9. Stock-Based Compensation Plans

Stock Options and Restricted Stock

The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2014 Plan equals the sum of: (1) 2,400,000 shares, plus (2) the number of shares subject to stock options granted under the Resources Connection, Inc. 2004 Performance Incentive Plan and the 1999 Long Term Incentive Plan (together the “Prior Stock Plans”) and outstanding as of September 3, 2014 (the date at which the Prior Stock Plans terminated), which expire, or for any reason are cancelled or terminated, after that date without being exercised, plus (3) the number of shares subject to restricted stock, RSUs and other full-value awards granted under the Prior Stock Plans that were outstanding and unvested as of September 3, 2014, which are forfeited, terminated, cancelled, or otherwise reacquired after that date without having become vested. As of February 23, 2019, 1,506,000 shares were available for award grant purposes under the 2014 Plan, subject to future increases as described in (2) and (3) above and subject to increase as then-outstanding awards expire or terminate without having become vested or exercised, as applicable.

Awards under the 2014 Plan may include, but are not limited to, stock options, RSUs and restricted stock grants. Stock option grants generally vest in equal annual installments over four years and terminate ten years from the date of grant. Restricted stock award vesting is determined on an individual grant basis. Awards of restricted stock under the 2014 Plan will be counted against the available share limit as two and a half shares for every one share actually issued in connection with the award. The Company’s policy is to issue shares from its authorized shares upon the exercise of stock options.

The following table summarizes the stock option activity for the nine months ended February 23, 2019 (number of shares under option and aggregate intrinsic value in thousands):



	Number of Shares Under Option	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at May 26, 2018	6,869	$	15.10	5.50	$	12,310
Granted, at fair market value	1,290		18.96
Exercised	(1,392)		13.74
Forfeited	(193)		15.65
Expired	(404)		18.89
Outstanding at February 23, 2019	6,170	$	15.95	6.29	$	12,956
Exercisable at February 23, 2019	3,644	$	15.10	4.54	$	10,205
Vested and expected to vest at February 23, 2019	5,858	$	15.83	6.13	$	12,794

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, which is the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal 2019 and the exercise price multiplied by the number of shares that would have been received by the option holders if they had exercised their “in the money” options on February 23, 2019. This amount will change based on changes in the fair market value of the Company’s common stock. The total pre-tax intrinsic value related to stock options exercised during the three months ended February 23, 2019 and February 24, 2018 was $1.9 million and $0.9 million, respectively, and during the nine months ended February 23, 2019 and February 24, 2018 was $5.0 million and $1.3 million, respectively.

Stock-Based Compensation Expense

As of February 23, 2019, there was $9.3 million of total unrecognized compensation cost related to unvested employee stock options granted. That cost is expected to be recognized over a weighted-average period of 36 months. Stock-based compensation expense included in selling, general and administrative expenses was $1.9 million and $1.4 million for the three months ended February 23, 2019 and February 24, 2018, respectively, and $5.0 million and $4.5 million for the nine months ended February 23, 2019 and February 24, 2018, respectively. These amounts consisted of stock-based compensation expense related to employee stock options, employee stock purchases made via the ESPP and restricted stock awards. In addition, commencing in the third quarter of fiscal 2018, stock-based compensation expense includes expense related to stock units credited under the Directors Deferred Compensation Plan. For the three and nine months ended February 23, 2019, this expense was $83,000 and $157,000, respectively, and $18,000 for both the three and nine months ended February 24, 2018. As of February 23, 2019, there were 77,789 stock units not vested, with approximately $1.2 million of remaining unrecognized compensation cost. There were no capitalized share-based compensation costs during the nine months ended February 23, 2019 or February 24, 2018.

The Company granted 21,537 shares of restricted stock during the three and nine months ended February 23, 2019 and granted 37,778 shares and 117,588 of restricted stock during the three and nine months ended February 24, 2018, respectively. Stock-based compensation expense for restricted stock awards was $0.4 million for both the three months ended February 23, 2019 and February 24, 2018, and $1.2 million and $1.0 million for the nine months ended February 23, 2019 and February 24, 2018, respectively. As of February 23, 2019, there were 158,926 unvested restricted shares, with approximately $2.2 million of remaining unrecognized compensation cost.

The Company recognizes compensation expense for only the portion of stock options and restricted stock that is expected to vest, rather than recording forfeitures when they occur. If the actual number of forfeitures differs from that estimated by management, additional adjustments to compensation expense may be required in future periods.

Employee Stock Purchase Plan

The ESPP allows qualified employees (as defined in the ESPP) to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of common stock at the beginning or end of each semi-annual stock purchase period. The ESPP’s term expires October 16, 2024. A total of 5,900,000 shares of common stock may be issued under the ESPP. The Company issued 359,000 and 338,000 shares of common stock pursuant to the ESPP during the nine months ended February 23, 2019 and the year ended May 26, 2018, respectively. There were 221,000 shares of common stock available for issuance under the ESPP as of February 23, 2019.