Note

Stock-Based C

ompensation

We adopted stock option plans for the benefit of our employees and outside directors. Under terms of the plans, stock options are granted at an amount

not

less than

100%

of the quoted market price of the underlying shares at the date of grant. Stock options are exercisable for terms of

five

ten

years and vest ratably over terms of

four

seven

years. All of our stock option plans have been approved by our shareholders.

August 8, 2014,

we adopted The Mesa Laboratories, Inc.

2014

Equity Plan (the

“2014

Plan”), which was subsequently approved by our shareholders on

October 2, 2014

at our

2014

Annual Meeting of Shareholders. The purpose of the

2014

Plan is to promote the success and enhance the value of the Company by linking the personal interests of our employees, officers and directors to those of our shareholders by providing such persons with an incentive for outstanding performance. A total of

1,100,000

shares of common stock were reserved for issuance under the

2014

Plan and are subject to terms as set by the Compensation Committee of the Board of Directors at the time of grant. As of

March 31, 2017,

we have

270,219

stock options outstanding and have issued

7,000

shares of restricted stock under the

2014

Plan.

Under the

December 8, 2006

plan (the

“2006

Plan”), a total of

400,000

shares of common stock were reserved for issuance and were subject to terms as set by the Compensation Committee of the Board of Directors at the time of grant. On

September 23, 2010,

our shareholders approved an amendment to the

2006

Plan whereby the number of shares authorized for issuance was increased to

800,000.

As a result of the approval of the

2014

Plan by our shareholders,

further awards will be made under the

2006

Plan and it will remain in effect only as long as awards previously made thereunder remain outstanding. As of

March 31, 2017,

we have

240,142

stock options outstanding under the

2006

Plan. O

February 27, 2013,

we filed a Registration Statement on Form S-

whereby we registered the additional

400,000

shares of common stock underlying stock options issuable under the

2006

Plan.

Amounts recognized in the consolidated financial statements related to stock-based compensation are as follows (in thousands, except per share data):

	Year Ended March 31,
	2017		2016		2015
Total cost of stock based compensation
charged against income before income tax	$	1,411	$	1,327	$	993
Amount of income tax benefit recognized in earnings		307		374		373
Amount charged against net income	$	1,104	$	953	$	620
Impact on net income per common share:
Basic	$	0.30	$	0.26	$	0.18
Diluted		0.29		0.25		0.17

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses assumptions noted in the following table. We use historical data to estimate volatility, expected option life and forfeiture rate. The risk-free rate is based on the United States Treasury yield curve in effect at the time of grant. The dividend yield is calculated based upon the dividend payments made during the prior

four

quarters as a percent of the average stock price for that period.

	Year E nded March 31,
	2017			201 6			201 5
Volatility	32.05%	-	33.76%	27.1%	-	30.2%	24.4%	-	27.1%
Risk-free interest rate		1.22%			1.09%		1.9%	-	2.3%
Expected option life (years)		5			8		6	-	8
Dividend yield		.55%			.7%			.9%

A summary of the option activity as of and for the years ended

March 31, 2017,

2016

and

2015

is as follows:

	Number of Shares			Weighted- A verage Exercise Price		Weighted- A verage Remaining Contractual Term		Aggregate Intrinsic Value (000s)
Outstanding at March 31, 2014		398,172			38.75		4.4		20,505
Granted		147,720			88.62		7.0		--
Forfeited		(26,466	)		64.62		--		--
Expired		--			--		--		--
Exercised		(82,178	)		28.87		--		--
Outstanding at March 31, 2015		437,248			55.81		4.9		9,445
Granted		184,030			72.89		6.7		--
Forfeited		(16,334	)		75.16		6.5		--
Expired		--			--		--		--
Exercised		(89,224	)		38.28		--		--
Outstanding at March 31, 2016		515,720			64.32		5.2		16,561
Granted		134,955			102.52		5.5		--
Forfeited		(35,015	)		87.5		4.5		--
Expired		(904	)		41.51		--		--
Exercised		(104,395	)		50.12		--		--
Outstanding at March 31, 2017		510,361			75.78		5.0		23,956

Exercisable at March 31,
2017		136,595			50.61		3.9		9,847
2016		157,457			42.49		3.6		8,481
2015		163,210			33.35		3.6		6,341

A summary of the status of our unvested option shares as of and for the years ended

March 31, 2017,

2016

and

2015

is as follows:

	Unvested Shares			Weighted- average Grant-D ate Fair Value
Unvested at March 31, 2014		257,347			11.86
Options granted		147,720			24.49
Options forfeited		(26,466	)		17.29
Options vested		(104,563	)		10.36
Unvested at March 31, 2015		274,038			18.42
Options granted		184,030			18.78
Options forfeited		(16,334	)		19.07
Options vested		(83,471	)		14.65
Unvested at March 31, 2016		358,263			19.46
Options granted		134,955			31.27
Options forfeited		(35,015	)		22.64
Options vested		(84,437	)		16.96
Unvested at March 31, 2017		373,766			22.49

The total intrinsic value of options exercised was

$7,574,945,

$5,260,000

and

$3,546,000

for the years ended

March 31, 2017,

2016

and

2015,

respectively. As of

March 31, 2017,

there was

$5,906,075

of total unrecognized compensation expense related to unvested options. As of

March 31, 2017,

we have

822,781

shares available for future option grants.