12. STOCK-BASED COMPENSATION

Equity Incentive Plan Description

On September 16, 2015, our shareholders approved an equity incentive plan entitled the Culp, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan is intended to update and replace our 2007 Equity Incentive Plan (the “2007 Plan”) as the vehicle for granting new equity based awards substantially similar to those authorized under the 2007 Plan. In general, the 2015 Plan authorizes the grant of stock options intended to qualify as incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other equity and cash related awards as determined by our Compensation Committee. An aggregate of 1,200,000 shares of common stock were authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan. In connection with the approval of the 2015 Plan, no further awards will be granted under the 2007 Plan, but outstanding awards under the 2007 Plan will be settled in accordance with their terms.

At May 1, 2016, there were 1,079,809 shares available for future equity based grants under the company’s 2015 Plan.

Stock Options

Under our 2007 Plan, employees, outside directors, and others associated with the company were granted options to purchase shares of common stock at the fair market value on the date of grant.

No incentive or non-qualified stock options were granted in fiscal 2016, 2015 or 2014, respectively.

No compensation expense was recorded for incentive or non-qualified stock options in fiscal 2016 and 2015 as all incentive stock option awards were fully vested at the end of fiscal 2014. The company recorded compensation expense of $10,000 within selling, general, and administrative expense for incentive stock options in fiscal 2014.

The following tables summarize stock option activity for fiscal 2016, 2015, and 2014:

	2016					2015					2014
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
outstanding at beginning
of year		140,100		$	6.49		153,950		$	6.70		182,825		$	6.99
granted		-			-		-			-		-			-
exercised		(54,500	)		3.68		(10,100	)		9.31		(23,125	)		8.40
canceled/expired		(2,000	)		4.59		(3,750	)		7.27		(5,750	)		9.28
outstanding at end of year		83,600			8.37		140,100			6.49		153,950			6.70

	Options Outstanding						Options Exercisable
Range of	Number		Weighted-Avg.				Number
Range of	Outstanding		Remaining		Weighted-Avg.		Exercisable		Weighted-Avg.
Exercise Prices	at 5/01/16		Contractual Life		Exercise Price		at 5/01/16		Exercise Price
$4.59 - $5.41		2,000		0.4	$	5.41		2,000	$	5.41
$7.08 - $9.57		81,600		1.3	$	8.44		81,600	$	8.44
		83,600		1.3	$	8.37		83,600	$	8.37

At May 1, 2016, the aggregate intrinsic value for options outstanding and exercisable was $1.5 million.

The aggregate intrinsic value for options exercised was $1.3 million, $87,000, and $224,000, in fiscal 2016, 2015, and 2014, respectively.

At May 1, 2016, there were no unvested incentive stock option awards. Therefore, there was no unrecognized compensation cost related to the incentive stock option awards at May 1, 2016.

Time Vested Restricted Stock Awards

On July 1, 2009 (fiscal 2010), two executive officers were granted 80,000 shares of time vested restricted common stock. This time vested restricted stock award vested in equal one-third installments on July 1, 2012, 2013, and 2014. The fair value (the closing price of the company’s common stock) of this restricted stock award is measured at the date of grant (July 1, 2009) and was $5.08 per share.

On January 7, 2009 (fiscal 2009), certain key management employees and a non-employee were granted 115,000 shares of time vested restricted common stock. Of these 115,000 shares, 105,000 and 10,000 were granted to employees and a non-employee, respectively. This time vested restricted stock award vested in equal one-third installments on May 1, 2012, 2013, and 2014. The fair value (the closing price of the company’s common stock) of this restricted stock award for key management employees was measured at the date of grant (January 7, 2009) and was $1.88 per share. The fair value (the closing price of the company’s common stock) of this restricted stock award for the non-employee is measured at the earlier date when the service period is met or the end of each reporting period. The fair value of the one-third installment that vested on May 1, 2012, May 1, 2013, and May 1, 2014 was $11.05, $16.25, and $18.61, respectively.

The following table summarizes the time vested restricted stock activity for fiscal 2016, 2015, and 2014:

	2016 Shares		2015 Shares			2014 Shares
outstanding at beginning of year		-		61,668			123,335
granted		-		-			-
vested		-		(61,668	)		(61,667	)
outstanding at end of year		-		-			61,668

During fiscal 2015, 61,668 shares of time vested restricted stock vested and had a weighted average fair value of $257,000 or $4.17 per share. During fiscal 2014, 61,667 shares of time vested restricted stock vested and had a weighted average fair value of $249,000 or $4.04 per share.

At April 27, 2014, there were 61,668 shares of time vested restricted stock outstanding and unvested. Of the 61,668 shares outstanding and unvested, 35,000 shares were granted on January 7, 2009 and 26,668 shares were granted on July 1, 2009. At April 27, 2014, the weighted average fair value of these outstanding and unvested shares was $4.17 per share.

