Capital Stock and Stock Compensation

We account for our

stock-based employee and director compensation plans in accordance with ASC

718,

Compensation – Stock Compensation

. ASC

718

requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period) which we recognize on a straight-line basis. Compensation expense related to restricted stock and stock options included in selling, general and administrative expenses in our consolidated statements of income for fiscal

2017,

2016

and

2015

was as follows:

	2017		2016		2015

Stock based compensation expense	$	1,028	$	903	$	894

Incentive

Stock Compensation Plans

1997,

we adopted an

Employee Stock Plan (the

“1997

Plan”), and reserved for issuance

950,000

shares of common stock. An additional

500,000

shares of common stock were authorized for issuance in

2000.

In addition, the terms of the

1997

Plan allow for the re-issuance of any stock options which have been forfeited before being exercised. Options granted under the

1997

Plan

may

be for such terms and exercised at such times as determined by the Organization, Compensation, and Nominating Committee of the Board of Directors. There are

shares available for grant under the

1997

Plan at

November 25, 2017,

and as of that date all previously outstanding awards under the

1997

Plan have been either exercised or have expired.

April

14,

2010,

our shareholders approved the Bassett Furniture Industries, Incorporated

2010

Stock Incentive Plan which was amended and restated effective

January 13, 2016 (

the

“2010

Plan”). All present and future non-employee directors, key employees and outside consultants for the Company are eligible to receive incentive awards under the

2010

Plan. Our Organization, Compensation and Nominating Committee (the “Compensation Committee”) selects eligible key employees and outside consultants to receive awards under the

2010

Plan in its discretion. Our Board of Directors or any committee designated by the Board of Directors selects eligible non-employee directors to receive awards under the

2010

Plan in its discretion.

1,250,000

shares of common stock are reserved for issuance under the

2010

Plan as amended. Participants

may

receive the following types of incentive awards under the

2010

Plan: stock options, stock appreciation rights, payment shares, restricted stock, restricted stock units and performance shares. Stock options

may

be incentive stock options or non-qualified stock options. Stock appreciation rights

may

be granted in tandem with stock options or as a freestanding award. Non-employee directors and outside consultants are eligible to receive restricted stock and restricted stock units only. We expect to issue new common stock upon the exercise of options.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The risk free rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based on the average long-term implied volatilities of peer companies, the expected life is based on the estimated average of the life of options

using the simplified method. Forfeitures are recognized as they occur. We utilize the simplified method to determine the expected life of our options due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns.

Stock Options

There were

new grants of options made in

201

2016

2015.

Changes in the outstanding options under our plans during the year ended

November 2

2017

were as follows:

	Number of Shares			Weighted Average Exercise Price Per Share

Outstanding at November 26, 2016		66,250		$	10.57
Granted		-			-
Exercised		(26,500	)		11.68
Forfeited/Expired		(28,000	)		10.60
Outstanding at November 25, 2017		11,750			8.02
Exercisable at November 25, 2017		11,750		$	8.02

All remaining options outstanding at

November 25, 2017

are exercisable at

$8.02

per share with a remaining contractual life of

3.6

years and

an aggregate intrinsic value of

$366.

There were

non-vested options outstanding under our plans during the year ended

November 25, 2017.

Additional information regarding activity in our stock options during fiscal

2017,

2016

and

2015

is as follows:

	2017		2016		2015

Total intrinsic value of options exercised	$	564	$	124	$	5,934
Total fair value of options vested		-		-		87
Total cash received from the exercise of options		310		114		4,031
Excess tax benefits recognized as additional paid-in capital upon the exercise of options (1)		-		-		1,899
Excess tax benefits recognized in income tax expense upon the exercise of options		188		41		-

(

) Prior to the adoption of ASU

2016

in fiscal

2016.

Subsequent to adoption, all excess tax benefits are included as a component of the provision for income taxes.

Restricted Shares

Changes in the outstanding non-vested restricted shares during the year ended

November 2

2017

were as follows:

	Number of Shares			Weighted Average Grant Date Fair Value Per Share

Non-vested restricted shares outstanding at November 26, 2016		123,014		$	17.99
Granted		42,538			28.70
Vested		(66,414	)		16.07
Forfeited		-			-
Non-vested restricted shares outstanding at November 25, 2017		99,138		$	23.87

Restricted share awards granted in fiscal

201

included the grant of

36,000

shares on

January 10, 2017

which were subject to a performance condition as well as a service condition. The performance condition was based on a measure of the Company’s operating cash flow for

2017

and has now been satisfied. The awards will remain subject to an additional

two

-year service requirement and will vest on the

third

anniversary of the grant. The remaining grants for

2017

consisted of

6,538

restricted shares granted to our non-employee directors on

March 8, 2017

which will vest on the

first

anniversary of the grant.

During fiscal

201

66,414

restricted shares were vested and released, of which

60,600

shares had been granted to employees and

5,814

shares to directors. Of the shares released to employees,

21,210

shares were withheld by the Company to cover withholding taxes of

$641.

During fiscal

2016

and

2015,

2,940

shares and

4,836

shares, respectively, were withheld to cover withholding taxes of

$77

and

$154,

respectively, arising from the vesting of restricted shares. During fiscal

2017

and

2016,

excess tax benefits of

$366

and

$46,

respectively, were recognized within income tax expense upon the release of vested shares. Prior to the adoption of ASU

2016

09,

excess tax benefits of

$99

were recognized during fiscal

2015

as additional paid-in capital upon the release of vested shares.

Additional information regarding our outstanding non-vested restricted shares at

November 2

2017

is as follows:

					Remaining
	Restricted		Share Value		Restriction
Grant	Shares		at Grant Date		Period
Date	Outstanding		Per Share		(Years)


July 17, 2013		12,600	$	16.64		0.6
January 14, 2015		40,000		20.21		0.1
July 14, 2015		2,000		38.02		0.6
July 12, 2016		2,000		25.88		0.6
January 10, 2017		36,000		29.05		2.1
March 8, 2017		6,538		26.77		0.3
		99,138

Unrecognized compensation cost related to these non-vested restricted shares at

November 2

2017

$910,

expected to be recognized over approximately a

two

year period.

Employee Stock Purchase Plan

2000,

we adopted and implemented an Employee Stock Purchase Plan (“

2000

ESPP”) that allows eligible employees to purchase a limited number of shares of our stock at

85%

of market value. Under the

2000

ESPP we sold

8,502

and

19,053

shares to employees in fiscal

2016

and

2015,

respectively, which resulted in an immaterial amount of compensation expense. The

2000

ESPP reached the cumulative number of shares authorized for purchase under the plan during the

third

quarter of fiscal

2016.

March

2017

we adopted and implemented the

2017

Employee Stock Purchase Plan (

“2017

ESPP”)

that allows eligible employees to purchase a limited number of shares of our stock at

85%

of market value. Under the

2017

ESPP we sold

6,275

shares to employees during fiscal

2017

which resulted in an immaterial amount of compensation expense. There are

243,725

shares remaining available for sale under the

2017

ESPP at

November 25, 2017.