We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended and/or restated from time to time (the "Plan") and our 2001 Employee Stock Purchase Plan, as amended and/or restated from time to time (the "ESPP"), and recognize related stock-based compensation in our consolidated financial statements. The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants): (i) incentive and non-qualified stock options, (ii) restricted stock units ("RSUs"), (iii) RSUs with performance measures (which we refer to as "performance shares"), (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, "share units") and (vi) stock appreciation rights ("SARs"), among other types of awards. Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations.

As of July 31, 2023, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 11,962,500. Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a stockholder who owns stock representing more than 10.0% of the voting power, no more than five years. We expect to settle all outstanding awards under the Plan and employee purchases under the ESPP with the issuance of new shares of our common stock.

As of July 31, 2023, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 10,600,865 shares (net of 5,815,202 expired and canceled awards), of which an aggregate of 8,484,125 have been exercised or settled.

Our ESPP provides for the issuance of up to 1,300,000 shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85% of fair market value on the first or last day of each calendar quarter, whichever is lower. Through July 31, 2023, we have cumulatively issued 998,526 shares of our common stock to participating employees in connection with our ESPP.


	Fiscal Years Ended July 31,
	2023		2022	2021
Cost of sales	$	1,110,000	692,000	929,000
Selling, general and administrative expenses	7,960,000		6,312,000	8,091,000
Research and development expenses	1,037,000		763,000	963,000
Stock-based compensation expense before CEO transition costs	10,107,000		7,767,000	9,983,000
CEO transition costs related to equity-classified stock-based awards	3,764,000		7,388,000	—
Total stock-based compensation expense before income tax benefit	13,871,000		15,155,000	9,983,000
Estimated income tax benefit	(2,552,000)		(2,260,000)	(2,164,000)
Net stock-based compensation expense	$	11,319,000	12,895,000	7,819,000

Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. At July 31, 2023, unrecognized stock-based compensation of $7,812,000, net of estimated forfeitures of $530,000, is expected to be recognized over a weighted average period of 2.3 years. Total stock-based compensation capitalized and included in ending inventory at July 31, 2023 and 2022 was $198,000 and $48,000, respectively. There are no liability-classified stock-based awards outstanding as of July 31, 2023 or 2022.

Selling, general and administrative expenses included in the table above, for fiscal 2022, includes $827,000 of amortization of stock-based compensation related to three, long-standing members of our Board of Directors who retired in December 2021.


	Fiscal Years Ended July 31,
	2023		2022	2021
Stock options	$	87,000	519,000	370,000
Performance shares	973,000		1,136,000	1,345,000
RSUs, restricted stock, share units and other stock-based awards	8,926,000		5,912,000	8,060,000
ESPP	121,000		200,000	208,000
Stock based compensation expense	10,107,000		7,767,000	9,983,000
CEO transition costs related to equity-classified stock-based awards	3,764,000		7,388,000	—
Total stock-based compensation expense before income tax benefit	13,871,000		15,155,000	9,983,000
Estimated income tax benefit	(2,552,000)		(2,260,000)	(2,164,000)
Net stock-based compensation expense	$	11,319,000	12,895,000	7,819,000

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled. Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Consolidated Balance Sheet as of July 31, 2023 and 2022. The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting.


	Awards (in Shares)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2020	1,422,025	$	26.17
Expired/canceled	(348,590)	27.44
Outstanding at July 31, 2021	1,073,435	25.76
Expired/canceled	(588,735)	26.86
Exercised	(1,220)	17.88
Outstanding at July 31, 2022	483,480	24.43
Expired/canceled	(242,970)	24.89

Outstanding at July 31, 2023	240,510	$	23.96	3.97	$	—

Exercisable at July 31, 2023	211,870	$	24.78	3.63	$	—

Vested and expected to vest at July 31, 2023	238,868	$	24.00	3.96	$	—

Stock options outstanding as of July 31, 2023 have exercise prices ranging from $17.88 - $33.94, representing the fair market value of our common stock on the date of grant, a contractual term of ten years and a vesting period of five years. The total intrinsic value relating to stock options exercised during the fiscal year ended July 31 2022 was $7,000. There were no stock options exercised during the fiscal years ended July 31, 2023 and 2021.

