K. STOCK-BASED COMPENSATION

In fiscal 2011, the Company adopted the Twin Disc, Incorporated 2010 Stock Incentive Plan for Non-Employee Directors (the “2010 Directors’ Plan”), a plan to grant non-employee directors equity-based awards up to 250,000 shares of common stock, and the Twin Disc, Incorporated 2010 Long-Term Incentive Compensation Plan (the “2010 Employee Incentive Plan”), a plan under which officers and key employees may be granted equity-based awards up to 650,000 shares of common stock. Equity-based awards granted under these plans include performance shares, performance units, and restricted stock.

Shares available for future awards as of June 30 were as follows:

	2016		2015
2010 Employee Incentive Plan		333,054		447,730
2010 Directors' Plan		144,656		171,986

Performance Stock Awards (“PSA”)

In fiscal 2016, 2015 and 2014, the Company granted a target number of 60,466, 16,261 and 17,312 PSAs, respectively, to various employees of the Company, including executive officers. The PSAs granted in fiscal 2016 will vest if the Company achieves (a) performance-based target objectives relating to average annual sales and consolidated economic profit, and (b) relative Total Shareholder Return (“TSR”) (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2018. These PSAs are subject to adjustment if the Company’s net sales, economic profit and relative TSR for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 90,699. Based upon actual results to date and the low probability of achieving the threshold performance levels, the Company is currently not accruing as compensation expense for the portion of the PSAs relating to the average annual sales and economic profit measures. The Company is currently accruing compensation expense for the TSR measure. Compensation expense relating to the relative TSR portion is recognized based on the grant date fair value over the vesting period. The PSAs granted in fiscal 2015 will vest if the Company achieves a specified target objective relating to consolidated economic profit (as defined in the PSA Grant Agreement) in the cumulative three fiscal year period ending June 30, 2017. PSAs granted in fiscal 2015 are subject to adjustment if the Company’s economic profit for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 14,101. Based upon actual results to date and the low probability of achieving the threshold performance levels, the Company is not accruing the compensation expense for these PSAs. The PSAs granted in fiscal 2014 will vest if the Company achieves a specified target objective relating to consolidated economic profit (as defined in the PSA Grant Agreement) in the cumulative three fiscal year period ending June 30, 2016. The PSAs granted in fiscal 2014 are subject to adjustment if the Company’s economic profit for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 17,038. Based upon actual results to date and the low probability of achieving the threshold performance levels, the Company is not accruing the compensation expense for these PSAs. There were 72,217, 25,949 and 44,712 unvested PSAs outstanding at June 30, 2016, 2015 and 2014, respectively. The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. The compensation expense for the year ended June 30, 2016, 2015 and 2014, related PSAs, approximated $54, $0 and $0, respectively. The weighted average grant date fair value of the unvested awards at June 30, 2016 was $17.85. At June 30, 2016, the Company had $1,235 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2016 and 2015 awards. The total fair value of performance stock awards vested in fiscal 2016, 2015 and 2014 was $0.

Performance Stock Unit Awards (“PSU”)

In fiscal 2015 and 2014, the Company granted a target number of 15,861 and 43,154 PSUs, respectively, to various employees of the Company, including executive officers. There were no grants of PSUs during fiscal 2016. The PSUs granted in fiscal 2015 will vest if the Company achieves a specified target objective relating to consolidated economic profit (as defined in the PSU Grant Agreement) in the cumulative three fiscal year period ending June 30, 2017. The PSUs granted in fiscal 2015 are subject to adjustment if the Company’s economic profit for the period falls below or exceeds the specified target objective, and the maximum number of PSUs that can be awarded if the target objective is exceeded is 13,621. Based upon actual results to date and the low probability of achieving the threshold performance levels, the Company is not accruing compensation expense for the PSUs granted in fiscal 2015. The PSUs granted in fiscal 2014 will vest if the Company achieves a specified target objective relating to consolidated economic profit (as defined in the PSU Grant Agreement) in the cumulative three fiscal year period ending June 30, 2016. The PSUs granted in fiscal 2014 are subject to adjustment if the Company’s economic profit for the period falls below or exceeds the specified target objective, and the maximum number of PSUs that can be awarded if the target objective is exceeded is 22,205. Based upon actual results to date and the low probability of achieving the threshold performance levels, the Company is not accruing compensation expense for the PSUs granted in fiscal 2014. There were 11,351, 29,855 and 41,160 unvested PSUs outstanding at June 30, 2016, 2015 and 2014, respectively. The weighted average grant date fair value of the unvested awards at June 30, 2016 was $30.16. The PSUs are remeasured at fair-value based upon the Company’s stock price at the end of each reporting period. The fair-value of the stock unit awards are expensed over the performance period for the shares that are expected to ultimately vest. The compensation expense (income) for the years ended June 30, 2016, 2015 and 2014 related to the PSU grants, were $0. At June 30, 2016, the Company had $118 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2016 awards. The total fair value of PSUs vested in fiscal 2016, 2015 and 2014 was $0. The PSUs are cash based, and are thus recorded as a liability on the Company’s Consolidated Balance Sheets. As of June 30, 2016, there were no awards included in “Liabilities” due to actual results to date and the low probability of achieving any of the threshold performance levels.

