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Stock Compensation Plan
9 Months Ended
Jul. 29, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Compensation Plan
Stock Compensation Plan    

During the third quarter of fiscal 2018, pursuant to the terms of the Company’s 2015 Equity Incentive Plan (the “2015 Plan”), the Company granted long-term incentive awards in the aggregate of 276,396 performance stock units (“PSUs”) to executive management and 343,596 restricted stock units (“RSUs”) to certain employees including executive management.
Vesting of the PSUs is dependent on the achievement of target stock prices at the end of each of the one-year, two-year and three-year performance periods. The target stock price will be based on the average stock price of the last 20 trading days of the applicable measurement period. The PSUs will be eligible to vest in three equal tranches at the end of each performance period subject to meeting the target stock price goals, including a minimum threshold which must be reached for any vesting to occur and also subject to the employee’s continued employment with the Company on each of the vesting dates. The payout percentages can range from 0% to 200%.

The RSUs will vest in equal installments on the first three anniversaries of the grant date subject to the employee’s continued employment with the Company on each of the vesting dates.

Upon vesting, the PSUs and RSUs may be settled in either cash or stock at the Company’s election, with any stock settlement being subject to the Company having a sufficient number of shares available under its equity incentive plan to satisfy such awards. Any PSUs or RSUs settled in cash will be capped at two times the Company’s closing stock price on the grant date, multiplied by the number of PSUs or RSUs vesting.
The total fair value at the grant date of these PSUs and RSUs was approximately $0.9 million and $1.1 million, respectively. The grant date fair values were determined through a Monte Carlo simulation using the following assumptions: the closing stock price on the grant date of June 14, 2018, an expected volatility of 58.3%, a risk-free interest rate of 2.67% and an expected term of three years.
These awards are classified as a liability at fair value and re-measured periodically based on the effect that the market condition has on these awards. The liability and corresponding expense are adjusted accordingly until the awards are settled. The stock compensation cost is recognized over the related service or performance periods.
Additionally, on June 29, 2018, the Company's former chief executive officer entered into a separation agreement that included terms related to his stock-based awards. Pursuant to its terms, an aggregate of 721,731 stock options were cancelled and 159,443 restricted stock units and 424,710 stock options became fully vested. The options remain exercisable for 12 months following his separation from the Company on June 6, 2018.
During the third quarter of fiscal 2017, pursuant to the terms of the 2015 Plan, the Company granted an aggregate of 809,554 stock options, 240,428 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.
The total fair value at the grant date of these stock options and RSUs were approximately $2.5 million in fiscal 2017. The grants 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 was $4.35. 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. Compensation expense for the stock options and RSUs is recognized over the vesting period.

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. We developed the expected volatility by using the historical volatilities of the Company for a period equal to the expected life of the option. 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. The risk-free interest rate is 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. 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 were as follows: fair value of stock option granted of $1.79, expected volatility of 40%, expected term of 6 years and a risk-free interest rate of 1.91%.

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 29, 2018 was $(0.3) million and $0.7 million, respectively, and for the three and nine months ended July 30, 2017 was $0.9 million and $2.1 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 29, 2018, total unrecognized compensation expense of $2.8 million related to PSUs, stock options, RSUs and phantom units will be recognized over the remaining weighted average vesting period of 1.5 years, of which $0.5 million, $1.5 million, $0.6 million and $0.2 million is expected to be recognized in fiscal 2018, 2019, 2020 and 2021, respectively.