Share-based Compensation

Farmer Bros. Co. 2017 Long-Term Incentive Plan

As of September 30, 2019, there were 616,166 shares available under the 2017 Plan including shares that were forfeited under the Prior Plans for future issuance.

Non-qualified stock options with time-based vesting (“NQOs”)

One-third of the total number of shares subject to each stock option vest ratably on each of the first three anniversaries of the grant date, contingent on continued employment, and subject to accelerated vesting in certain circumstances.

Following are the assumptions used in the Black-Scholes valuation model for NQOs granted during the three months ended September 30, 2019:



	Three Months Ended September 30, 2019
Weighted average fair value of NQOs	$	4.47
Risk-free interest rate	1.8		%
Dividend yield	—		%
Average expected term	4.7 years
Expected stock price volatility	37.0		%

The following table summarizes NQO activity for the three months ended September 30, 2019:



Outstanding NQOs:	Number of NQOs		Weighted Average Exercise Price ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2019	198,049		27.35	5.25	40
Granted	223,713		13.13	—	—
Exercised	—		—	—	—
Forfeited	(68,842	)	27.40	—	—
Expired	(12,946	)	31.70	—	—
Outstanding at September 30, 2019	339,974		17.82	6.12	6
Exercisable at September 30, 2019	37,283		26.33	1.71	6

The weighted-average grant-date fair value of options granted during the three months ended September 30, 2019 was $4.60. The aggregate intrinsic values outstanding at the end of period in the table above represent the total pretax intrinsic values, based on the Company’s closing stock price of $12.95 at September 30, 2019 and $16.37 at June 29, 2019, representing the last trading day of the respective periods, which would have been received by NQO holders had all award holders exercised their NQOs that were in-the-money as of those dates. The aggregate intrinsic value of NQO exercises in the three months ended September 30, 2019 represents the difference between the exercise price and the value of the Company’s common stock at the time of exercise. NQOs outstanding that are expected to vest are net of estimated forfeitures.

There were no options exercised during the three months ended September 30, 2019. The Company received $0.3 million in proceeds from exercises of vested NQOs during the three months ended September 30, 2018.

At September 30, 2019 and June 30, 2019, respectively, there was $1.4 million and $1.1 million of unrecognized NQO compensation cost. The unrecognized NQO compensation cost at September 30, 2019 is expected to be recognized over the weighted average period of 2.6 years. Total compensation expense for NQOs were $0.1 million for each of the three months ended September 30, 2019 and 2018.

Non-qualified stock options with performance-based and time-based vesting (“PNQs”)

The following table summarizes PNQ activity for the three months ended September 30, 2019:



Outstanding PNQs:	Number of PNQs		Weighted Average Exercise Price ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2019	229,961		26.21	1.23	—
Granted	—		—	—	—
Exercised	—		—	—	—
Forfeited	(6,212	)	32.85	—	—
Expired	(149,031	)	25.05	—	—
Outstanding at September 30, 2019	74,718		27.95	1.00	—
Exercisable at September 30, 2019	53,990		26.65	0.78	—

The aggregate intrinsic values outstanding at the end of each fiscal period in the table above represent the total pretax intrinsic values, based on the Company’s closing stock price of $12.95 at September 30, 2019 and $16.37 at June 29, 2019, representing the last trading day of the respective fiscal periods, which would have been received by PNQ holders had all award holders exercised their PNQs that were in-the-money as of those dates. The aggregate intrinsic value of PNQ exercises in the three months ended September 30, 2019 represents the difference between the exercise price and the value of the Company’s common stock at the time of exercise. PNQs outstanding that are expected to vest are net of estimated forfeitures.

There were no options exercised during the three months ended September 30, 2019. The Company received $38,455 in proceeds from exercises of vested PNQs during the three months ended September 30, 2018.

At September 30, 2019 and June 30, 2019, there was $4.6 thousand and $39.7 thousand, respectively, of unrecognized PNQ compensation cost. The unrecognized PNQ compensation cost at September 30, 2019 is expected to be recognized over the weighted average period of 0.1 years. Total compensation expense related to PNQs in the three months ended September 30, 2019 and 2018 was $13.7 thousand and $0.1 million, respectively.

Restricted Stock

The following table summarizes restricted stock activity for the three months ended September 30, 2019:



Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded		Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2019	32,056		21.10
Granted	7,370		13.56
Vested/Released	—		—
Cancelled/Forfeited	(757	)	31.70
Outstanding and nonvested at March 31, 2019	38,669		20.22

The total grant-date fair value of restricted stock granted during the three months ended September 30, 2019 was $0.1 million.

At September 30, 2019 and June 30, 2019, there were each $0.3 million of unrecognized compensation cost related to restricted stock. The unrecognized compensation cost related to restricted stock at September 30, 2019 is expected to be recognized over the weighted average period of 0.5 years. Total compensation expense for restricted stock were $0.2 million and $0.1 million, respectively, in the three months ended September 30, 2019 and 2018.

Performance-Based Restricted Stock Units (“PBRSUs”)

The following table summarizes PBRSU activity for the three months ended September 30, 2019:



Outstanding and Nonvested PBRSUs:	PBRSUs Awarded(1)		Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2019	51,237		27.69
Granted(1)	38,080		13.13
Vested/Released	—		—
Cancelled/Forfeited	(24,254	)	27.91
Outstanding and nonvested at September 30, 2019	65,063		27.57
Expected to vest at September 30, 2019	—		—

_____________

(1) The target number of PBRSUs is presented in the table. Under the terms of the awards, the recipient may earn between 0% and 150% of the target number of PBRSUs depending on the extent to which the Company meets or exceeds the achievement of the applicable financial performance goals.

The total grant-date fair value of PBRSUs granted during the three months ended September 30, 2019 was $0.5 million.

At September 30, 2019 and June 30, 2019, there was $0.7 million and $0.3 million, respectively, of unrecognized PBRSU compensation cost. The unrecognized PBRSU compensation cost at September 30, 2019 is expected to be recognized over the weighted average period of 2.5 years. Total compensation expense for PBRSUs were $32.9 thousand and $82.0 thousand, respectively, for the three months ended September 30, 2019 and 2018.