STOCK-BASED COMPENSATION

As approved by our shareholders, we established the Stage Stores, Inc. Amended and Restated 2001 Equity Incentive Plan (“2001 Equity Incentive Plan”), the Stage Stores, Inc. Second Amended and Restated 2008 Equity Incentive Plan (“2008 Equity Incentive Plan”) and the Stage Stores 2017 Long-Term Incentive Plan (“2017 LTIP” and, collectively with the 2001 Equity Incentive Plan and the 2008 Equity Incentive Plan, the “Equity Incentive Plans”) to reward, retain and attract key personnel. The Equity Incentive Plans provide for grants of non-qualified or incentive stock options, SARs, performance shares or units, stock units and stock grants. To fund the 2001 Equity Incentive Plan, the 2008 Equity Incentive Plan and the 2017 LTIP, 12,375,000, 4,484,346 and 1,365,654 shares of our common stock were reserved for issuance upon exercise of awards, respectively. The 2001 Equity Incentive Plan expired in the second quarter of 2014. On June 1, 2017, the 2017 LTIP replaced the 2008 Equity Incentive Plan and no new awards will be granted under the 2008 Equity Incentive Plan.

Stock-based compensation expense by type of grant for each period presented was as follows (in thousands):



	Fiscal Year
	2017			2016			2015
Non-vested stock	$	5,626		$	6,676		$	7,171
Restricted stock units	434			—			—
Performance shares	2,760			2,785			5,193
Stock options and SARs	—			—			30
Total stock-based compensation expense	8,820			9,461			12,394
Related tax benefit	(3,313		)	(3,557		)	(4,660		)
Stock-based compensation expense, net of tax	$	5,507		$	5,904		$	7,734

As of February 3, 2018, we had unrecognized compensation cost of $10.1 million related to stock-based compensation awards granted. That cost is expected to be recognized over a weighted average period of 2.0 years.

Non-vested Stock

We grant shares of non-vested stock to our employees and non-employee directors. Shares of non-vested stock awarded to employees vest 25% annually over a four-year period from the grant date. Shares of non-vested stock awarded to non-employee directors cliff vest after one year. At the end of the vesting period, shares of non-vested stock convert one for one to common stock. Certain non-vested stock awards have shareholder rights, including the right to vote and to receive dividends. The fair value of non-vested stock awards with dividend rights is based on the closing share price of our common stock on the grant date. The fair value of non-vested stock awards that do not have dividend rights is discounted for the present value of expected dividends during the vesting period. Compensation expense is recognized ratably over the vesting period.

The following table summarizes non-vested stock activity during 2017:



Non-vested Stock	Number of Shares		Weighted Average Grant Date Fair Value
Outstanding at January 28, 2017	1,596,410		$	10.22
Granted	668,371		2.21
Vested	(577,897	)	11.10
Forfeited	(49,847	)	9.30
Outstanding at February 3, 2018	1,637,037		6.67

The aggregate intrinsic value of non-vested stock that vested during 2017, 2016 and 2015 was $1.2 million, $2.7 million and $5.4 million, respectively. The weighted-average grant date fair value for non-vested stock granted in 2017, 2016 and 2015 was $2.21, $6.75 and $18.70, respectively. The payment of the employees’ tax liability for a portion of the non-vested stock that vested during 2017 was satisfied by withholding shares with a fair value equal to the tax liability. As a result, the actual number of shares issued was 465,007.

Restricted Stock Units (“RSUs”)

We grant RSUs to our employees, which vest 25% annually over a four-year period from the grant date. Each vested RSU is settled in cash in an amount equal to the fair market value of one share of our common stock on the vesting date, not to exceed five times the per share fair market value of our common stock on the grant date. Unvested RSUs have the right to receive a dividend equivalent payment equal to cash dividends paid on our common stock. RSUs are accounted for as a liability in accordance with accounting guidance for cash settled stock awards. The liability for RSUs is remeasured based on the closing share price of our common stock at each reporting period until the award vests. Compensation expense is recognized ratably over the vesting period and adjusted with changes in the fair value of the liability.

The following table summarizes RSU activity during 2017:



Restricted Stock Units	Number of Units		Weighted Average Grant Date Fair Value
Outstanding at January 28, 2017	—		$	—
Granted	1,321,250		2.14
Forfeited	(37,500	)	2.09
Outstanding at February 3, 2018	1,283,750		2.14

Performance Share Units (“PSUs”)

We grant PSUs as a means of rewarding management for our long-term performance based on total shareholder return relative to a specific group of companies over a three-year performance cycle. PSUs cliff vest following a three-year performance cycle, and if earned, are settled in shares of our common stock. The actual number of shares of our common stock that may be earned ranges from zero to a maximum of twice the number of target units awarded to the recipient. Grant recipients do not have any shareholder rights on unvested or unearned PSUs. The fair value of PSUs is estimated using a Monte Carlo simulation, based on the expected term of the award, a risk-free rate, expected dividends, expected volatility, and share price of our common stock and the specified peer group. The expected term is estimated based on the vesting period of the awards, the risk-free rate is based on the yield on U.S. Treasury securities matching the vesting period, and the volatility is based on the historical volatility over the expected term. Compensation expense is recorded ratably over the corresponding vesting period.

The following table summarizes PSU activity during 2017:



Period Granted	Target PSUs Outstanding at January 28, 2017	Target PSUs Granted	Target PSUs Vested and Earned	Target PSUs Vested and Unearned		Target PSUs Forfeited		Target PSUs Outstanding at February 3, 2018	Weighted Average Grant Date Fair Value per Target PSU
2015	158,490	—	—	(154,046	)	(4,444	)	—	$	28.33
2016	330,233	—	—	—		(8,527	)	321,706	8.69
2017	—	600,000	—	—		—		600,000	1.80
Total	488,723	600,000	—	(154,046	)	(12,971	)	921,706	7.65

No PSUs were earned in 2017. The aggregate intrinsic value of PSUs that vested and were earned during 2016 and 2015 was $0.1 million and $4.9 million, respectively.

SARs

Prior to 2012, we granted SARs to our employees, which generally vested 25% annually over a four-year period from the grant date. Outstanding SARs will expire, if not exercised or forfeited, within seven years from the grant date. Exercised SARs are settled by the issuance of common stock in an amount equal to the increase in share price of our common stock between the grant date and the exercise date.

The following table summarizes SARs activity during 2017:



	Number of Outstanding Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding, vested and exercisable at January 28, 2017	177,900		$	17.69
Forfeited	(80,000	)	16.29
Outstanding, vested and exercisable at February 3, 2018	97,900		$	18.83	0.2	$	—

No SARs were exercised during 2017 or 2016. The aggregate intrinsic value of SARs, defined as the amount by which the market price of the underlying stock on the date of exercise exceeds the exercise price of the award, exercised during 2015 was $0.9 million.