4. Stock-Based Compensation

Through the end of the second quarter of fiscal 2016, the Company’s 2006 Incentive Compensation Plan (as amended and restated effective as of August 1, 2013, the “2006 Plan”) was the only stockholder-approved plan.

The 2006 Plan expired on July 31, 2016. Subsequent to the end of the second quarter of fiscal 2016, at the Company’s 2016 Annual Meeting of Stockholders held August 4, 2016, the Company’s stockholders approved the adoption of the 2016 Incentive Compensation Plan (the “2016 Plan”). See “2016 Plan” below for a summary of the new plan.

2006 Incentive Compensation Plan

The following tables summarize the stock option activity and share activity under the 2006 Plan for the first six months of fiscal 2016:

	Number of shares		Weighted-average exercise price per option		Weighted-average remaining contractual term	Aggregate intrinsic value
Stock Options
Outstanding options at beginning of year		2,728,621	$	5.00
Options granted		—		—
Options canceled		—		—
Options exercised		—		—
Outstanding options at end of quarter		2,728,621	$	5.00	6.5 years	$	637,298
Options exercisable at end of quarter		1,057,084	$	4.85	5.8 years	$	454,935

	Restricted shares			Restricted Stock Units ⁽¹⁾		Deferred shares ⁽²⁾		Fully-vested shares ⁽³⁾			Total number of shares			Weighted-average grant-date fair value ⁽⁴⁾
Shares
Outstanding non-vested shares at beginning of year		1,320,143			—		31,587		—			1,351,730		$	5.09
Shares granted		—			427,874		23,323		37,950			489,147		$	5.15
Shares vested/issued		(4,999	)		—		—		(37,950	)		(42,949	)	$	5.04
Shares canceled		—			—		—		—			—			—
Outstanding non-vested shares at end of quarter		1,315,144			427,874		54,910		—			1,797,928		$	5.11

(1)

During the first six months of fiscal 2016, the Company granted 427,874 RSUs in connection with the 2016-2017 LTIP. The RSUs are time-vested awards that will vest over three years with the first 50% vesting on April 1, 2018 and the remaining 50% on April 1, 2019.

(2)

During the first six months of fiscal 2016, the Company granted 23,323 shares of deferred stock, with a fair value of approximately $117,622 to certain directors as compensation in lieu of cash, in accordance with their irrevocable elections. The shares of deferred stock will vest three years from the date of grant or at separation of service, based on the irrevocable election of each director.

(3)

During the first six months of fiscal 2016, the Company granted 37,950 shares of stock, with a fair value of approximately $191,673 to certain directors as compensation in lieu of cash, in accordance with their irrevocable elections. Directors are required to elect 50% of their quarterly retainer in equity. All shares paid to directors to satisfy this election were issued from the Company’s 2006 Plan. Any shares in excess of the minimum required election are issued from the Company’s Non-Employee Director Stock Purchase Plan.

(4)

The fair value of a restricted share, deferred share and fully-vested share is equal to the Company’s closing stock price on the day immediately preceding the date of grant.

Share Availability Under the 2006 Plan

At July 30, 2016, the Company had 525,538 shares remaining available under the 2006 Plan, which expired on July 31, 2016. In accordance with the terms of the 2016 Plan, on August 4, 2016, all 525,538 shares were added to the 5.2 million shares available under the 2016 Plan. See “2016 Plan” for a discussion of the share reserve.

Non-Employee Director Stock Purchase Plan

The Company granted 9,503 shares of common stock, with a fair value of approximately $47,691, to certain of its non-employee directors as compensation in lieu of cash in the first six months of fiscal 2016.

Valuation Assumptions

There were no grants of stock options during the first six months of fiscal 2016 and fiscal 2015. For the first six months of fiscal 2016, the Company granted 427,874 RSUs and 23,323 shares of deferred stock. For the first six months of fiscal 2015, the Company granted 10,342 shares of deferred stock and 10,000 shares of restricted stock. Unless otherwise specified by the Compensation Committee, RSUs, restricted stock and deferred stock are valued using the closing price of the Company’s common stock on the day immediately preceding the date of grant.

Stock Compensation Expense

For the first six months of fiscal 2016 and fiscal 2015, the Company recognized total stock-based compensation expense of $0.8 million and $1.1 million, respectively. The total compensation cost related to time-vested stock options, restricted stock and RSU awards not yet recognized as of July 30, 2016 is approximately $2.3 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 23 months. At July 30, 2016, the Company had $7.2 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to its performance-based stock options and restricted stock under its 2013-2016 LTIP. As discussed above, the Company will begin recognizing compensation if, and when, achievement of the performance targets under the 2013-2016 LTIP becomes probable.

2016 Plan

As mentioned above, subsequent to the end of the second quarter, the stockholders of the Company approved the 2016 Plan, effective August 4, 2016. The share reserve under this plan is 5,200,000 shares of our common stock. A grant of a stock option award or stock appreciation right will reduce the outstanding reserve on a one-for-one basis, meaning one share for every share granted. A grant of a full-value award, including, but not limited to, restricted stock, restricted stock units and deferred stock, will reduce the outstanding reserve by a fixed ratio of 1.9 shares for every share granted.

In addition to the initial share reserve of 5,200,000 shares, the 525,538 shares remaining available under our 2006 Plan were added and became available for issuance under the 2016 Plan on August 4, 2016. Shares subject to outstanding awards granted under the 2006 Plan that terminate, expire or are canceled for any reason without having been exercised or paid after the effective date of the 2016 Plan will also be added back and become available for issuance under the 2016 Plan, with options and stock appreciation rights being added back on a 1:1 basis and full-value awards being added back on a 1:1.9 basis.

The 2016 Plan is administered by the Compensation Committee, all of the members of which are non-employee directors who qualify as independent under the listing standards of the Nasdaq Global Select Market. The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards. Options are not granted at a price less than fair value on the date of the grant. Except with respect to 5% of the shares available for awards under the 2016 Plan, no award will become exercisable or otherwise forfeitable unless such award has been outstanding for a minimum period of one year from its date of grant.