Stock Compensation Plan

During the third quarter of fiscal 2017, pursuant to the terms of the Company’s 2015 Equity Incentive Plan (the “2015 Plan”), the Company granted an aggregate of 809,554 stock options, 240,428 restricted stock units (“RSUs”) and 71,311 phantom units in the form of cash-settled RSUs. This was comprised of: (i) 809,554 stock options and 166,658 RSUs granted to certain employees including executive management as long-term incentive awards, (ii) 73,770 RSUs granted to independent members of the Board as part of their annual compensation and (iii) 71,311 phantom units granted to certain senior management level employees.

During the third quarter of fiscal 2016, the Company granted an aggregate of 938,767 stock options and 253,271 RSUs under the 2015 Plan in addition to 26,031 stock options and 5,233 RSUs under the 2006 Incentive Stock Plan. This was comprised of: (i) 782,748 stock options and 156,608 RSUs granted to certain employees including executive management as long term incentive awards, (ii) 182,050 stock options and 40,016 RSUs granted to the Chief Executive Officer which was subject to shareholder approval of the 2015 Plan pursuant to his employment agreement dated October 19, 2015 and (iii) 61,880 RSUs granted to members of the Board as part of their annual compensation.

The total fair value at the grant date of these stock options and RSUs were approximately $2.5 million and $3.8 million in fiscal 2017 and 2016, respectively. The grants for the Board members vested immediately whereas the grants for the employees will vest in tranches ratably over three years provided the employees remain employed on each of those vesting dates. The weighted average fair value per unit for the RSUs in fiscal 2017 and 2016 was $4.35 and $6.06, respectively. Compensation expense for the vested RSUs was recognized on the grant date. The stock options expire 10 years from the initial grant date and have a weighted average exercise price of $4.36 in fiscal 2017 and $6.49 in fiscal 2016. Compensation expense for the stock options and RSUs that did not immediately vest is recognized over the vesting period.

Determining Fair Value - Stock Options

The fair value of the stock option grant was estimated using the Black-Scholes option pricing model, which requires estimates of key assumptions based on both historical information and management judgment regarding market factors and trends.

Expected volatility - We developed the expected volatility by using the historical volatilities of the Company for a period equal to the expected life of the option.

Expected term - We derived our expected term assumption based on the simplified method due to a lack of historical exercise data, which results in an expected term based on the midpoint between the graded vesting dates and contractual term of an option.

Risk-free interest rate - The rates are based on the average yield of a U.S. Treasury bond, with a term that was consistent with the expected life of the stock options.

Expected dividend yield - We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield was assumed to be zero.

The weighted average assumptions used to estimate the fair value of stock options for the three months ended July 30, 2017 and July 31, 2016 were as follows:



	July 30, 2017			July 31, 2016
Fair value of stock option granted	$	1.79		$	2.32
Expected volatility	40.0		%	40.0		%
Expected term (in years)	6.0			6.0
Risk-free interest rate	1.91		%	1.29		%
Expected dividend yield	0.0		%	0.0		%

The total fair value at the grant date of the phantom units was approximately $0.3 million. The units vest in tranches ratably over three years provided the employees remain employed on each of those vesting dates. The weighted average fair value per unit was $4.35. These cash-settled awards are classified as a liability and remeasured at the end of each reporting period based on the change in fair value of one share of the Company’s common stock. Compensation expense is recognized over the vesting period. The liability and corresponding expense are adjusted accordingly until the awards are settled.

The total stock compensation expense for the three and nine months ended July 30, 2017 was $0.9 million and $2.1 million, respectively, and for the three and nine months ended July 31, 2016 was $0.6 million and $1.0 million, respectively. Stock compensation expense was recognized in Selling, administrative and other operating costs in the Company’s Condensed Consolidated Statements of Operations. As of July 30, 2017, total unrecognized compensation expense of $3.4 million related to stock options and RSUs and of $0.2 million related to the phantom units will be recognized over the remaining weighted average vesting period of 3 years, of which $0.7 million, $2.0 million, $0.8 million and $0.1 million is expected to be recognized in fiscal 2017, 2018, 2019 and 2020, respectively.