At May 1, 2016, there were no outstanding and unvested shares of time vested restricted stock. Therefore, there was no unrecognized compensation cost related to time vested restricted stock awards at May 1, 2016.

No compensation expense was recorded for time vested restricted stock awards in fiscal 2016 as all time vested restricted stock awards were fully vested at the end of fiscal 2015. We recorded compensation expense of $4,000 and $62,000 within selling, general, and administrative expense for time vested restricted stock awards in fiscal 2015 and 2014, respectively.

Performance Based Restricted Stock Units

Fiscal 2016 Grant

On July 15, 2015, certain key members of management were granted performance based restricted stock units which could earn up to 107,554 shares of common stock if certain performance targets are met as defined in the related restricted stock unit agreements. These awards were valued based on the fair market value on the date of grant. The fair value of these awards was $32.23 per share, which represents the closing price of our common stock on the date of grant. The vesting of these awards is over the requisite service period of three years.

On July 15, 2015, a non-employee was granted performance based restricted stock units which could earn up to 10,364 shares of common stock if certain performance targets are met as defined in the related restricted stock unit agreement. The fair value of this award is measured at the earlier date of when the performance criteria are met or the end of the reporting period. At May 1, 2016, this grant was unvested and was measured at $26.24 per share, which represents the closing price of our common stock at the end of the reporting period. The vesting of this award is over the requisite service period of three years.

Fiscal 2015

On June 24, 2014, certain key members of management were granted performance based restricted common stock units which could earn up to 102,845 shares of common stock if certain performance targets are met as defined in the related restricted stock unit agreements. These awards were valued based on the fair market value on the date of grant. The fair value of these awards was $17.70 per share, which represents the closing price of our common stock on the date of grant. The vesting of these awards is over the requisite service period of three years.

On March 3, 2015, a non-employee was granted performance based restricted stock units which could earn up to 28,000 shares of common stock if certain performance targets are met as defined in the related restricted stock unit agreements. The fair value of this award is measured at the earlier date of when the performance criteria are met or the end of the reporting period. At May 1, 2016, this grant was unvested and was measured at $26.24 per share, which represents the closing price of the company’s common stock at the end of the reporting period. The vesting of these awards is over the requisite service period of 16 months and 28 months for performance based restricted stock units which could earn up to 12,000 and 16,000 shares of common stock, respectively.

During the first quarter of fiscal 2017, 12,000 shares of common stock associated with this grant vested and had a weighted average fair value of $345,000 or $28.77 per share.

Fiscal 2014

On June 25, 2013, certain key members of management were granted performance based restricted common stock units which could earn up to 72,380 shares of common stock if certain performance targets are met as defined in the related restricted stock unit agreements. These awards were valued based on the fair market value on the date of grant. The fair value of these awards was $17.12 per share, which represents the closing price of our common stock on the date of grant. The vesting of these awards is over the requisite service period of three years.

During the first quarter of fiscal 2017, 37,192 shares of common stock associated with this grant vested and had a weighted average fair value of $637,000 or $17.12 per share.

Fiscal 2013

On July 11, 2012, certain key members of management were granted performance based restricted common stock units which could earn up to 120,000 shares of common stock if certain performance targets are met as defined in the related restricted stock unit agreements. These awards were valued based on the fair market value on the date of grant. The fair value of these awards was $10.21 per share, which represents the closing price of our common stock on the date of grant. The vesting of these awards is over the requisite service period of three years.

During the first quarter of fiscal 2016, 115,855 shares of common stock associated with this grant vested and had a weighted average fair value of $1.2 million or $10.21 per share

Overall

We recorded compensation expense of $2.6 million, $727,000, and $581,000 within selling, general, and administrative expense for performance based restricted stock units in fiscal 2016, 2015 and 2014, respectively. Compensation cost is recorded based on an assessment each reporting period of the probability that certain performance goals will be met during the vesting period. If performance goals are not probable of occurrence, no compensation cost will be recognized and any recognized compensation cost would be reversed.

At May 1, 2016, the remaining unrecognized compensation cost related to the performance based restricted stock units was $3.7 million, which is expected to be recognized over a weighted average vesting period of 1.9 years.

Common Stock Awards

On October 1, 2015, we granted a total of 3,000 shares of common stock to our outside directors. These shares of common stock vested immediately and were measured at $31.77 per share, which represents the closing price of the company's common stock at the date of grant.

On October 1, 2014, we granted a total of 3,000 shares of common stock to our outside directors. These shares of common stock vested immediately and were measured at $17.95 per share, which represents the closing price of the company's common stock at the date of grant.

On October 1, 2013, we granted a total of 3,000 shares of common stock to our outside directors. These shares of common stock vested immediately and were measured at $18.84 per share, which represents the closing price of the company's common stock at the date of grant.

We recorded $95,000, $55,000, and $57,000, of compensation expense within selling, general, and administrative expense for these common stock awards for fiscal 2016, 2015, and 2014, respectively.