In connection with the Separation, we adjusted our outstanding share-based awards in accordance with the terms of the Employee Matters Agreement. Adjustments to the underlying shares and terms of outstanding non-qualified stock options, services-based restricted common shares, and performance share awards were made to preserve the intrinsic value of the awards immediately before the Separation. The adjustment of the underlying shares and exercise prices, as applicable, was determined using a ratio based on the relative values of our pre-Distribution common share price and our post-Distribution common share price.

The table below summarizes our stock option activity during the nine months ended February 29, 2024:


				Weighted
				Average
	Stock			Exercise
(In thousands, except per common share amounts)	Options			Price
Outstanding - June 1, 2023		573		$	42.61
Converted to Worthington Steel common shares (1)		(61	)		51.44
Separation related adjustment		254			-
Granted		58			68.68
Exercised		(126	)		39.73
Forfeited		(7	)		45.91
Outstanding - February 29, 2024		691		$	28.83

(1)

Effective as of the Distribution, each outstanding stock option held by a then-current or former employee or service provider of Worthington Steel was converted into a stock option denominated in the common shares of Worthington Steel.

During the nine months ended February 29, 2024, we granted non-qualified stock options covering a total of 58 common shares under our stock-based compensation plans. For each grant, the exercise price was equal to the closing market price of the underlying common shares at the respective grant date. The weighted average fair value of these non-qualified stock options, based on the Black-Scholes option-pricing model, calculated at the grant date, was $25.61 per share. The calculated pre-tax stock-based compensation expense for these non-qualified stock options was $1,485 and will be recognized on a straight-line basis over the three-year vesting period, net of any forfeitures. The weighted average fair value of stock options granted during the nine months ended February 29, 2024 was based on the following assumptions:


Dividend yield	2.34	%
Expected volatility	42.62	%
Risk-free interest rate	4.04	%
Expected term (years)	6.0

Expected volatility is based on the historical volatility of the common shares and the risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the non-qualified stock options. The expected term was developed using historical exercise experience.

During the nine months ended February 29, 2024, we granted an aggregate of 214 service-based restricted common shares under our stock-based compensation plans, which cliff vest three years from the grant date. The fair value of these restricted common shares was equal to the weighted average closing market price of the underlying common shares on the grant date, or $64.57 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares was $13,831 and will be recognized on a straight-line basis over the three-year vesting period, net of any forfeitures.

The table below sets forth the service-based restricted common shares for the nine months ended February 29, 2024:


				Weighted
	Restricted			Average
	Common			Grant Date
(In thousands, except per common share amounts)	Shares			Fair Value
Outstanding - June 1, 2023		800		$	47.39
Converted to Worthington Steel common shares (1)		(296	)		55.70
Separation related adjustment		220			-
Granted		214			64.57
Vested		(337	)		39.17
Forfeited		(20	)		47.07
Outstanding - February 29, 2024		581		$	36.34

(1)

Effective as of the Distribution, each restricted stock award held by an employee or director of Worthington Steel was converted into a restricted stock award covering Worthington Steel common shares.

We have awarded performance shares to certain key employees under our stock-based compensation plans. These performance shares are earned based on the level of achievement with respect to corporate targets for cumulative corporate economic value added, EPS growth and, in the case of business unit executives, a business unit adjusted EBITDA target, in each case for the three-year periods ending May 31, 2024, 2025 and 2026. These performance share awards will be paid, to the extent earned, in common shares in the fiscal quarter following the end of the applicable three-year performance period. The fair values of our performance shares are determined by the closing market prices of the underlying common shares at the respective grant dates of the performance shares and the pre-tax stock-based compensation expense is based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued. The ultimate pre-tax stock-based compensation expense to be recognized over the three-year performance period on all tranches will vary based on our periodic assessment of the probability of the targets being achieved.

The table summarizes our performance activity for the nine months ended February 29, 2024.


				Weighted
	Restricted			Average
	Common			Grant Date
(In thousands, except per common share amounts)	Shares			Fair Value
Outstanding - June 1, 2023		172		$	46.37
Converted to Worthington Steel common shares (1)		(39	)		56.99
Separation related adjustment		58			-
Granted		113			52.73
Vested		(131	)		39.93
Forfeited		(25	)		36.02
Outstanding - February 29, 2024		148		$	37.70

(1)

Effective as of the Distribution, each performance share award held by an employee or director of Worthington Steel was converted into a restricted stock award covering Worthington Steel shares.