary of the grant date based on the Company’s achievement of a modified net income target for the first fiscal year of the performance period as approved by the Compensation Committee, and the remaining two-thirds of the total number of shares subject to each PNQ vesting on the third anniversary of the grant date based on the Company’s achievement of a cumulative modified net income target for all three years during the performance period as approved by the Compensation Committee, in each case, subject to the participant’s employment by the Company or service on the Board of Directors of the Company on the applicable vesting date. No PNQs were granted prior to fiscal 2014.

Following are the assumptions used in the Black-Scholes valuation model for PNQs granted during the fiscal years ended June 30, 2016, 2015 and 2014:



	Year Ended June 30,
	2016			2015			2014
Weighted average fair value of PNQs	$	11.38		$	10.16		$	10.49
Risk-free interest rate	1.6		%	1.5		%	1.8		%
Dividend yield	—			—		%	—		%
Average expected term (years)	4.9			5.0			6.0
Expected stock price volatility	42.5		%	47.9		%	50.5		%

The following table summarizes PNQ activity for the three most recent fiscal years:



Outstanding PNQs:	Number of PNQs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2013	—		—	—	—	—
Granted	112,442		21.27	10.49	6.5	—
Cancelled/Forfeited	—		—	—	—	—
Outstanding at June 30, 2014	112,442		21.27	10.49	6.5	38
Granted	121,024		23.44	10.16	6.6	—
Cancelled/Forfeited	(9,399	)	21.33	10.52	—	—
Outstanding at June 30, 2015	224,067		22.44	10.31	6.0	237
Granted	143,466		29.48	11.38	6.2	—
Exercised	(14,144	)	21.20	10.45	0	107
Cancelled/Forfeited	(64,790	)	23.20	10.37	0	—
Outstanding at June 30, 2016	288,599		25.83	10.82	5.7	1,798
Vested and exercisable, June 30, 2016	48,132		22.52	10.31	5.1	459
Vested and expected to vest, June 30, 2016	274,919		25.75	10.81	5.7	1,736

The aggregate intrinsic values outstanding at the end of each fiscal period in the table above represent the total pretax intrinsic values, based on the Company’s closing stock price of $32.06 at June 30, 2016, $23.50 at June 30, 2015 and $21.61 at June 30, 2014 representing the last trading day of the respective fiscal years, which would have been received by PNQ holders had all award holders exercised their PNQs that were in-the-money as of those dates. The aggregate intrinsic value of stock option exercises in fiscal 2016 represents the difference between the exercise price and the value of the Company’s common stock at the time of exercise. PNQs outstanding that are expected to vest are net of estimated forfeitures.

Total fair value of PNQs vested during the fiscal years ended June 30, 2016 and 2015 was $0.3 million and $0.4 million, respectively. No PNQs vested during the fiscal year ended June 30, 2014. The Company received $0.3 million in proceeds from exercises of vested PNQs in fiscal 2016, and no PNQs were exercised during the fiscal years ended June 30, 2015 or 2014.

As of June 30, 2016, the Company met the performance target for the first year of the fiscal 2014 and 2015 awards and expects that it will achieve the performance targets set forth in the PNQ agreements for the remainder of the fiscal 2014, fiscal 2015 and fiscal 2016 awards.

The following table summarizes nonvested NQO activity for the two most recent fiscal years:



Nonvested PNQs:	Number of PNQs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)
Outstanding at June 30, 2014	112,442		21.27	10.49	6.5
Granted	121,024		23.44	10.16	6.6
Vested	(34,959	)	21.27	10.49	—
Forfeited	(9,399	)	21.33	10.52	—
Outstanding at June 30, 2015	189,108		22.66	10.28	6.2
Granted	143,466		29.48	11.38	6.2
Vested	(27,317	)	10.16	23.44	—
Forfeited	(64,790	)	23.20	10.37	—
Outstanding at June 30, 2016	240,467		26.49	10.92	5.9

As of June 30, 2016 and 2015, there was $1.9 million and $1.5 million , respectively, of unrecognized compensation cost related to PNQs. The unrecognized compensation cost related to PNQs at June 30, 2016 is expected to be recognized over the weighted average period of 1.5 years. Total compensation expense related to PNQs in fiscal 2016, 2015 and 2014 was $0.5 million, $0.5 million and $0.3 million, respectively.

Restricted Stock

During fiscal 2016, 2015 and 2014 the Company granted a total of 10,170 shares, 13,256 shares and 9,200 shares of restricted stock under the Amended Equity Plan, respectively, with a weighted average grant date fair value of $29.99, $23.64, and $20.48 per share, respectively, to eligible employees and directors. Shares of restricted stock generally vest at the end of three years for eligible employees. Shares of restricted stock generally vest ratably over a period of three years for directors. During the fiscal year ended June 30, 2016, 24,841 shares of restricted stock vested, of which 5,177 shares were withheld to meet the employees’ minimum statutory tax withholding and retired.

The following table summarizes restricted stock activity for the three most recent fiscal years:



Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded		Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2013	139,360		9.87	1.9	1,959
Granted	9,200		20.48	—	188
Exercised/Released	(38,212	)	11.59	—	820
Cancelled/Forfeited	(14,136	)	9.38	—	—
Outstanding at June 30, 2014	96,212		10.27	1.5	2,079
Granted	13,256		23.64	—	313
Exercised/Released(1)	(53,402	)	8.43	—	1,377
Cancelled/Forfeited	(8,984	)	8.36	—	—
Outstanding at June 30, 2015	47,082		16.48	1.2	1,106
Granted	10,170		29.99	—	305
Exercised/Released(2)	(24,841	)	14.08	—	747
Cancelled/Forfeited	(8,619	)	13.06	—	—
Outstanding at June 30, 2016	23,792		26.00	1.8	763
Expected to vest, June 30, 2016	22,253		25.91	1.8	713

__________

(1) Includes 4,297 shares that were withheld to meet the employees' minimum statutory tax withholding and retired..

(2) Includes 5,177 shares that were withheld to meet the employees' minimum statutory tax withholding and retired.

The aggregate intrinsic value of shares outstanding at the end of each fiscal period in the table above represent the total pretax intrinsic values, based on the Company’s closing stock price of $32.06 at June 30, 2016, $23.50 at June 30, 2015 and $21.61 at June 30, 2014 , representing the last trading day of the respective fiscal years. Restricted stock that is expected to vest is net of estimated forfeitures.

As of June 30, 2016 and 2015, there was $0.5 million of unrecognized compensation cost related to restricted stock. The unrecognized compensation cost related to restricted stock at June 30, 2016 is expected to be recognized over the weighted average period of 2.0 years. Total compensation expense for restricted stock was $0.2 million, $0.3 million and $0.5 million, for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.