NOTE 12 - STOCK BASED COMPENSATION

2016 Equity Incentive Plan

Our board of directors, upon the recommendation of the compensation committee of our board of directors, approved the 2016 TechPrecision Equity Incentive Plan, or the 2016 Plan, on November 10, 2016. Our stockholders approved the 2016 Plan at the Company’s Annual Meeting of Stockholders, or the Annual Meeting, on December 8, 2016. The 2016 Plan succeeds the 2006 Plan and applies to awards granted after the Annual Meeting. We have designed the 2016 Plan to reflect our commitment to having best practices in both compensation and corporate governance. The 2016 Plan provides for a share reserve of 5,000,000 shares of common stock.

The 2016 Plan authorizes the award of incentive and non-qualified stock options, restricted stock awards, restricted stock units, and performance awards to employees, directors, consultants, and other individuals who provide services to TechPrecision or its affiliates. The purposes of the 2016 Plan are to: (a) enable TechPrecision and its affiliated companies to recruit and retain highly qualified employees, directors and consultants; (b) provide those employees, directors and consultants with an incentive for productivity; and (c) provide those employees, directors and consultants with an opportunity to share in the growth and value of the Company. Subject to adjustment as provided in the 2016 Plan, the maximum number of shares of common stock that may be issued in respect of awards under the 2016 Plan is 5,000,000 shares (inclusive of awards issued under the 2006 Long-Term Incentive Plan, or the 2006 Plan, that remained outstanding as of the effective date of the 2016 Plan), all of which shares may be issued in respect of incentive stock options. On December 8, 2016, there were 1,958,500 shares underlying awards issued under the 2006 Plan that remained outstanding. The 2006 Plan expired under its own terms in February 2016. Shares granted under the 2006 Plan will remain outstanding until expiration or settlement. Shares of our common stock subject to awards that expire unexercised or are otherwise forfeited shall again be available for awards under the 2016 Plan.

On December 27, 2016, in recognition of performance and to increase the alignment of his interests with those of our stockholders, TechPrecision granted to Alexander Shen, TechPrecision’s Chief Executive Officer, a non-qualified stock option to purchase 1,000,000 shares of our common stock at an exercise price of $0.50, the closing price of our common stock on the date of the grant. The grant was made under the 2016 Plan and a Non-Qualified Stock Option Award Agreement, dated December 27, 2016, from TechPrecision to Mr. Shen. The option is immediately vested and exercisable with respect to 666,667 shares of common stock and will become vested and exercisable with respect to the remaining 333,333 shares on December 27, 2017, provided that Mr. Shen remains in continuous service as an employee of the Company through such vesting date. The options have a remaining weighted average contract life of nine years. The fair value of the options is $418,995 and $279,470 was expensed in the three months ended December 31, 2016. At December 31, 2016, there was $139,525 of total unrecognized compensation cost related to the stock options, and these costs are expected to be recognized over the next twelve months.

The fair value of the options we grant is estimated using the Black-Scholes option-pricing model based on the closing stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of our common stock. The average dividend yield over the historical period for which volatility was computed is zero. The risk-free interest rate was selected based upon yields of five-year U.S. Treasury issues. We used the simplified method for all grants to estimate the expected life of the option. We assume that stock options will be exercised evenly over the period from vesting until the awards expire. As such, the assumed period for each vesting tranche is computed separately and then averaged together to determine the expected term for the award. The assumptions utilized for options granted during the period presented were 123.8% for volatility, 2.07% for the risk free interest rate, and approximately six years for the expected life. At December 31, 2016, there were 2,041,500 shares available for grant under the 2016 Plan.

The following table summarizes information about options under the 2006 Plan and the 2016 Plan for the periods presented below:

	Number Of		Weighted Average		Aggregate Intrinsic		Weighted Average Remaining Contractual Life
	Options		Exercise Price		Value		(in years)
Outstanding at 3/31/2016	2,398,500		$	0.711	$	183,900	7.90

Granted	1,000,000		$	0.500
Expired	(440,000	)	$	0.912

Outstanding at 12/31/2016	2,958,500		$	0.383	$	640,349	8.66

Vested or expected to vest at 12/31/2016	2,958,500		$	0.383	$	640,349	8.66

Exercisable and vested at 12/31/2016	1,958,500		$	0.451	$	373,163	8.37

At December 31, 2016, there was $179,004 of total unrecognized compensation cost related to stock options. These costs are expected to be recognized over the next fifteen months. The following table summarizes the activity of our stock options outstanding but not vested for the nine months ended December 31, 2016:

	Number of Options		Weighted Average Exercise Price
Outstanding at 3/31/2016	1,028,334		$	0.117
Granted	1,000,000		$	0.500
Expired	(13,334	)	$	0.670
Vested	(1,015,000	)	$	0.080

Outstanding at 12/31/2016	1,000,000		$	0.250

Other information relating to stock options outstanding at December 31, 2016 is as follows:

Range of Exercise Prices:	Options Outstanding	Weighted Average Remaining Contractual Term	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price
$0.01-$1.00	2,770,000	8.37	$	0.30	1,770,000	$	0.33
$1.01-$1.96	188,500	0.29	$	1.59	188,500	$	1.59

Totals	2,958,500				1,958,500

Restricted Stock Awards

In December 2014, each non-employee director waived any compensation owed to them for their service to the Company. On November 10, 2016, our board of directors determined that it would grant shares of common stock to each of our directors as compensation for their service to the Company during the period from January 1, 2014 to November 10, 2016. Accordingly, our board of directors granted 600,000 shares of common stock to Mr. Leonard Anthony, 250,000 shares of common stock to each of Mr. Philip Dur and Mr. Michael Holly, and 200,000 shares of common stock to Mr. Robert Isaman and Mr. Andrew Levy. The grant of shares of common stock to Mr. Anthony also recognizes his uncompensated service as Executive Chairman of the Company during the period from January 1, 2014 to November 17, 2014. The Company recorded an expense of $780,000 in connection with these grants of shares of common stock, based on the closing market price of our common stock on the date of grant.