6.Stock-Based Compensation

In April 2011, our shareholders approved the Calavo Growers, Inc. 2011 Management Incentive Plan (the “2011 Plan”). All directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of Calavo and its subsidiaries are eligible to receive awards under the 2011 Plan. Up to 1,500,000 shares of common stock may be issued by Calavo under the 2011 Plan.

On January 4, 2017, all 12 of our non-employee directors were granted 1,750 restricted shares each (total of 21,000 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $62.65. On January 3, 2018, as long as the directors are still serving on the board, these shares lose their restriction and become non-forfeitable and transferable. These shares were granted pursuant to our 2011 Plan. The total recognized stock-based compensation expense for these grants was $0.3 million for the three months ended April 30, 2017. The total recognized stock-based compensation expense for these grants was $0.4 million for the six months ended April 30, 2017.

On December 19, 2016, our executive officers were granted a total of 70,327 restricted shares. These shares have full voting rights and participate in dividends as if unrestricted. The closing price of our stock on such date was $56.20. These shares vest in one-third increments, on an annual basis, beginning December 19, 2017. These shares were granted pursuant to our 2011 Plan. The total recognized stock-based compensation expense for these grants was $0.3 million for the three months ended April 30, 2017. The total recognized stock-based compensation expense for these grants was $0.4 million for the six months ended April 30, 2017.

On January 6, 2017, our Chief Operating Officer resigned from Calavo. His unvested portion of restricted stock of 12,800 shares issued in December of 2016 and January of 2016 was forfeited. On January 25, 2017, as part of his resignation he was granted 12,800 shares of unrestricted stock, which immediately vested. The closing price of our stock on such date was $58.05. We recorded for this grant $0.7 million of stock-based compensation expense in our fiscal first quarter of 2017.

On February 2, 2017, our Vice President of Foods the Division retired from Calavo for medical reasons. In January 2017, the board of directors agreed that his unvested portion of restricted stock of 13,040 shares shall be vested due to the medical reasons provision in the restricted stock agreements. As a result, we recorded $0.5 million of stock-based compensation expense in our fiscal first quarter of 2017.

In January 2017, our Board of Directors approved the issuance of options to acquire a total of 10,000 shares of our common stock to one member of our Board of Directors. Such grant vests in equal increments over a five-year period and has an exercise price of $56.65 per share. Vested options have an exercise period of five years from the vesting date. The market price of our common stock at the grant date was $56.65. The estimated fair market value of such option grant was approximately $0.2 million. The total compensation cost not yet recognized as of April 30, 2017 was approximately $0.2 million, which will be recognized over the remaining service period of 60 months.

The value of each option award is estimated using a lattice-based option valuation model. We primarily consider the following assumptions when using these models: (1) expected volatility, (2) expected dividends, (3) expected life and (4) risk-free interest rate. Such models also consider the intrinsic value in the estimation of fair value of the option award.

Prior to November 1, 2016, stock-based compensation expense was recorded net of estimated forfeitures our consolidated statements of income and, accordingly, was recorded for only those stock-based awards that the we expected to vest. We estimated the forfeiture rate based on historical forfeitures of equity awards and adjusted the rate to reflect changes in facts and circumstances, if any. We revised our estimated forfeiture rate if actual forfeitures differed from its initial estimates.

Effective as of November 1, 2016, we adopted a change in accounting policy in accordance with ASU 2016-09, “Compensation—Stock Compensation (Topic 718)” to account for forfeitures as they occur. The change was applied on a modified retrospective basis, and no prior periods were restated as a result of this change in accounting policy.

We measure the fair value of our stock option awards on the date of grant. The following assumptions were used in the estimated grant date fair value calculations for stock options issued in first quarter of 2017:



Risk-free interest rate		1.84%
Expected volatility		42.09%
Dividend yield		1.59%
Expected life (years)		5.0

A summary of restricted stock activity, related to our 2011 Management Incentive Plan, is as follows (in thousands, except for per share amounts):


		Weighted-Average		Aggregate
	Number of Shares	Grant Price		Intrinsic Value
Outstanding at October 31, 2016	84	$	44.76
Vested	(69)	$	52.23
Forfeited	(13)	$	53.66
Granted	103	$	57.62
Outstanding at April 30, 2017	105	$	54.63	$	6,952

The total recognized stock-based compensation expense for restricted stock was $0.8 million and $0.6 million for the three months ended April 30, 2017 and 2016. The total recognized stock-based compensation expense for restricted stock was $2.7 million and $1.0 million for the six months ended April 30, 2017 and 2016.

Stock options are granted with exercise prices of not less than the fair market value at grant date, generally vest over one to five years and generally expire two to five years after the grant date. We settle stock option exercises with newly issued shares of common stock.

We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest. We measure the fair value of our stock based compensation awards on the date of grant.

A summary of stock option activity, related to our 2005 Stock Incentive Plan, is as follows (in thousands, except for per share amounts):


		Weighted-Average		Aggregate
	Number of Shares	Exercise Price		Intrinsic Value
Outstanding at October 31, 2016	8	$	18.05
Exercised	(1)	$	14.58
Outstanding at April 30, 2017	7	$	18.54	$	462
Exercisable at April 30, 2017	7	$	18.54	$	462

At April 30, 2017, outstanding and exercisable stock options had a weighted-average remaining contractual term of 2.1 years. The total recognized and unrecognized stock-based compensation expense was insignificant for the three and six months ended April 30, 2017.

A summary of stock option activity, related to our 2011 Management Incentive Plan, is as follows (in thousands, except for per share amounts):


		Weighted-Average		Aggregate
		Exercise		Intrinsic
	Number of Shares	Price		Value
Outstanding at October 31, 2016	11	$	23.33
Granted	10	$	56.65
Exercised	(1)		21.80
Outstanding at April 30, 2017	20	$	40.07	$	518
Exercisable at April 30, 2017	8	$	23.48	$	340

At April 30, 2017, outstanding and exercisable stock options had a weighted-average remaining contractual term of 5.7 years. The total recognized and unrecognized stock-based compensation expense was insignificant for the three months and six months ended April 30, 2017.