During fiscal 2022, at the election of certain holders of vested stock options, 1,220 stock options were net settled upon exercise. As a result, 220 shares of our common stock were issued during the fiscal year ended July 31, 2022, net of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements.


	Awards (in Shares)	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at July 31, 2020	999,574	$	21.15
Granted	644,272	19.06
Settled	(455,564)	17.09
Canceled/Forfeited	(119,912)	18.42
Outstanding at July 31, 2021	1,068,370	21.93
Granted	797,771	18.77
Settled	(641,747)	22.83
Canceled/Forfeited	(113,644)	22.78
Outstanding at July 31, 2022	1,110,750	19.05
Granted	1,550,951	10.79
Settled	(632,267)	16.69
Canceled/Forfeited	(153,204)	16.67
Outstanding at July 31, 2023	1,876,230	$	13.21	$	19,062,000

Vested at July 31, 2023	847,243	$	13.53	$	8,608,000

Vested and expected to vest at July 31, 2023	1,836,835	$	13.21	$	18,662,000

The performance shares granted to employees principally vest over a three-year performance period, if pre-established performance goals are attained, or as specified pursuant to the Plan and related agreements. As of July 31, 2023, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level, except for our former CEO's, whose achievement was based on maximum performance pursuant to their pre-existing change-in-control agreements.

RSUs and restricted stock granted to non-employee directors prior to August 2022 had a vesting period of five years and are convertible into shares of our common stock generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. Commencing in August 2022, such awards have a vesting period of one year. Also, restricted stock granted to our former non-executive Chairman of the Board of Directors, pursuant to his Senior Technology Advisor consulting agreement, vests 1/12 on the date of grant and in eleven equal monthly installments thereafter.

RSUs granted to employees prior to August 2022 have a vesting period of five years and are convertible into shares of our common stock generally at the time of vesting, on a one-for-one basis for no cash consideration. Commencing in August 2022, such RSUs have a vesting period of three years.

Share units granted prior to July 31, 2017 were vested when issued and are convertible into shares of our common stock, generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. Share units granted on or after July 31, 2017 were granted to certain employees in lieu of non-equity incentive compensation and are convertible into shares of our common stock on the one-year anniversary of the respective grant date.

On July 27, 2023, 595,890 both fully vested share units and other stock-based awards were granted to certain employees in lieu of fiscal 2023 non-equity incentive compensation. Also, on July 31, 2023, 252,452 fully vested share units (previously granted in lieu of fiscal 2022 non-equity incentive compensation) were settled by delivery of 153,045 shares of our common stock after reduction of share units retained to satisfy employees’ statutory tax withholding requirements. Cumulatively, through July 31, 2023, 1,482,324 share units granted have been settled.

The fair value of performance shares, RSUs, restricted stock, share units and other stock-based awards is determined using the closing market price of our common stock on the date of grant, less the present value of any estimated future dividend equivalents such awards are not entitled to receive and an applicable estimated discount for any post-vesting transfer restrictions. RSUs, performance shares and restricted stock are entitled to dividend equivalents, as applicable, unless forfeited before vesting occurs. Share units and other stock-based awards would be entitled to dividend equivalents while the underlying shares are unissued.

Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of settlement of the underlying award. During fiscal 2023, 2022 and 2021, we accrued $315,000, $389,000 and $380,000, respectively, of dividend equivalents (net of forfeitures) and paid out $366,000, $531,000 and $279,000, respectively. Accrued dividend equivalents were recorded as a reduction to retained earnings. As of July 31, 2023 and 2022, accrued dividend equivalents were $691,000 and $742,000, respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the fiscal years ended July 31, 2023 and 2022, we recorded an income tax expense of $591,000 and $924,000, respectively. During the fiscal year ended July 31, 2021, we recorded an income tax benefit of $142,000.

In the first quarter of fiscal 2024, our Board of Directors authorized the issuance of stock-based awards with a total unrecognized compensation expense, net of estimated forfeitures, of approximately $8,600,000.