NOTE

EQUITY COMPENSATION

Stock Based Compensation

The Company’s equity compensation plan, the

2012

Stock Incentive Plan (“the

2012

Plan”), was approved by shareholders in

November 2012.

The

2012

Plan covers all of its full-time employees, outside directors and certain advisors and replaced all previous equity compensation plans. In

November 2016,

the Company’s shareholders approved an amendment to the

2012

Plan that added

1,600,000

shares to the plan and implemented the use of a fungible share ratio that consumes

2.5

available shares for every full value share awarded by the Company as stock compensation. The

2012

Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, and other stock-based awards. Stock option grants or stock awards made pursuant to the

2012

Plan are granted at fair market value at the date of option grant or stock award.

Stock option grants

may

be service-based or performance-based. Service-based options granted during fiscal

2017

and prior fiscal years generally have a

four

year ratable vesting period beginning

one

year after the date of grant. Service-based options granted during fiscal

2018

have a

three

year ratable vesting period beginning

one

year after the date of grant. Performance-based options have a

three

year ratable vesting period beginning

one

year after the date of grant. The maximum exercise period of stock options granted under the

2012

Plan is

ten

years. If a stock option holder’s employment with the Company terminates by reason of death, disability or retirement, as defined in the Plan, the Plan generally provides for acceleration of vesting.

The number of shares reserved for issuance under the

2012

Plan is

1,449,521

shares, all of which were available for future grant or award as of

March 31, 2018.

Service-based and performance-based stock options were granted and restricted stock units (“RSUs”) were awarded during the

nine

months ended

March 31, 2018.

As of

March 31, 2018,

a total of

3,377,677

stock options were outstanding under the

2012

Plan (as well as

one

previous stock option plan which was also approved by shareholders), of which, a total of

1,586,881

stock options were vested and exercisable. As of

March 31, 2018,

the approximate unvested stock option expense that will be recorded as expense in future periods is

$1,850,418.

The weighted average time over which this expense will be recorded is approximately

months. Additionally, as of

March 31, 2018,

a total of

180,150

RSUs were outstanding. The approximate unvested stock compensation expense that will be recorded as expense in future periods for the RSUs is

$698,571.

The weighted average time over which this expense will be recorded is approximately

months.

Stock Options

The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The below listed weighted average assumptions were used for grants in the periods indicated.

	Three Months Ended					Nine Months Ended
	March 31					March 31
	2018		2017			2018			2017

Dividend yield		--		1.93	%		3.35	%		1.85	%
Expected volatility		--		41	%		41	%		42	%
Risk-free interest rate		--		1.92	%		1.77	%		1.31	%
Expected life (yrs.)		--		6.2			6.0			6.1

March 31, 2018,

the

794,537

options granted during the

first

nine

months of fiscal

2018

to employees had exercise prices ranging from

$5.92

$6.54

per share, fair values ranging from of

$1.71

$1.96

per share, and remaining contractual lives of between

9.3

and

9.8

years.

March 31, 2017,

the

1,256,623

options granted during the

first

nine

months of fiscal

2017

to employees had exercise prices ranging from

$9.48

$11.06

per share, fair values ranging from

$3.22

$3.83

per share, and remaining contractual lives of between

9.3

and

years.

The Company calculates stock option expense using the Black-Scholes model. Stock option expense is recorded on a straight line basis, or sooner if the grantee is retirement eligible as defined in the

2012

Plan, with an estimated

8.79%

forfeiture rate effective

January 1, 2018.

Previous estimated forfeiture rates were between

2.0%

and

8.54%

between the periods

January 1, 2013

through

December 31, 2017.

The expected volatility of the Company’s stock was calculated based upon the historic monthly fluctuation in stock price for a period approximating the expected life of option grants. The risk-free interest rate is the rate of a

five

year Treasury security at constant, fixed maturity on the approximate date of the stock option grant. The expected life of outstanding options is determined to be less than the contractual term for a period equal to the aggregate group of option holders’ estimated weighted average time within which options will be exercised. It is the Company’s policy that when stock options are exercised, new common shares shall be issued.

The Company recorded

$202,811

and

$510,851

of expense in the

three

months ended

March 31, 2018

and

2017,

respectively, and recorded

$1,328,539

and

$1,806,860

of expense related to stock options in the

nine

months ended

March 31, 2018

and

2017,

respectively. As of

March 31, 2018,

the Company had

2,973,412

stock options that were vested and that were expected to vest, with a weighted average exercise price of

$8.35

per share, an aggregate intrinsic value of

$2,008,424

and weighted average remaining contractual terms of

7.0

years.

Information related to all stock options for the

nine

months ended

March 31, 2018

and

2017

is shown in the following tables:

	Nine Months Ended March 31, 2018
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value

Outstanding at 6/30/17		3,119,688		$	9.12		7.4	$	2,332,224

Granted		794,537		$	5.98
Forfeitures		(493,609	)	$	11.34
Exercised		(42,939	)	$	6.66

Outstanding at 3/31/18		3,377,677		$	8.09		7.2	$	2,837,701

Exercisable at 3/31/18		1,586,881		$	8.20		5.7	$	988,080

	Nine Months Ended March 31, 2017
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value

Outstanding at 6/30/16		2,976,490		$	8.97		6.6	$	8,338,974

Granted		1,256,623		$	10.67
Forfeitures		(161,812	)	$	16.17
Exercised		(440,146	)	$	7.39

Outstanding at 3/31/17		3,631,155		$	9.43		7.4	$	4,546,991

Exercisable at 3/31/17		1,423,528		$	8.99		5.3	$	2,912,714

The following table presents information related to unvested stock options:

