Share Based Payments

The amounts recorded as share based compensation expense consist of stock option grants, restricted stock grants, and common stock issued to employees and directors in lieu of cash payments.

Stock Option Awards

The Company has granted options to purchase its common stock to employees and directors of the Company under various stock option plans at no less than the fair market value of the underlying stock on the date of grant. These options are granted for a term not exceeding 10 years and are forfeited, except in certain circumstances, in the event the employee or director terminates his or her employment or relationship with the Company. Generally, these options either vest annually over 3 years (one-third each year for 3 years), or cliff vest at the end of 3 years. The Company issues new shares upon the exercise of stock options.

The fair value of each option awarded is estimated on the date of grant using a Black-Scholes option-pricing model and expensed on a straight-line basis over the vesting period. Expected volatilities are based on historical volatility of the Company’s stock. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The Company includes estimated forfeitures in its compensation cost and updates the estimated forfeiture rate through the final vesting date of awards. The risk-free interest rate for periods within the life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following assumptions were used to calculate the fair value of the Company’s options on the date of grant during the three months ended May 31, 2015 and 2016:



	Three Months Ended May 31,
	2015	2016
Risk-Free Interest Rate:	1.3% - 1.4%	1.2%
Expected Dividend Yield:	0%	0%
Expected Life (Years):	4.3	4.3
Expected Volatility:	63.6% - 64.6%	58.6% - 59.6%

The following table presents a summary of the Company’s stock options outstanding at May 31, 2016, and stock option activity during the three months ended May 31, 2016 (“Price” reflects the weighted average exercise price per share; "Aggregate Intrinsic Value" dollars in thousands):



	Options	Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding, beginning of period	7,793,702	$	1.59
Granted	582,500	0.54
Expired	73,754	11.17
Outstanding, end of period	8,302,448	1.43		6.8	$	98
Exercisable, end of period	4,846,694	1.41		5.3	$	90

Cash received from option exercises for the three months ended May 31, 2015 was $0.1 million. The Company did not record an income tax benefit relating to the options exercised during the three months ended May 31, 2015. No options were exercised during the three months ended May 31, 2016.

The weighted average per share grant date fair value of options granted during the three months ended May 31, 2015 and 2016, was $1.05 and $0.26, respectively.

A summary of the Company’s nonvested options at May 31, 2016, and changes during the three months ended May 31, 2016, is presented below:



	Options	Weighted Average Grant Date Fair Value
Nonvested, beginning of period	3,323,253	$	0.93
Granted	582,500	0.26
Vested	449,999	1.25
Nonvested, end of period	3,455,754	0.77

There were 1.9 million shares available for future grants under the Company’s various equity plans (0.6 million shares under the 2015 Equity Compensation Plan and 1.3 million shares under other plans) at May 31, 2016, not including shares that may become available for future grants upon forfeiture, lapse or surrender for taxes. Additionally, the board of directors approved the 2016 Equity Compensation Plan on January 29, 2016. Under the 2016 Equity Compensation Plan, awards equivalent to 6.0 million shares of common stock may be granted. The 2016 Equity Compensation Plan won't become effective until it is approved by Emmis' shareholders at the annual meeting in July 2016. However, Emmis' Chairman and Chief Executive Officer, Jeffrey H. Smulyan, controls more than 50% of the vote on this matter and has informed the board of directors that he intends to vote in favor of approving the 2016 Plan.

The vesting dates of outstanding options at May 31, 2016 range from July 2016 to March 2019, and expiration dates range from March 2017 to April 2026.

Restricted Stock Awards

The Company grants restricted stock awards to directors annually, and periodically grants restricted stock to employees in connection with employment agreements. Awards to directors are granted on the date of our annual meeting of shareholders and vest on the earlier of (i) the completion of the director’s 3-year term or (ii) the third anniversary of the date of grant. Restricted stock award grants are granted out of the Company’s 2015 Equity Compensation Plan. The Company may also award, out of the Company’s 2015 Equity Compensation Plan, stock to settle certain bonuses and other compensation that otherwise would be paid in cash. Any restrictions on these shares may be immediately lapsed on the grant date.

The following table presents a summary of the Company’s restricted stock grants outstanding at May 31, 2016, and restricted stock activity during the three months ended May 31, 2016 (“Price” reflects the weighted average share price at the date of grant):



	Awards	Price
Grants outstanding, beginning of period	852,028	$	1.78
Granted	456,367	0.52
Vested (restriction lapsed)	718,867	1.05
Grants outstanding, end of period	589,528	1.69

The total grant date fair value of shares vested during the three months ended May 31, 2015 and 2016, was $1.0 million and $0.8 million, respectively.

Recognized Non-Cash Compensation Expense

The following table summarizes stock-based compensation expense recognized by the Company during the three months ended May 31, 2015 and 2016. The company did not recognize any tax benefits related to stock-based compensation during the periods presented below.



	Three Months Ended May 31,
	2015		2016
Station operating expenses	$	724	$	337
Corporate expenses	1,380		519
Stock-based compensation expense included in operating expenses	2,104		856

As of May 31, 2016, there was $1.9 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested share-based compensation arrangements. The cost is expected to be recognized over a weighted average period of approximately 1.6 years.