Stock-based Compensation and Stockholders’ Equity

Common Stock and Stock Option Plans

On October 10, 2013, following stockholder approval at the Annual Meeting of Stockholders of the Company, the 2013 Stock Incentive Plan (the “Plan”) became effective and replaced the Company’s 2009 Stock Incentive Plan. Employees (including officers), consultants and directors of the Company and its subsidiaries and affiliates are eligible to participate in the Plan.

On October 19, 2017, 1.0 million shares were added to the Plan following stockholder approval at the 2017 Annual Meeting of Stockholders.

The Plan provides for the grant of stock options (both nonstatutory and incentive stock options), stock grants, stock units and stock appreciation rights. Awards under the Plan will be evidenced by an agreement with the Plan participants and 2.0 million shares of the Company’s Common Stock (“Shares”) were initially available for award under the Plan. Under the Plan, no recipient may receive awards during any fiscal year that exceeds the following amounts: (i) stock options covering in excess of 500,000 Shares; (ii) stock grants and stock units covering in excess of 250,000 Shares in the aggregate; or (iii) stock appreciation rights covering more than 500,000 Shares. In addition, awards to non-employee directors are discretionary. However, a non-employee director may not be granted awards in excess of 30,000 Shares in the aggregate during any fiscal year. The exercise price of the options is the fair market value of the Company’s Common Stock on the date the options are granted. As of May 26, 2019, 2,256,689 options to purchase shares and restricted stock units (“RSUs”) were outstanding.

On October 15, 2009, following stockholder approval at the Annual Meeting of Stockholders of the Company, the 2009 Stock Incentive Plan (the “2009 Plan”) became effective and replaced the Company’s 2005 Stock Incentive Plan. Employees (including officers), consultants and directors of the Company and its subsidiaries and affiliates were eligible to participate in the 2009 Plan. The 2009 Plan provided for the grant of stock options (both nonstatutory and incentive stock options), stock grants, stock units and stock appreciation rights. Under the 2009 Plan, 1.9 million shares were initially available for awards and as of May 26, 2019, 171,833 options to purchase shares and RSUs were outstanding.

At May 26, 2019, the Company had 2.5 million common shares reserved for future issuance under Landec stock incentive plans.

Convertible Preferred Stock

The Company has authorized 2.0 million shares of preferred stock, and as of May 26, 2019 has no outstanding preferred stock.

Grant Date Fair Value

The Company uses the Black-Scholes option pricing model to calculate the grant date fair value of stock option awards. The use of an option pricing model requires the Company to make estimates and assumptions, including the expected stock price volatility, expected life of option awards, risk-free interest rate, and expected dividend yield which have a significant impact on the fair value estimates. As of May 26, 2019, May 27, 2018 and May 28, 2017, the fair value of stock option grants was estimated using the following weighted average assumptions:



	Year Ended
	May 26, 2019		May 27, 2018		May 28, 2017
Options granted	368,264		498,000		240,000
Weighted-average exercise price	$11.85		$12.93		$11.58
Weighted-average grant date fair value	$2.80		$2.90		$2.37
Assumptions:
Expected life (in years)	3.50		3.50		3.50
Risk-free interest rate	2.47	%	1.73	%	1.08	%
Volatility	27	%	27	%	26	%
Dividend yield	—	%	—	%	—	%

Stock-Based Compensation Activity

A summary of the activity under the Company's stock option plans as of May 26, 2019 and changes during the fiscal year then ended is presented below:



	Options Outstanding		Weighted-Average Exercise Price Per Share		Total Intrinsic Value of Options Exercised		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Options outstanding at May 29, 2016	1,731,474		$	11.90
Options granted	240,000		$	11.58
Options exercised	(357,639	)	$	5.93	$	2,780,597
Options forfeited	(42,293	)	$	12.16
Options expired	—		$	—
Options outstanding at May 28, 2017	1,571,542		$	13.20
Options granted	498,000		$	12.93
Options exercised	(29,333	)	$	7.36	$	177,921
Options forfeited	(23,334	)	$	12.55
Options expired	(61,540	)	$	14.23
Options outstanding at May 27, 2018	1,955,335		$	13.20
Options granted	368,264		$	11.85
Options exercised	(116,834	)	$	11.82	$	265,911
Options forfeited	(71,669	)	$	13.75
Options expired	(135,000	)	$	14.18
Options outstanding at May 26, 2019	2,000,096		$	12.94			3.29	$	16,807
Options exercisable at May 26, 2019	1,524,473		$	13.30			2.41	$	5,467

A summary of the Company's restricted stock unit award activity as of May 26, 2019 and changes during the fiscal year then ended is presented below:



	Restricted Stock Units Outstanding		Weighted-Average Grant Date Fair Value Per Share
Restricted stock units outstanding at May 29, 2016	526,841		$	13.51
Granted	130,522		$	13.37
Vested	(130,508	)	$	13.42
Forfeited	(17,500	)	$	12.46
Restricted stock units outstanding at May 28, 2017	509,355		$	13.53
Granted	200,288		$	13.12
Vested	(270,656	)	$	14.06
Forfeited	(30,950	)	$	11.75
Restricted stock units outstanding at May 27, 2018	408,037		$	12.99
Granted	333,486		$	13.15
Vested	(237,946	)	$	13.27
Forfeited	(75,150	)	$	13.92
Restricted stock units outstanding at May 26, 2019	428,427		$	12.80

Stock-Based Compensation Expense

The following table summarizes the stock-based compensation by income statement line item:



	Year Ended
(in thousands)	May 26, 2019		May 27, 2018		May 28, 2017
Cost of sales	$	449	$	535	$	485
Research and development	114		131		83
Selling, general and administrative	2,997		3,737		3,396
Total stock-based compensation	$	3,560	$	4,403	$	3,964

As of May 26, 2019, there was $4.4 million of total unrecognized compensation expense related to unvested equity compensation awards granted under the Landec stock incentive plans. Total expense is expected to be recognized over the weighted-average period of 1.94 years for stock options and 2.09 years for restricted stock unit awards.

Stock Repurchase Plan

On July 14, 2010, the Board of Directors of the Company approved the establishment of a stock repurchase plan which allows for the repurchase of up to $10.0 million of the Company’s Common Stock. The Company may repurchase its Common Stock from time to time in open market purchases or in privately negotiated transactions. The timing and actual number of shares repurchased is at the discretion of management of the Company and will depend on a variety of factors, including stock price, corporate and regulatory requirements, market conditions, the relative attractiveness of other capital deployment opportunities and other corporate priorities. The stock repurchase program does not obligate Landec to acquire any amount of its Common Stock and the program may be modified, suspended or terminated at any time at the Company's discretion without prior notice. During fiscal years 2019, 2018 and 2017, the Company did not purchase any shares on the open market.