	Shares			Weighted-Average Grant Date Fair Value
Unvested at June 30, 2017		1,842,127		$	3.52
Granted		794,537		$	1.73
Vested		(640,984	)	$	3.51
Forfeited		(204,884	)	$	3.46
Unvested at March 31, 2018		1,790,796		$	2.73

The weighted average grant date fair value of options granted during the

nine

month periods ended

March 31, 2018

and

2017

was

$1.73

and

$3.71,

respectively. The aggregate intrinsic value of options exercised during the

nine

months ended

March 31, 2018

and

2017

was

$39,011

and

$1,094,696,

respectively. The aggregate grant date fair value of options that vested during the

nine

months ended Mach

31,

2018

and

2017

was

$988,080

and

$2,260,014,

respectively. The Company received

$285,875

and

$2,612,578

of cash from employees who exercised options in the

nine

month periods ended

March 31, 2018

and

2017,

respectively. In the

first

nine

months of fiscal

2018

the Company recorded a

$103,616

reduction of the federal income tax payable,

$794,756

as an increase in common stock,

$92,996

as an increase of income tax expense, and

$196,612

as a decrease of the deferred tax assets related to the issuance of RSUs and the exercises of stock options in which the employees sold the common shares prior to the passage of

twelve

months from the date of exercise.

In the

first

nine

months of fiscal

2017

the Company recorded

$465,521

as a reduction of federal income taxes payable,

$138,793

as a decrease in common stock,

$109,140

as a reduction of income tax expense, and

$495,175

as a reduction of the deferred tax asset related to the issuance of RSUs and the exercises of stock options in which the employees sold the common shares prior to the passage of

twelve

months from the date of exercise.

Restricted Stock Units

A total of

91,490

RSUs with a fair value of

$5.92

per share were awarded to employees during the

nine

months ended

March 31, 2018.

The service-based RSUs awarded during fiscal

2018

have a

three

year ratable vesting period beginning

one

year after the date of award. A total of

96,210

RSUs with a fair value of

$10.84

per share were awarded to employees during the

nine

months ended

March 31, 2017.

The service-based RSUs awarded during fiscal

2017

and in prior fiscal years have a

four

year ratable vesting period beginning

one

year after the date of award. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the RSUs were awarded. The RSUs are non-voting, but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. Dividends on RSUs in the amount of

$44,946

and

$24,120

were accrued as of

March 31, 2018

and

2017,

respectively. Accrued dividends are paid to the holder upon vesting of the RSUs and issuance of shares.

The following table presents information related to RSUs:

	Shares			Weighted-Average Grant Date Fair Value
Unvested at June 30, 2017		133,335		$	10.38
Awarded		91,490		$	5.92
Vested		(43,803	)	$	10.32
Forfeited		(7,000	)	$	10.46
Unvested at March 31, 2018		174,022		$	8.05

As of

March 31, 2018,

the

180,150

RSUs outstanding have a weighted average remaining contractual life of

4.81

years. Of the

180,150

RSUs outstanding as of

March 31, 2018,

170,769

RSUs are vested or expected to vest in the future. An estimated forfeiture rate of

8.3%

was used in the calculation of expense related to the RSUs. The Company recorded

$88,811

and

$426,121

of expense related to RSUs in the

three

and

nine

month periods ended

March 31, 2018,

respectively.

As of

March 31, 2017,

the

135,585

RSUs outstanding have a weighted average remaining contractual life of

6.2

years. Of the

135,585

RSUs outstanding as of

March 31, 2017,

130,316

RSUs are vested or expected to vest in the future. An estimated forfeiture rate of

3.4%

was used in the calculation of expense related to the RSUs. The Company recorded

$93,905

and

$486,102

of expense related to RSUs in the

three

and

nine

month periods ended

March 31, 2017,

respectively.

Director and Employee Stock Compensation Awards

The Company awarded a total of

31,374

and

31,782

common shares in the

nine

months ended

March 31, 2018

and

2017,

respectively, as stock compensation awards. These common shares were valued at their approximate

$234,000

and

$331,000

fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, respectively, pursuant to the compensation programs for non-employee directors who receive a portion of their compensation as an award of Company stock and for employees who received a nominal recognition award in the form of Company stock. Stock compensation awards are made in the form of newly issued common shares of the Company.

Deferred Compensation Plan

The Company has a non-qualified deferred compensation plan providing for both Company contributions and participant deferrals of compensation. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the Company. As of

March 31, 2018

there were

participants in the deferred compensation plan. A total of

229,970

common shares with a cost of

$2,045,189,

and

257,898

common shares with a cost of

$2,456,875

were held in the plan as of

March 31, 2018

and

June

30,

2017,

respectively, and, accordingly, have been recorded as treasury shares. The change in the number of shares held by this plan is the net result of share purchases and sales on the open stock market for compensation deferred into the plan; shares newly issued for compensation deferred into the plan, and for distributions to terminated employees. The Company issued

54,360

new common shares for purposes of the non-qualified deferred compensation plan during the

nine

months ended

March 31, 2018

and the company did

not

issue new common shares for the plan in fiscal

2017.

The Company used approximately

$106,537

and

$446,251

to purchase

15,225

and

45,335

common shares of the Company in the open stock market during the

nine

months ended

March 31, 2018

and

2017,

respectively, for either employee salary deferrals or Company contributions into the non-qualified deferred compensation plan.

The Company’s non-qualified deferred compensation is

longer funded by purchases in the open market of LSI stock as of

September 30, 2017.

This plan is now solely funded by newly issued shares that are authorized from the Company’s

2012

Stock Incentive Plan.