STOCK‑BASED COMPENSATION

The Company currently has one equity incentive plan (the “2010 Plan”), which provides for awards in the form of restricted shares, stock units, stock options or stock appreciation rights to the Company’s employees, officers, directors and consultants. In April 2014, SemiLEDs’ stockholders approved an amendment to the 2010 Plan that increases the number of shares authorized for issuance under the plan by an additional 250 thousand shares. Prior to SemiLEDs’ initial public offering, the Company had another stock‑based compensation plan (the “2005 Plan”), but awards are made from the 2010 Plan after the initial public offering. Options outstanding under the 2005 Plan continue to be governed by its existing terms.

A total of 635 thousand was reserved for issuance under the 2005 Plan and 2010 Plan as of both August 31, 2016 and 2015. As of August 31, 2016 and 2015, there were 353 thousand and 388 thousand shares of common stock available for future issuance under the equity incentive plans.

In April 2016, SemiLEDs granted 8 thousand restricted stock units to its directors that vest 100% on the earlier of April 12, 2017 and the date of the next annual meeting. The grant‑date fair value of the restricted stock units was $3.4 per unit.

During fiscal 2015, SemiLEDs granted 10 thousand restricted stock units to the Company’s executives and employees. These stock units vest over four years at a rate of 25% on each anniversary of the vesting start date. The grant-date fair value of stock units was equal to the closing price of the common stock on the date of grant. In addition, in May 2015, SemiLEDs granted 5 thousand restricted stock units to its directors that vested 100% on April 12, 2016. The grant-date fair value of the restricted stock units was $8.20 per unit. Each restricted stock unit represents the contingent right to one share of SemiLEDs’ common stock.

Stock‑based Compensation Expense

The total stock-based compensation expense consists of stock-based compensation expense for stock options and restricted stock units granted to employees, directors, nonemployees and also includes stock options to purchase SemiLEDs’ common stock as part of an employment agreement related to the Company’s acquisition of SBDI (later on renamed as TSLC Corporation). A summary of the stock-based compensation expense for the years ended August 31, 2016 and 2015 are as follows (in thousands):


	Years Ended August 31,
	2016		2015
Cost of revenues	$	91	$	285
Research and development		40		149
Selling, general and administrative		251		855
	$	382	$	1,289

Stock‑based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock‑based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of zero is estimated for stock‑based awards with vesting term that is less than or equal to one year from the date of grant.

There was no recognized stock-based compensation tax benefit for the years ended August 31, 2016 and 2015, as the Company recorded a full valuation allowance on net deferred tax assets as of August 31, 2016 and 2015.

Stock Options Awards

The grant date fair value of stock options is determined using the Black‑Scholes option‑pricing model. The Black‑Scholes option‑pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly‑traded peers over the expected term of stock options, risk‑free interest rate and expected dividend. The expected term is derived from historical data on employee exercises and post‑vesting employment termination behavior after taking into account the contractual life of the award. The risk‑free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the related options. The expected dividend has been zero for the Company’s option grants as SemiLEDs has never paid dividends and does not expect to pay dividends for the foreseeable future. Each of these inputs is subjective and generally requires significant judgment to determine.

A summary of the option activity and changes for the years ended August 31, 2016 and 2015 is presented below:


				Weighted-
		Weighted-		Average
	Number of	Average		Remaining	Aggregate
	Stock Options	Exercise		Contractual	Intrinsic
	Outstanding	Price		Life (Years)	Value
	(In thousands)				(In thousands)
Outstanding—September 1, 2014	32	$	94.62	4.5	$	8
Granted	—		—
Forfeited	(10)		65.66
Exercised	—		—
Outstanding—August 31, 2015	22	$	107.14	4.1	$	—
Granted	—		—
Forfeited	(8)		106.69
Exercised	—		—
Outstanding—August 31, 2016	14	$	107.40	3.6	$	1
Vested and expected to vest—August 31, 2016	14	$	107.40	3.6	$	1
Exercisable—August 31, 2016	14	$	107.40	3.6	$	1

As of August 31, 2016 and 2015, unrecognized compensation costs related to unvested stock options were nil.

Restricted Stock Units Awards

The grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the date of the grant. This fair value is amortized to compensation expense over the vesting term.

A summary of the restricted stock unit awards outstanding and changes for the years ended August 31, 2016 and 2015 is presented below:


		Weighted-
	Number of	Average
	Stock Units	Grant Date
	Outstanding	Fair Value
	(In thousands)
Outstanding—September 1, 2014	176	$	16.72
Granted	15		7.85
Vested	(62)		22.79
Forfeited	(10)		15.20
Outstanding—August 31, 2015	119	$	12.68
Granted	8		3.40
Vested	(35)		16.61
Forfeited	(30)		11.75
Outstanding—August 31, 2016	62	$	9.83

As of August 31, 2016 and 2015, unrecognized compensation cost related to unvested restricted stock unit awards of $0.3 million and $1.0 million, respectively, is expected to be recognized over a weighted average period of 1.35 years and 1.8 years, respectively, and will be adjusted for subsequent changes in estimated forfeitures.