4. Stock-Based Compensation

Through the end of the second quarter of fiscal 2016, the Company’s 2006 Incentive Compensation Plan (as amended and restated effective as of August 1, 2013, the “2006 Plan”) was the only stockholder-approved plan. The 2006 Plan expired on July 31, 2016. In the third quarter of fiscal 2016, at the Company’s 2016 Annual Meeting of Stockholders held August 4, 2016, the Company’s stockholders approved the adoption of the 2016 Incentive Compensation Plan (the “2016 Plan”).

2016 Plan

The initial share reserve under the 2016 Plan, including the rollover of 525,538 available shares under our 2006 Plan was 5,725,538 shares of our common stock. A grant of a stock option award or stock appreciation right will reduce the outstanding reserve on a one-for-one basis, meaning one share for every share granted. A grant of a full-value award, including, but not limited to, restricted stock, restricted stock units and deferred stock, will reduce the outstanding reserve by a fixed ratio of 1.9 shares for every share granted. In accordance with the terms of the 2016 Plan, any shares outstanding under the 2006 Plan at August 4, 2016 that subsequently terminate, expire or are canceled for any reason without having been exercised or paid are added back and become available for issuance under the 2016 Plan, with options and stock appreciation rights being added back on a one-for-one basis and full-value awards being added back on a 1 to 1.9 basis. At October 28, 2017, the Company had 6,437,283 shares available under the 2016 Plan.

The 2016 Plan is administered by the Compensation Committee. The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards. Options are not granted at a price less than fair value on the date of the grant. Except with respect to 5% of the shares available for awards under the 2016 Plan, no award will become exercisable unless such award has been outstanding for a minimum period of one year from its date of grant.

The following tables summarize the share activity and stock option activity for the Company’s 2006 Plan and 2016 Plan, on a combined basis, for the first nine months of fiscal 2017:

	Restricted shares			Restricted Stock Units ⁽¹⁾			Deferred shares ⁽²⁾			Fully-vested shares ⁽³⁾			Total number of shares			Weighted-average grant-date fair value ⁽⁴⁾
Shares
Outstanding non-vested shares at beginning of year		856,332			369,828			64,876			—			1,291,036		$	5.09
Shares granted		484,558			804,701			74,968			66,325			1,430,552		$	2.68
Shares vested/issued		(430,336	)		(27,697	)		(44,599	)		(66,325	)		(568,957	)	$	2.66
Shares canceled		(857,221	)		(37,649	)		—			—			(894,870	)	$	4.94
Outstanding non-vested shares at end of quarter		53,333			1,109,183			95,245			—			1,257,761		$	3.52

(1)

Restricted Stock Units (“RSUs”) were primarily granted in connection with the 2017-2018 LTIP. The RSUs will vest in two tranches with the first 50% vesting on April 1, 2019 and the second 50% vesting on April 1, 2020.

(2)

The 74,968 shares of deferred stock, with a fair value of $182,852, represent compensation to certain directors in lieu of cash, in accordance with their irrevocable elections. The shares of deferred stock will vest three years from the date of grant or at separation of service, based on the irrevocable election of each director.

(3)

During the first nine months of fiscal 2017, the Company granted 66,325 shares of stock, with a fair value of approximately $166,139, to certain directors as compensation in lieu of cash, in accordance with their irrevocable elections. Directors are required to elect 50% of their quarterly retainer in equity. Any shares in excess of the minimum required election are issued from the Company’s Third Amendment to the Second Amended and Restated Non-Employee Director Compensation Plan (“Non-Employee Director Compensation Plan”).

(4)

The fair value of a restricted share, deferred share and fully-vested share is equal to the Company’s closing stock price on the day immediately preceding the date of grant.

	Number of shares			Weighted-average exercise price per option		Weighted-average remaining contractual term	Aggregate intrinsic value
Stock Options
Outstanding options at beginning of year		2,524,546		$	4.98		$	11,286
Options granted		30,000		$	1.85
Options canceled		(1,259,579	)	$	5.05
Options exercised		—			—
Outstanding options at end of quarter		1,294,967		$	4.82	4.8 years	$	3,000
Options exercisable at end of quarter		1,294,967		$	4.82	4.8 years

Valuation Assumptions

For the first nine months of fiscal 2017, the Company granted 30,000 stock options, 484,558 shares of restricted stock, 804,701 RSUs and 74,968 shares of deferred stock. For the first nine months of fiscal 2016, the Company granted 8,522 stock options, 3,834 shares of restricted stock, 431,270 RSUs and 23,570 shares of deferred stock.

Unless otherwise specified by the Compensation Committee, RSUs, restricted stock and deferred stock are valued using the closing price of the Company’s common stock on the day immediately preceding the date of grant.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for grants for the first nine months of fiscal 2017 and fiscal 2016:

	October 28, 2017			October 29, 2016
Expected volatility		49.9	%		39.3	%
Risk-free interest rate		1.44	%	0.78%
Expected life	3.0 yrs			2.0 yrs
Dividend rate		—			—

Non-Employee Director Compensation Plan

The Company granted 29,425 shares of common stock, with a fair value of approximately $71,454, to certain of its non-employee directors as compensation in lieu of cash in the first nine months of fiscal 2017.

Stock Compensation Expense

The Company recognized total stock-based compensation expense of $1.3 million and $1.1 million for the first nine months of fiscal 2017 and fiscal 2016, respectively. The total compensation cost related to time-vested stock options, restricted stock and RSU awards not yet recognized as of October 28, 2017 was approximately $2.4 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 22 months.