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. In the third 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”).

2016 Plan

The share reserve under the 2016 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 that remained available under our 2006 Plan were added and became available for issuance under the 2016 Plan on August 4, 2016. In accordance with the terms of the 2016 Plan, any shares outstanding under the 2006 Plan at August 4, 2016 that subsequently terminate, expire or are canceled for any reason without having been exercised or paid are added back and become available for issuance under the 2016 Plan, with options and stock appreciation rights being added back on a one-for-one basis and full-value awards being added back on a 1 to1.9 basis. Accordingly, an additional 237,952 shares were added to share availability under the 2016 Plan during the third quarter of fiscal 2016. At October 29, 2016, the Company had 5,940,761 shares available under the 2016 Plan.

The 2016 Plan is administered by the Compensation Committee. 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.

The following tables summarize the stock option activity and share activity under the 2016 Plan for the first nine 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		—	$	—
Options granted		8,522	$	4.49
Options canceled		—	$	—
Options exercised		—	$	—
Outstanding options at end of quarter		8,522	$	4.49	9.9 years	$	—
Options exercisable at end of quarter		—

	Restricted shares		Restricted Stock Units ⁽¹⁾		Deferred shares ⁽²⁾		Total number of shares		Weighted-average grant-date fair value ⁽³⁾
Shares
Outstanding non-vested shares at beginning of year		—		—		—		—	$	—
Shares granted		3,834		3,396		247		7,477	$	4.49
Shares vested/issued		—		—		—		—	$	—
Shares canceled		—		—		—		—	$	—
Outstanding non-vested shares at end of quarter		3,834		3,396		247		7,477	$	4.49

(1)

Restricted Stock Units (“RSUs”) were granted in connection with the 2016-2017 LTIP. The RSUs will vest in two tranches with the first 50% vesting on April 1, 2018 and the second 50% vesting on April 1, 2019.

(2)

The 247 shares of deferred stock, with a fair value of $1,117, represent compensation to certain directors as 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)

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.

2006 Incentive Compensation Plan

The following tables summarize the stock option activity and share activity under the 2006 Plan for the first nine 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		(77,394	)	$	5.04
Options exercised		—			—
Outstanding options at end of quarter		2,651,227		$	4.99	6.3 years	$	123,181
Options exercisable at end of quarter		1,063,848		$	4.86	5.5 years	$	123,181

	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		(10,555	)		(919	)		—		(37,950	)		(49,424	)	$	5.04
Shares canceled		(63,574	)		(20,930	)		—		—			(84,504	)	$	5.07
Outstanding non-vested shares at end of quarter		1,246,014			406,025			54,910		—			1,706,949		$	5.11

(1)

RSUs were granted in connection with the 2016-2017 LTIP. The RSUs will vest in two tranches with the first 50% vesting on April 1, 2018 and the remaining 50% on April 1, 2019.

(2)

The 23,323 shares of deferred stock, with a fair value of approximately $117,622, represent compensation to certain directors 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 nine months of fiscal 2016, the Company granted under the 2006 Plan 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. Prior to August 1, 2016, all shares paid to directors to satisfy this election were issued from the 2006 Plan and since then the shares to satisfy this election were and will be made from the 2016 Plan. Any shares in excess of the minimum required election are issued from the Company’s Second Amended and Restated Non-Employee Director Stock Purchase Plan (“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.

Valuation Assumptions

For the first nine months of fiscal 2016, the Company granted 8,522 stock options, 3,834 shares of restricted stock, 431,270 RSUs and 23,570 shares of deferred stock. For the first nine months of fiscal 2015, the Company granted 15,790 shares of deferred stock and 10,000 shares of restricted stock. There were no grants of stock options during the first nine months of fiscal 2015.

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.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for grants for the first nine months of fiscal 2016. There were no grants of stock options for the first nine months of fiscal 2015:

	October 29, 2016
Expected volatility		39.3	%
Risk-free interest rate		0.78	%
Expected life	2.0 yrs
Dividend rate		—

Non-Employee Director Stock Purchase Plan

The Company granted 10,403 shares of common stock, with a fair value of approximately $51,804, to certain of its non-employee directors as compensation in lieu of cash in the first nine months of fiscal 2016.

Stock Compensation Expense

For the first nine months of fiscal 2016 and fiscal 2015, the Company recognized total stock-based compensation expense of $1.1 million and $1.6 million, respectively. The total compensation cost related to time-vested stock options, restricted stock and RSU awards not yet recognized as of October 29, 2016 is approximately $1.8 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 21 months. At October 29, 2016, the Company had $7.0 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.