NOTE 8—STOCK-BASED COMPENSATION

The 2010 Omnibus Incentive Compensation Plan (the “2010 Plan”), was approved by the Company’s stockholders at the January 2011 Annual Meeting. The Company also has an ESPP, adopted in 2011, that provides for the purchase of Company common stock at a discounted stock purchase price. The 2010 Plan replaced IEC’s 2001 Stock Option and Incentive Plan (the “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 shares of common stock may be issued over a term of ten years.

Stock-based compensation expense recorded under the 2010 and 2001 Plans, including the ESPP, totaled $0.2 million and $0.5 million for the three and nine months ended June 30, 2017, respectively. Stock-based compensation expense recorded under the 2010 and 2001 Plans, including the ESPP, totaled $0.2 million and $0.3 million for the three and nine months ended July 1, 2016, respectively. During the nine months ended July 1, 2016, incentive compensation shares were returned by the Company’s former CEO resulting in a reduction to compensation expense of $60.0 thousand.

At June 30, 2017, there were 231,541 shares available to be issued under the 2010 Plan.

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 ESPP is provided below.

Stock Options

When options are granted, IEC estimates the fair value of the option 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 2010 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 30, 2017 and July 1, 2016 are included in the table below.



	Nine Months Ended
Valuation of Options	June 30, 2017			July 1, 2016
Assumptions for Black-Scholes:
Risk-free interest rate	1.50		%	1.10		%
Expected term in years	4.0			4.0
Volatility	39		%	39		%
Expected annual dividends	none			none

Value of options granted:
Number of options granted	57,500			10,000
Weighted average fair value per share	$	1.19		$	1.40
Fair value of options granted (000s)	$	68		$	14

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



	Nine Months Ended
	June 30, 2017				July 1, 2016
Stock Options	Number of Options		Wgtd. Avg. Exercise Price		Number of Options		Wgtd. Avg. Exercise Price
Outstanding, beginning of period	759,795		$	4.43	717,645		$	4.40
Granted	57,500		3.64		10,000		4.64
Exercised	—		—		—		—
Forfeited	(33,000	)	5.58		(17,250	)	5.82
Expired	(29,750	)	5.04		—		—
Outstanding, end of period	754,545		$	4.29	710,395		$	4.37

For options expected to vest
Number expected to vest	735,846		$	4.30	686,417		$	4.38
Weighted average remaining contractual term, in years	4.7				5.2
Intrinsic value (000s)			$	—			$	74

For exercisable options
Number exercisable	326,972		$	4.44	265,286		$	4.82
Weighted average remaining contractual term, in years	4.1				4.2
Intrinsic value (000s)			$	—			$	19

For non-exercisable options
Expense not yet recognized (000s)			$	477			$	553
Weighted average years to be recognized	2.1				2.8

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



	Nine Months Ended
	June 30, 2017				July 1, 2016
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	489,109		$	1.43	546,145		$	1.41
Granted	57,500		1.19		10,000		1.40
Vested	(119,036	)	1.42		(111,036	)	1.43
Forfeited	—		—		—		—
Non-vested, end of period	427,573		$	1.41	445,109		$	1.41

Restricted (Non-vested) Stock

Certain 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 30, 2017				July 1, 2016
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	228,759		$	4.40	54,960		$	4.23
Granted	194,766		3.62		187,449		4.43
Vested	(29,948	)	4.25		(12,300	)	4.23
Shares withheld for payment of taxes upon vesting of restricted stock	(1,036	)	3.86		(150	)	4.20
Forfeited	—		—		—		—
Outstanding, end of period	392,541		$	4.02	229,959		$	4.39

For non-vested shares
Expense not yet recognized (000s)			$	1,021			$	988
Weighted average remaining years for vesting	2.1				2.4

For shares vested
Aggregate fair value on vesting dates (000s)			$	113			$	47

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. The Company has not paid any meeting fees in stock since May 21, 2013.