NOTE

—

EQUITY COMPENSATION

November 2019,

the Company's shareholders approved the

2019

Omnibus Award Plan (

“2019

Omnibus Plan”). The purpose of the

2019

Omnibus Plan is to provide a means through which the Company

may

attract and retain key personnel and to provide a means by which directors, officers, and employees can acquire and maintain an equity interest in the Company. The

2019

Omnibus Plan replaced the

2012

Stock Incentive Plan (

“2012

Stock Plan”). The number of shares of common stock authorized for issuance under the

2019

Omnibus Plan is

2,650,000

which were combined with the remaining shares available under the

2012

Stock Plan. The number of shares reserved for issuance under the

2019

Omnibus Plan is

3,907,749

shares all of which are available for future grant or award as of

June 30, 2020.

The Plan contains a fungible share ratio that consumes

2.5

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

2019

Omnibus Plan allows for the grant of non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock units and other stock-based awards.

The Company has made time-based and performance-based stock option awards. Options generally have a

three

- or

four

-year ratable vesting period beginning

one

year after the date of grant. The maximum exercise period of service-based and performance-based stock options granted under the Plan is

ten

years.

Inducement stock option agreements are granted by the Company to attract and retain key executives. Inducement stock options are separately registered securities and are

not

part of the

2019

Omnibus Plan. Some options granted have a

three

-year ratable vesting period whereas other options vest upon specific performance of the Company's stock. All Inducement stock options have a term of

ten

years only if the employee is employed for

three

years from the date of grant. In fiscal

2020,

280,000

Inducement stock options were granted.

Restricted Stock Units (RSUs) ratably vest over a

three

- or

four

-year period beginning

one

year after the date of award. Performance Stock Units (PSUs) vest if the Company meets certain financial metrics over a

three

-year period.

Stock Warrants

The Company has outstanding

200,000

fully exercisable stock warrants with an exercise price of

$9.95

as of

June 30, 2020.

As of

June 30, 2020,

the warrants had a remaining contractual life of

1.6

years. The fair value of the warrants on the date of grant was estimated using the Black-Scholes option pricing model. The following table summarizes the weighted-average assumptions used in the Black-Scholes option price model to value the warrants in the period indicated:

	February 21, 2017
Dividend yield		2.01	%
Expected volatility		39	%
Risk-free interest rate		1.80	%
Expected life (in years)		4.5
Fair value per share	$	2.87

Stock Options

The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The following table summarizes the weighted-average assumptions used in the Black-Scholes option pricing model to value the stock options granted in the periods indicated:

	2020			2019
Dividend yield		4.7	%		4.6	%
Expected volatility		43	%		42	%
Risk-free interest rate		1.4	%		2.8	%
Expected life (in years)		6.0			4.9
Fair value per share	$	1.22		$	1.48

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 Plan, net of forfeitures. The forfeiture rate is based on historical rates and reduces the compensation expense recognized. 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

$0.4

million and

$0.9

million of expense related to stock options in fiscal years

2020

and

2019,

respectively.

A summary of stock option activity as of

June 30, 2020

and changes during the period from

July 1, 2019

through

June 30, 2020

are as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at June 30, 2019		2,749,626		$	7.23		6.8	$	23,500
Granted		735,429		$	4.51
Exercised		(143,766	)	$	5.57
Forfeited		(889,351	)	$	7.69
Expired		(169,000	)	$	8.24
Outstanding at June 30, 2020		2,282,938		$	6.20		7.1	$	2,731,949
Exercisable at June 30, 2020		1,017,148		$	8.35		5.1	$	100,719
Vested and expected to vest at June 30, 2020		2,206,744		$	6.26		7.0	$	2,574,232

The aggregate intrinsic value of options exercised during the years ended

June 30, 2020

and

June 30, 2019

was

$0.1

million and

$0,

respectively. The Company received

$0.6

million of proceeds from stock options exercises in fiscal

2020.

There were

exercises of stock options in fiscal

2019.

As of

June 30, 2020,

there was

$1.0

million of unrecognized compensation cost, net of forfeitures, related to stock options, which is expected to be recognized over a weighted-average remaining period of

2.4

years.

For fiscal year

2020,

the Company recognized a current income tax benefit of

$43,000

for tax deductions related to equity compensation. A discrete tax expense of

$0.4

million was recognized to reduce deferred tax assets for cancelled awards and detriments in excess of the tax deductions.

For fiscal year

2019,

the Company recognized a current income tax benefit of

$0.1

million for tax deductions related to equity compensation. A discrete tax expense of

$0.3

million was recognized to reduce deferred tax assets for cancelled awards and detriments in excess of the tax deductions.

Restricted Stock Units

A total of

81,917

RSUs with a weighted average fair value of

$3.83

per share were awarded to employees during fiscal

2020.

There were

RSUs awarded to employees during fiscal

2019.

RSUs awarded during fiscal

2020

have a

three

-year ratable vesting period. 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 unvested 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

$16,931

and

$16,848

were accrued as of

June 30, 2020

and

2019,

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

The Company recorded

$0.1

million of expense related to RSUs during fiscal year

2020.

A summary of outstanding and unvested RSU activity as of

June 30, 2020

and changes during the period from

July 1, 2019

through

June 30, 2020

are as follows:

	Shares			Weighted- Average Grant Date Fair Value
Unvested at June 30, 2019		33,042		$	7.72
Granted		81,917		$	3.83
Vested		(21,126	)	$	8.06
Forfeited		(21,013	)	$	5.00
Unvested at June 30, 2020		72,820		$	4.03

As of

June 30, 2020,

there was

$0.2

million of unrecognized compensation cost, net of forfeitures, related to RSUs, which is expected to be recognized over a weighted-average remaining period of

2.1

years. The total fair value of RSUs that became fully vested during fiscal

2020

was

$0.1

million.

Performance

Stock Units

A total of

199,310

PSUs with a weighted average fair value of

$3.83

per share were awarded to employees during fiscal

2020.

The Company determined the fair value of the awards based on the closing price of the Company stock on the date the PSUs were awarded. The PSUs 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 PSUs in the amount of

$46,865

and

$11,310

were accrued as of

June 30, 2020

and

2019,

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

The Company recorded

$0.1

million and

$0.1

million of expense related to PSUs during fiscal years

2020

and

2019,

respectively.

A summary of outstanding and unvested PSU activity as of

June 30, 2020

and changes during the period from

July 1, 2019

through

June 30, 2020

are as follows:

	Shares			Weighted- Average Grant Date Fair Value
Unvested at June 30, 2019		56,550		$	4.94
Granted		199,310		$	3.83
Vested		-		$	-
Forfeited		(48,886	)	$	4.49
Unvested at June 30, 2020		206,974		$	3.98

As of

June 30, 2020,

there was

$0.4

million of unrecognized compensation cost, net of forfeitures, related to PSUs, which is expected to be recognized over a weighted-average remaining period of

2.1

years.

Director and Employee Stock Compensation Awards

The Company awarded a total of

71,581

and

104,020

common shares as stock compensation awards in fiscal years

2020

and

2019,

respectively. These common shares were valued at their approximate

$0.3

million and

$0.4

million 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

June 30, 2020,

there were

participants, all with fully vested account balances. A total of

180,264

common shares with a cost of

$1.1

million, and

208,965

common shares with a cost of

$1.5

million were held in the plan as of

June

30,

2020

and

2019,

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 purchases of shares on the open stock market or newly issued shares as compensation deferred into the plan offset by distributions to terminated employees. The Company issued

85,560

and

74,721

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

2020

and during fiscal

2019,

respectively.

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 Plan.