NOTE 7 - SHARE-BASED COMPENSATION

The Company has a share-based compensation plan ("Plan"), under which options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance units, and other awards based on, or related to, shares of the Company's common stock may be granted from shares authorized but unissued or shares previously issued and reacquired by the Company. The maximum number of shares of common stock approved by the Company’s shareholders to be issued under the Plan was increased from six million shares to nine million shares during fiscal year 2014. Awards may be granted to officers, employees, directors, consultants, advisors, and independent contractors of the Company or its subsidiaries. In the event of a change in control (as defined in the Plan), the vesting of awards may be accelerated. The Plan, aspects of which are more fully described below, prohibits further awards from being issued under prior plans. Total share-based compensation costs for the three and nine month periods ended August 2, 2015, were $0.9 million and $2.8 million, respectively, and $1.0 million and $3.1 million for the three and nine month periods ended August 3, 2014, respectively. The Company received cash from option exercises of $1.1 million and $2.1 million for the three and nine month periods ended August 2, 2015, respectively, and $0.1 million and $0.8 million for the three and nine month periods ended August 3, 2014, respectively. No share-based compensation cost was capitalized as part of an asset and no related income tax benefits were recorded during the periods presented.

Stock Options

Option awards generally vest in one to four years, and have a ten-year contractual term. All incentive and non-qualified stock option grants have an exercise price equal to the market value of the underlying common stock on the date of grant. The grant date fair values of options are based on closing prices of the Company’s common stock on the dates of grant using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of the Company's stock. The Company uses historical option exercise behavior and employee termination data to estimate expected term, which represents the period of time that the options granted are expected to remain outstanding. The risk-free rate of return for the estimated term of the option is based on the U.S. Treasury yield curve in effect at the date of grant.

The weighted-average inputs and risk-free rate of return ranges used to calculate the grant date fair value of options issued during the three and nine month periods ended August 2, 2015 and August 3, 2014, are presented in the following table.

Three Months Ended

Nine Months Ended

August 2,

2015

August 3,

2014

August 2,

2015

August 3,

2014

Expected volatility

42.9%

58.1%

53.9%

61.0%

Risk free rate of return

1.4% – 1.6%

1.4%

1.3% - 1.6%

1.4%

Dividend yield

N/A

Expected term

4.7 years

4.6 years

4.7 years

4.6 years

Information on outstanding and exercisable option awards as of August 2, 2015, is presented below.

Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value

Outstanding at August 2, 2015		3,873,693	$	7.29	6.3 years	$	7,075

Exercisable at August 2, 2015		2,323,643	$	6.92	4.8 years	$	6,110

There were 63,000 share options granted during the three month period ended August 2, 2015, with a weighted-average grant date fair value of $3.46 per share, and there were 20,000 share options granted during the three month period ended August 3, 2014, with a weighted-average grant date fair value of $4.24 per share. There were 667,800 share options granted during the nine month period ended August 2, 2015, with a weighted-average grant date fair value of $3.82 per share and 632,500 share options granted during the nine month period ended August 3, 2014, with a weighted-average grant date fair value of $4.44 per share. As of August 2, 2015, the total unrecognized compensation cost related to unvested option awards was approximately $4.5 million. That cost is expected to be recognized over a weighted-average amortization period of 2.5 years.

Restricted Stock

The Company periodically grants restricted stock awards. The restrictions on these awards typically lapse over a service period of less-than-one year to four years. 10,000 restricted stock awards were granted during the three month period ended August 2, 2015, with a weighted-average grant date fair value of $8.84 per share and 121,334 restricted stock awards were issued during the nine month period ended August 2, 2015, with a weighted-average grant date fair value of $8.28 per share. No restricted stock awards were granted during the three month period ended August 3, 2014, and 111,667 restricted stock awards were issued during the nine month period ended August 3, 2014, with a weighted-average grant date fair value of $8.86 per share. As of August 2, 2015, the total compensation cost not yet recognized related to unvested restricted stock awards was approximately $1.1 million. That cost is expected to be recognized over a weighted-average amortization period of 2.1 years. As of August 2, 2015, there were 212,776 shares of restricted stock outstanding.