(

) Stock-Based Compensation

Under the Company’s equity incentive plans, employees and directors may be granted stock options, restricted stock, restricted stock units and performance awards. Effective February 17, 2015, the shareholders of the Company approved the 2015 Equity Incentive Plan of Insteel Industries, Inc. (the “2015 Plan”), which authorizes up to 900,000 shares of Company common stock for future grants under the plan. The 2015 Plan, which expires on February 17, 2025, replaces the 2005 Equity Incentive Plan of Insteel Industries, Inc., which expired on February 15, 2015. As of October 3, 2015, there were 711,000 shares of Company common stock available for future grants under the 2015 Plan, which is the Company’s only active equity incentive plan.

Stock option awards

Under the Company’s equity incentive plans, employees and directors may be granted options to purchase shares of common stock at the fair market value on the date of the grant. Options granted under these plans generally vest over three years and expire ten years from the date of the grant. Compensation expense associated with stock options is as follows:

	Year Ended
	October 3,		September 27,		September 28,
(In thousands)	2015		2014		2013
Stock options:
Compensation expense	$	1,007	$	1,139	$	951

The remaining unrecognized compensation cost related to unvested options at October 3, 2015 was $363,000, which is expected to be recognized over a weighted average period of 1.49 years.

The fair value of each option award granted is estimated on the date of grant using a Monte Carlo valuation model. The weighted-average estimated fair values of stock options granted during 2015, 2014 and 2013 were $7.10, $7.00 and $7.06 per share, respectively, based on the following weighted-average assumptions:

	Year Ended
	Octo ber 3 ,			September 2 7 ,			Septem ber 28 ,
	201 5			201 4			201 3
Expected term (in years)		5.72			5.08			6.00
Risk-free interest rate		2.18	%		0.38	%		1.40	%
Expected volatility		37.99	%		39.57	%		47.32	%
Expected dividend yield		0.61	%		0.60	%		0.72	%

The assumptions utilized in the Monte Carlo valuation model are evaluated and revised, as necessary, to reflect market conditions and actual historical experience. The risk-free interest rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield was calculated based on the Company’s annual dividend as of the option grant date. The expected volatility was derived using a term structure based on historical volatility and the volatility implied by exchange-traded options on the Company’s stock. The expected term for options was based on the results of a Monte Carlo simulation model, using the model’s estimated fair value as an input to the Black-Scholes-Merton model, and then solving for the expected term.

The following table summarizes stock option activity:

				Exercise Price						Contractual		Aggregate
				Per Share						Term -		Intrinsic
	Options							Weighted		Weighted		Value
(Share amounts in thousands)	Outstanding			Range				Average		Average (years)		(in thousands)
Outstanding at September 29, 2012		1,160			$0.36	-	$20.27	$	11.09
Granted		131			16.45	-	17.22		16.84
Exercised		(373	)		0.36	-	12.43		9.27			$	2,744
Outstanding at September 28, 2013		918			5.43	-	20.27		12.65
Granted		136			19.08	-	20.50		19.80
Exercised		(183	)		5.43	-	20.27		10.42				1,789
Outstanding at September 27, 2014		871			6.89	-	20.50		14.23
Granted		134			18.05	-	21.96		19.89
Exercised		(27	)		6.89	-	11.15		9.17				328
Forfeited		(55	)		9.16	-	21.96		15.37
Outstanding at October 3, 2015		923			7.55	-	21.96		15.14		6.06		2,188


Vested and anticipated to vest in future at October 3, 2015		918							15.11		6.04		2,188

Exercisable at October 3, 2015		667							13.52		4.94		2,188

The 2015, 2014 and 2013 stock option exercises included “net exercises,” pursuant to which the optionee received shares of common stock equal to the intrinsic value of the options (fair market value of common stock on the date of exercise less exercise price) reduced by any applicable withholding taxes.

Restricted stock uni

Restricted stock units (“RSUs”) granted under the Company’s equity incentive plans are valued based upon the fair market value on the date of the grant and provide for a dividend equivalent payment which is included in compensation expense. The vesting period for RSUs is generally one year from the date of grant for RSUs granted to directors and three years from the date of the grant for RSUs granted to employees. RSUs do not have voting rights. RSU grants and compensation expense are as follows:

	Year Ended
	October 3,		September 27,		September 28,
(In thousands)	2015		2014		2013
Restricted stock unit grants:
Units		62		64		73
Market value	$	1,253	$	1,252	$	1,225
Compensation expense		1,291		1,522		1,210

The remaining unrecognized compensation cost related to unvested RSUs on October 3, 2015 was $590,000 which is expected to be recognized over a weighted average period of 1.62 years.

The following table summarizes RSU activity:

				Weighted
	Restricted			Average
	Stock Units			Grant Date
(Unit amounts in thousands)	Outstanding			Fair Value
Balance, September 29, 2012		293		$	10.74
Granted		73			16.77
Forfeited		(6	)		10.72
Released		(139	)		10.00
Balance, September 28, 2013		221			13.20
Granted		64			19.61
Released		(88	)		12.33
Balance, September 27, 2014		197			15.68
Granted		62			20.33
Forfeited		(13	)		17.52
Released		(89	)		12.86
Balance, October 3, 2015		157			18.96