13.

STOCK-BASED COMPENSATION

Equity Incentive Plan Description

On September 16, 2015, our shareholders approved an equity incentive plan entitled the Culp, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan updated and replaced our 2007 Equity Incentive Plan (the “2007 Plan”) as the vehicle for granting new equity based awards substantially similar to those authorized under the 2007 Plan. In general, the 2015 Plan authorizes the grant of stock options intended to qualify as incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other equity and cash related awards as determined by our Compensation Committee. An aggregate of 1,200,000 shares of common stock were authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan. In connection with the approval of the 2015 Plan, no further awards will be granted under the 2007 Plan, but outstanding awards under the 2007 Plan will be settled in accordance with their terms.

At April 29, 2018, there were 978,908 shares available for future equity based grants under the company’s 2015 Plan.

Stock Options

Under our 2007 Plan, employees, outside directors, and others associated with the company were granted options to purchase shares of common stock at the fair market value on the date of grant.

The following tables summarize stock option activity during fiscal 2018, 2017, and 2016:


				2018					2017					2016
	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
outstanding at beginning of year		15,600		$	7.14		83,600		$	8.37		140,100		$	6.49
granted		—			—		—			—		—			—
exercised		(15,600	)		7.14		(68,000	)		8.65		(54,500	)		3.68
canceled/expired		—			—		—			—		(2,000	)		4.59

outstanding at end of year		—			—		15,600			7.14		83,600			8.37

At April 29, 2018, there were no option shares of common stock outstanding and exercisable. Therefore, there was no unrecognized compensation cost related to incentive stock option awards at April 29, 2018. No compensation expense was recorded for incentive or non-qualified stock options in fiscal 2018, 2017 and 2016 as all stock option awards were fully vested prior to fiscal 2016.

The aggregate intrinsic value for options exercised was $393,000, $1.7 million, and $1.3 million, in fiscal 2018, 2017, and 2016, respectively.

Time-Based Restricted Stock Awards

The following table summarizes the time vested restricted stock activity during fiscal years 2018, 2017, and 2016:


	2018 Shares			2017 Shares		2016 Shares
outstanding at beginning of year		1,200			—		—
granted		1,200			1,200		—
vested		(1,200	)		—		—

outstanding at end of year		1,200			1,200		—

The following table summarizes information related to our grants of time-based restricted stock awards associated with a key member of management during fiscal years 2018 and 2017:


Date of Grant	(1) Restricted Stock Awarded		(2) Price Per Share		Vesting Period
July 13, 2017		1,200	$	32.50		11 months
June 14, 2016		1,200	$	28.00		11 months

During the first quarter of fiscal 2018, 1,200 shares of common stock associated with the June 14, 2016 grant vested and had a weighted average fair value of $34,000 or $28 per share.

At April 29, 2018, the remaining unrecognized compensation cost related to our time vested restricted common stock units was $5,000, which is expected to be recognized over the next 1.5 months.

We recorded compensation expense of $38,000 and $29,000 within selling, general, and administrative expense for time vested restricted stock units in fiscal 2018 and 2017, respectively. No compensation expense was recorded for time vested restricted stock awards in fiscal 2016 as all time vested restricted stock awards granted prior to fiscal 2016 were fully vested at the end of fiscal 2015.

Performance Based Restricted Stock Units

We have granted performance based restricted stock units to executives and other key members of management and a non-employee which could earn up to a certain number of shares of common stock if certain performance targets are met as defined in the related restricted stock unit agreements. Our performance based restricted stock units granted to key members of management were measured based on the fair market value on the date of grant. Our performance based restricted stock units granted to a non-employee were measured based on the fair market value at the earlier date of when the performance criteria are met or the end of the reporting period.

Executive Management

On July 13, 2017, we granted performance-based restricted stock units to members of executive management (NEOs) which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period as defined in the related restricted stock unit agreements. The number of shares of common stock that are earned based on the performance targets that have been achieved will be adjusted based on a market-based total shareholder return component as defined in the related restricted stock unit agreements.

Compensation cost is measured based on the fair market value on the date of grant (July 13, 2017). The fair market value per share was determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock for the performance-based components.

The following table provides assumptions used to determine the fair market value of the market-based total shareholder return component using the Monte Carlo simulation model on the date of grant of July 13, 2017:


Closing price of our common stock	$	32.50
Expected volatility of our common stock		31.0	%
Expected volatility of peer companies		16.5	%
Risk-free interest rate		1.56	%
Dividend yield		1.66	%
Correlation coefficient of peer companies		0.46

On July 14, 2016 and July 15, 2015, we granted performance-based restricted stock units to NEOs which could earn up to a certain number of shares of common stock if certain performance targets were met over a three-fiscal year performance period as defined in the related restricted stock unit agreements. These awards were measured based on the fair market value (closing price of our common stock) on the date of grant. No market-based total shareholder return component was included in these awards.

