(

) Stock-Based Compensation

Under our equity incentive plan, 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

June 29, 2019,

there were

241,000

shares of our common stock available for future grants under the

2015

Plan, which is our only active equity incentive plan.

Stock

ption

awards

Under our equity incentive plan, 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 was

$58,000

and

$51,000

for the

three

-month periods ended

June 29, 2019

and

June 30, 2018,

respectively, and

$496,000

and

$522,000

for the

nine

-month periods ended

June 29, 2019

and

June 30, 2018,

respectively. As of

June 29, 2019,

there was

$214,000

of unrecognized compensation cost related to unvested options which is expected to be recognized over a weighted average period of

1.55

years.

The fair value of each option award granted is estimated on the date of grant using a Monte Carlo valuation model. The estimated fair values of stock options granted during the

nine

-month periods ended

June 29, 2019

and

June 30, 2018

was

$7.96

and

$10.46

per share, respectively, based on the following assumptions:

	Nine Months Ended
	June 29,			June 30,
	2019			2018
Risk-free interest rate		3.84	%		2.72	%
Dividend yield		0.50	%		0.40	%
Expected volatility		43.08	%		37.74	%
Expected term (in years)		4.56			4.89

The assumptions utilized in the Monte Carlo valuation model are evaluated and revised, as necessary, to reflect market conditions and actual historical experience. 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 dividend yield was calculated based on our annual dividend as of the option grant date. The expected volatility was derived using a term structure based on historical volatility and the volatility implied by exchange-traded options on our common stock. 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 following table summarizes stock option activity:

										Contractual		Aggregate
	Options			Exercise Price Per Share						Term - Weighted		Intrinsic
	Outstanding							Weighted		Average		Value
	(in thousands)			Range				Average		(in years)		(in thousands)
Outstanding at September 29, 2018		264			$10.23	-	$41.85	$	29.25
Granted		58			21.57	-	21.57		21.57
Exercised		(5	)		18.05	-	26.75		23.95			$	21
Outstanding at June 29, 2019		317			10.23	-	41.85		27.93		7.59		200

Vested and anticipated to vest in the future at June 29, 2019		313							27.91		7.57		200

Exercisable at June 29, 2019		145							26.05		6.14		200

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 the 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. Compensation expense associated with RSUs was

$124,000

and

$117,000

for the

three

-month periods ended

June 29, 2019

and

June 30, 2018,

respectively, and

$705,000

and

$719,000

for the

nine

-month periods ended

June 29, 2019

and

June 30, 2018,

respectively. The market value of RSUs granted during the

nine

-month periods ended

June 29, 2019

and

June 30, 2018

was

$763,000

and

$712,000,

respectively.

As of

June 29, 2019,

there was

$486,000

of unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average period of

1.47

years.

The following table summarizes RSU activity:

				Weighted
	Restricted			Average
	Stock Units			Grant Date
(Unit amounts in thousands)	Outstanding			Fair Value
Balance, September 29, 2018		103		$	30.40
Granted		35			21.57
Released		(36	)		25.28
Balance, June 29, 2019		102			29.16