STOCK-BASED COMPENSATION

The 2010 Omnibus Incentive Compensation Plan (“2010 Plan”) was approved by the Company’s stockholders at the January 2011 Annual Meeting of the Shareholders. This plan replaced IEC’s 2001 Stock Option and Incentive Plan (“2001 Plan”), which expired in December 2011. The 2010 Plan, which is administered by the Compensation Committee of the Board of Directors, provides for the following types of awards: incentive stock options, nonqualified options, stock appreciation rights, restricted shares, restricted stock units, performance compensation awards, cash incentive awards, director stock and other equity-based and equity-related awards. Awards are generally granted to certain members of management and employees, as well as directors. Under the 2010 Plan, up to 2,000,000 common shares may be issued over a term of ten years.

Stock-based awards granted through December 2011, were made under the 2001 Plan. Awards granted after December 2011, were made under the 2010 Plan and future awards will be made under the 2010 Plan.

Stock compensation expense recorded under the plans totaled $0.4 million and $0.5 million for the nine months ended June 27, 2014 and June 28, 2013, respectively. Expenses relating to stock options that comply with certain U.S. income tax rules are neither deductible by the Company nor taxable to the employee. Further information regarding awards granted under the 2001 Plan, 2010 Plan and employee stock purchase plan is provided below.

Stock Options

When options are granted, IEC estimates fair value using the Black-Scholes option pricing model and recognizes the computed value as compensation cost over the vesting period, which is typically four years. The contractual term of options granted under the plan is generally seven years.

Assumptions used in the Black-Scholes model and the estimated value of options granted during the nine months ended June 27, 2014 and June 28, 2013 follows:



	Nine Months Ended
Valuation of Options	June 27, 2014			June 28, 2013

Assumptions for Black-Scholes:
Risk-free interest rate	1.31		%	0.55		%
Expected term in years	4.1			4.0
Volatility	49		%	49		%
Expected annual dividends	none			none

Value of options granted:
Number of options granted	45,500			50,000
Weighted average fair value per share	$	1.62		$	2.65
Fair value of options granted (000's)	$	74		$	133

A summary of stock option activity, together with other related data, follows:



	Nine Months Ended
	June 27, 2014				June 28, 2013
Stock Options	Number of Options		Wgtd. Avg. Exercise Price		Number of Options		Wgtd. Avg. Exercise Price

Outstanding, beginning of period	246,383		$	4.38	280,789		$	3.81
Granted	45,500		4.12		50,000		6.91
Exercised	(18,093	)	1.49		(30,150	)	2.00
Shares withheld for payment of taxes upon exercise of stock option	(3,407	)	1.69		—		—
Forfeited	(23,283	)	5.71		(45,756	)	5.52
Expired	(2,850	)	5.04		(8,500	)	2.01
Outstanding, end of period	244,250		$	4.51	246,383		$	4.38

For options expected to vest
Number expected to vest	220,987		$	4.49	233,070		$	4.28
Weighted average remaining term, in years	3.4				3.8
Intrinsic value (000s)			$	176			$	155

For exercisable options
Number exercisable	125,650		$	3.59	106,783		$	2.33
Weighted average remaining term, in years	2.0				2.0
Intrinsic value (000s)			$	166			$	155

For non-exercisable options
Expense not yet recognized (000s)			$	171			$	221
Weighted average years to be recognized	2.6				2.6

For options exercised
Intrinsic value (000s)			$	59			$	131

Changes in the number of non-vested options outstanding, together with other related data, follows:



	Nine Months Ended
	June 27, 2014				June 28, 2013
Stock Options	Number of Options		Wgtd. Avg. Grant Date Fair Value		Number of Options		Wgtd. Avg. Grant Date Fair Value

Non-vested, beginning of period	138,350		$	2.51	157,150		$	2.42
Granted	45,500		1.62		50,000		2.65
Vested	(41,967	)	2.51		(21,794	)	2.27
Forfeited	(23,283	)	2.30		(45,756	)	2.50
Non-vested, end of period	118,600		$	2.20	139,600		$	2.51

Restricted (Non-vested) Stock

Holders of IEC restricted stock have voting and dividend rights as of the date of grant, but until vested the shares may be forfeited and cannot be sold or otherwise transferred. At the end of the vesting period, which is typically four or five years (three years in the case of directors), holders have all the rights and privileges of any other IEC common stockholder. The fair value of a share of restricted stock is its market value on the date of grant, and that value is recognized as stock compensation expense over the vesting period.

A summary of restricted stock activity, together with related data, follows:



	Nine Months Ended
	June 27, 2014				June 28, 2013
Restricted (Non-vested) Stock	Number of Non-vested Shares		Wgtd. Avg. Grant Date Fair Value		Number of Non-vested Shares		Wgtd. Avg. Grant Date Fair Value

Outstanding, beginning of period	275,474		$	5.96	339,939		$	5.66
Granted	155,703		4.05		88,208		6.86
Vested	(80,971	)	5.74		(47,774	)	4.98
Shares withheld for payment of taxes upon vesting of restricted stock	(18,615	)	4.28		(4,441	)	4.70
Forfeited	(71,103	)	5.88		(74,635	)	5.68
Outstanding, end of period	260,488		$	5.15	301,297		$	6.12

For non-vested shares
Expense not yet recognized (000s)			$	725			$	939
Weighted average remaining years for vesting			3.0				2.9

For shares vested
Aggregate fair value on vesting dates (000s)			$	421			$	344

Employee Stock Purchase Plan

The Company administers an employee stock purchase plan (“ESPP”) that provides for a discounted stock purchase price. On May 21, 2013, the Compensation Committee of the Company’s Board of Directors suspended operation of the ESPP indefinitely in connection with the restatement of the Company’s financial statements described herein (including unavailability of the registration statement covering shares offered under the plan due to the failure of the Company to be current in its filings with the SEC until the Company filed its Form 10-K on December 24, 2013). The Company anticipates that operations under the ESPP will be resumed with the purchase period beginning October 2014. There were no employee contributions or compensation expense recognized under the ESPP during the nine months ended June 27, 2014. Employee contributions to the plan, net of withdrawals were $50 thousand for the nine months ended June 28, 2013. Compensation expense recognized under the ESPP was $6 thousand for the nine months ended June 28, 2013.

Stock Issued to Board Members

In addition to annual grants of restricted stock, included in the table above, Board members may elect to have their meeting fees paid in the form of shares of the Company’s common stock. In connection with the restatement of the Company’s financial statements described herein (including unavailability of the registration statement covering shares offered under the plan due to the failure of the Company to be current in its filings with the SEC until the Company filed its Form 10-K on December 24, 2013), the Company determined not to pay any meeting fees in stock during the period since May 21, 2013. During the nine months ended June 28, 2013, board members were granted 1,480 shares of common stock, as payment of such meeting fees, in addition to cash payments. The Company recognized stock-based compensation expense related to Board members meeting fees of $10 thousand during the nine months ended June 28, 2013.