(

) Stock-Based Compensation

Under the our equity incentive plans, employees and directors may be granted stock options, restricted stock, restricted stock units and performance awards. Effective February 17, 2015, our shareholders approved the 2015 Equity Incentive Plan of Insteel Industries, Inc. (the “2015 Plan”), which authorizes up to 900,000 shares of our common stock for future grants under the plan. The 2015 Plan, which expires on February 17, 2025, replaces the 2005 Equity Incentive Plan of Insteel Industries, Inc., which expired on February 15, 2015. As of October 1, 2016, there were 558,000 shares of our common stock available for future grants under the 2015 Plan, which is our only active equity incentive plan.

Stock option awards

Under our equity incentive plans, employees and directors may be granted options to purchase shares of common stock at the fair market value on the date of the grant. Options granted under these plans generally vest over three years and expire ten years from the date of the grant. Compensation expense associated with stock options is as follows:

	Year Ended
(In thousands)	October 1, 2016		October 3, 2015		September 27, 2014
Stock options:
Compensation expense	$	988	$	1,007	$	1,139

The remaining unrecognized compensation cost related to unvested options at October 1, 2016 was $344,000, which is expected to be recognized over a weighted average period of 1.51 years.

The fair value of each option award granted is estimated on the date of grant using a Monte Carlo valuation model. The weighted-average estimated fair values of stock options granted during 2016, 2015 and 2014 were $9.92, $7.10 and $7.00 per share, respectively, based on the following weighted-average assumptions:

	Year Ended
	Octo ber 1 , 201 6			Octo ber 3 , 201 5			Septem ber 27 , 201 4
Expected term (in years)		5.45			5.72			5.08
Risk-free interest rate		1.30	%		2.18	%		0.38	%
Expected volatility		39.00	%		37.99	%		39.57	%
Expected dividend yield		0.48	%		0.61	%		0.60	%

The assumptions utilized in the Monte Carlo valuation model are evaluated and revised, as necessary, to reflect market conditions and actual historical experience. The expected term for options was based on the results of a Monte Carlo simulation model, using the model’s estimated fair value as an input to the Black-Scholes-Merton model, and then solving for the expected term. The risk-free interest rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was derived using a term structure based on historical volatility and the volatility implied by exchange-traded options on our stock. The dividend yield was calculated based on our annual dividend as of the option grant date.

The following table summarizes stock option activity:

				Exercise Price						Contractual Term -		Aggregate
				Per Share						Weighted		Intrinsic
(Share amounts in thousands)	Options Outstanding			Range				Weighted Average		Average (in years)		Value (in thousands)
Outstanding at September 28, 2013		918			$5.43	-	$20.27	$	12.65
Granted		136			19.08	-	20.50		19.80
Exercised		(183	)		5.43	-	20.27		10.42			$	1,789
Outstanding at September 27, 2014		871			6.89	-	20.50		14.23
Granted		134			18.05	-	21.96		19.89
Exercised		(27	)		6.89	-	11.15		9.17				328
Forfeited		(55	)		9.16	-	21.96		15.37
Outstanding at October 3, 2015		923			7.55	-	21.96		15.14
Granted		99			23.95	-	34.49		28.47
Exercised		(651	)		7.55	-	21.96		13.93				8,718
Outstanding at October 1, 2016		371			9.16	-	34.49		20.81		7.98		5,722

Vested and anticipated to vest in future at October 1, 2016		365							20.78		7.96		5,647

Exercisable at October 1, 2016		142							16.41		6.56		2,826

Stock option exercises include “net exercises” for which the optionee received shares of common stock equal to the intrinsic value of the options (fair market value of common stock on the date of exercise less exercise price) reduced by any applicable withholding taxes.

Restricted stock uni

Restricted stock units (“RSUs”) granted under our equity incentive plans are valued based upon the fair market value on the date of the grant and provide for a dividend equivalent payment which is included in compensation expense. The vesting period for RSUs is generally one year from the date of grant for RSUs granted to directors and three years from the date of the grant for RSUs granted to employees. RSUs do not have voting rights. RSU grants and compensation expense are as follows:

	Year Ended
(In thousands)	October 1, 2016		October 3, 2015		September 27, 2014
Restricted stock unit grants:
Units		57		62		64
Market value	$	1,516	$	1,253	$	1,252
Compensation expense		1,451		1,291		1,522

The remaining unrecognized compensation cost related to unvested RSUs on October 1, 2016 was $584,000 which is expected to be recognized over a weighted average period of 1.79 years.

The following table summarizes RSU activity:

(Unit amounts in thousands)	Restricted Stock Units Outstanding			Weighted Average Grant Date Fair Value
Balance, September 28, 2013		221		$	13.20
Granted		64			19.61
Released		(88	)		12.33
Balance, September 27, 2014		197			15.68
Granted		62			20.33
Forfeited		(13	)		17.52
Released		(89	)		12.86
Balance, October 3, 2015		157			18.96
Granted		57			26.57
Forfeited		(2	)		23.95
Released		(67	)		17.95
Balance, October 1, 2016		145			22.35