Restricted Stock Awards (“RS”)

The Company has unvested RS outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation over the vesting period, which is generally 1 to 3 years. During fiscal 2016, 2015 and 2014, the Company granted 95,738, 59,494 and 51,004 service based restricted shares, respectively, to employees and non-employee directors in each year. A total of 1,750, 46,240 and 3,000 shares of restricted stock were forfeited during fiscal 2016, 2015 and 2014, respectively. There were 142,971, 94,183 and 116,297 unvested shares outstanding at June 30, 2016, 2015 and 2014, respectively. Compensation expense of $1,241, $696 and $1,184 was recognized during the year ended June 30, 2016, 2015 and 2014, respectively, related to these service-based awards. The total fair value of restricted stock grants vested in fiscal 2016, 2015 and 2014 was $681, $993 and $3,053, respectively. As of June 30, 2016, the Company had $1,109 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Stock Options

The 2010 Directors’ Plan may grant options to purchase shares of common stock, at the discretion of the board, to non-employee directors who are elected or reelected to the board, or who continue to serve on the board. Such options carry an exercise price equal to the fair market value of the Company’s common stock as of the date of grant, vest immediately, and expire ten years after the date of grant. Options granted under the 2010 Employee Incentive Plan are determined to be non-qualified or incentive stock options as of the date of grant, and may carry a vesting schedule. For options under the 2010 Employee Incentive Plan that are intended to qualify as incentive stock options, if the optionee owns more than 10% of the total combined voting power of the Company’s stock, the price will not be less than 110% of the grant date fair market value and the options expire five years after the date of grant. There were no incentive options granted to a greater than 10% shareholder during the years presented. There were no options outstanding under the 2010 Directors’ Plan and the 2010 Employee Incentive Plan as of June 30, 2016 and 2015.

2004 Plans

The Company has 16,800 non-qualified stock options outstanding as of June 30, 2016 under the 2004 Twin Disc, Incorporated Plan for Non-Employee Directors and 2004 Twin Disc, Incorporated Stock Incentive Plan. The 2004 plans were terminated during 2011, except options then outstanding will remain so until exercised or until they expire.

Stock option transactions under the plans during 2016 were as follows:

	2016			Weighted Average Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value

Non-qualified stock options:
Options outstanding at beginning of year		19,200		$	15.96
Granted		-			-
Canceled/expired		(1,200	)		10.11
Exercised		(1,200	)		10.11
Options outstanding at June 30		16,800		$	16.80		2.64	$	2.3

Options price range ($10.01 - $27.55)

In addition, the Company computes its windfall tax pool using the shortcut method. ASC 718, “Compensation – Stock Compensation”, requires the Company to expense the cost of employee services received in exchange for an award of equity instruments using the fair-value-based method. All options were 100% vested at the adoption of this statement.

During fiscal 2016, 2015 and 2014 the Company granted no non-qualified stock options and all non-qualified stock options from prior periods have fully vested. As a result, no compensation cost has been recognized in the Consolidated Statements of Operations and Comprehensive Income for fiscal 2016, 2015 and 2014, respectively.

The total intrinsic value of options exercised during the years ended June 30, 2016, 2015 and 2014 was approximately $4, $55 and $0, respectively.