Other Key Employees and a Non-Employee

We granted performance-based restricted stock units which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period as defined in the related restricted stock unit agreements. Our performance based restricted stock units granted to other key employees were measured based on the fair market value (the closing price of our common stock) on the date of grant. Our performance based restricted stock units granted to a non-employee were measured based on the fair market value (the closing price of our common stock) at the earlier date of when the performance criteria are met or the end of the reporting period. No market-based total shareholder return component was included in these awards.

Overall

The following table summarizes information related to our grants of performance based restricted stock units associated with NEOs and key employees that are currently unvested:


Date of Grant	(3) Restricted Stock Units Awarded		Price Per Share			Vesting Period
July 13, 2017 (1)		78,195	$	31.85	(4)		3 years
July 13, 2017 (2)		44,000	$	32.50	(5)		3 years
July 14, 2016 (1) (2)		107,880	$	28.00	(5)		3 years
July 15, 2015 (1) (2)		107,554	$	32.23	(5)		3 years

(1)	Performance-based restricted stock units awarded to NEOs.

(2)	Performance-based restricted stock units awarded to key employees.

(3)	Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met as defined in the related restricted stock unit agreements.

(4)

Price per share represents the fair market value per share ($0.98 per $1 or a reduction of $0.65 to the closing price of the our common stock) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($32.50) for the performance-based components of the performance-based restricted stock units granted to our NEOs on July 13, 2017.

(5)	Price per share represents the closing price of our common stock on the date of grant.

The following table summarizes information related to our grants of performance-based restricted stock units associated with a non-employee that are currently unvested:


Date of Grant	(1) Restricted Stock Units Awarded		Price Per Share			Vesting Period
July 13, 2017		10,200	$	30.10	(2)		3 years
July 14, 2016		11,549	$	30.10	(2)		3 years
July 15, 2015		10,364	$	30.10	(2)		3 years

(1)	Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met as defined in the related restricted stock unit agreements.

(2)	The respective grant was unvested at the end of our reporting period. Accordingly, the price per share represents the closing price of our common stock on April 29, 2018, the end of our reporting period.

The following table summarizes information related to our performance based restricted stock units that vested during the fiscal 2018, 2017, and 2016:


Fiscal Year	Common Stock Shares Vested		(3) Weighted Average Fair Value		Price Per Share
Fiscal 2018 (1)		102,845	$	1,820	$	17.70	(4)
Fiscal 2018 (2)		16,000	$	520	$	32.50	(5)
Fiscal 2017 (1)		37,192	$	637	$	17.12	(4)
Fiscal 2017 (2)		12,000	$	345	$	28.77	(5)
Fiscal 2016 (1)		115,855	$	1,183	$	10.21	(4)

(1)	NEOs and key employees.

(2)	Non-employee

(3)	Dollar amounts are in thousands.

(4)	Price per share represents closing price of our common stock on the date of grant.

(5)	The respective grants vested during the first quarter of fiscal 2018 or 2017, respectively. Accordingly, the price per share represents the closing price of our common stock on the date the award vested.

We recorded compensation expense of $2.0 million, $3.2 million and $2.6 million within selling, general, and administrative expense associated with our performance based restricted stock units for fiscal 2018, 2017, and 2016, respectively. Compensation cost is recorded based on an assessment each reporting period of the probability that certain performance goals will be met during the vesting period. If performance goals are not probable of occurrence, no compensation cost will be recognized and any recognized compensation cost would be reversed.

At April 29, 2018, the remaining unrecognized compensation cost related to the performance based restricted stock units was $1.3 million, which is expected to be recognized over a weighted average vesting period of 1.3 years.

Common Stock Awards

The following table summarizes information related to our grants of common stock to our outside directors during fiscal 2018, 2017, and 2016:


Date of Grant	Common Stock Awarded		(1) Price Per Share		Vesting Period
October 2, 2017		4,800	$	33.20		Immediate
October 3, 2016		4,800	$	29.80		Immediate
October 1, 2015		3,000	$	31.77		Immediate

(1)	Price per share represents closing price of our common stock on the date of grant.

We recorded $159,000, $143,000, and $95,000, of compensation expense within selling, general, and administrative expense for these common stock awards for fiscal 2018, 2017, and 2016, respectively.