STOCK OPTIONS AND RESTRICTED SHARES

At Orion's 2016 Annual Meeting of Shareholders held on August 3, 2016, Orion's shareholders approved the Orion Energy Systems, Inc. 2016 Omnibus Incentive Plan (the "Plan"). The Plan authorizes grants of equity-based and incentive cash awards to eligible participants designated by the Plan's administrator. Awards under the Plan may consist of stock options, stock appreciation rights, performance shares, performance units, shares of Orion's common stock ("Common Stock"), restricted stock, restricted stock units, incentive awards or dividend equivalent units. An aggregate of 1,750,000 shares of Common Stock are reserved for issuance under the Plan.

Prior to shareholder approval of the Plan, the Company maintained the 2004 Stock and Incentive Awards Plan, as amended, which authorized the grant of cash and equity awards to employees (the “Existing Plan”). The Existing Plan terminated on August 3, 2016 as a result of shareholder approval of the Plan, ending the authority to grant new awards under the Existing Equity Plan. However, all awards granted under the Existing Plan that were outstanding as of August 3, 2016 will continue to be governed by the Existing Plan.

Certain non-employee directors have elected to receive stock awards in lieu of cash compensation pursuant to elections made under Orion’s non-employee director compensation program. The plans also provide to certain employees accelerated vesting in the event of certain changes of control of Orion as well as under other special circumstances.

Orion has historically granted stock options and restricted stock under its 2003 Stock Option and 2004 Stock and Incentive Awards Plans. Orion has not issued stock options since fiscal 2014 and instead has issued restricted stock.

Orion accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, net of estimated forfeitures. Orion did not issue any stock options during the three and six months ended September 30, 2016 or during fiscal 2016 or 2015.

For the three months ended September 30, 2016, an aggregate of 332,955 restricted shares were granted valued at a price per share of between $1.35 and $1.42, which was the closing market price as of each grant date. For the three months ended September 30, 2015, an aggregate of 84,000 restricted shares were granted valued at a price per share of between $2.15 and $2.51, which was the closing market price as of each grant date.

For the six months ended September 30, 2016 an aggregate of 1,047,142 restricted shares were granted valued at a price per share of between $1.35 and $1.50, which was the closing market price as of each grant date. For the six months ended September 30, 2015, an aggregate of 569,534 restricted shares were granted valued at a price per share of between $2.15 and $2.62, which was the closing market price as of each grant date.

On June 7, 2016, Orion issued and sold 57,065 shares of its common stock to an executive. On August 5, 2016, Orion sold an aggregate of 63,381 shares of its common stock, in equal amounts, to three recently retired members of Orion's board of directors. In each case, the purchase price for the shares was calculated based on the closing price of Orion's common stock on the NASDAQ Capital Market of the date of the issuance. The shares of common stock were offered and sold pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended.

The following amounts of stock-based compensation were recorded (in thousands):



	Three Months Ended September 30,					Six Months Ended September 30,
	2016		2015			2016		2015
Cost of product revenue	$	9	$	10		$	23	$	20
General and administrative	485		294			752		576
Sales and marketing	21		57			52		136
Research and development	24		(8		)	41		6
Total	$	539	$	353		$	868	$	738

The following table summarizes information with respect to the Plans:



			Outstanding Awards
	Shares Available for Grant		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance at March 31, 2016	787,686		2,017,046		$	3.32	4.54
Shares reserved under new plan	1,750,000		—
Granted stock options	—		—		—
Granted shares	(39,293	)	—		—
Restricted shares	(1,047,142	)	—		—
Forfeited restricted shares	87,500		—		—
Forfeited stock options	74,600		(74,600	)	4.85
Exercised	—		—		—
Balance at September 30, 2016	1,613,351		1,942,446		$	3.26	3.49	$	0.00
Exercisable at September 30, 2016			1,782,846		$	3.34	3.43	$	0.00

The aggregate intrinsic value represents the total pre-tax intrinsic value, which is calculated as the difference between the exercise price of the underlying stock options and the fair value of Orion’s closing common stock price of $1.33 as of September 30, 2016.

A summary of the status of Orion’s outstanding non-vested stock options as of September 30, 2016 was as follows:



Non-vested at March 31, 2016	205,900
Granted	—
Vested	(44,300	)
Forfeited	(2,000	)
Non-vested at September 30, 2016	159,600

As of September 30, 2016, compensation cost related to non-vested common stock-based compensation, excluding restricted share awards, amounted to $200,000 over a remaining weighted average expected term of 1.06 years.

During the first half of fiscal 2017, Orion granted restricted shares as follows (which are included in the above stock plan activity tables):



Balance at March 31, 2016	1,053,389
Shares issued	1,047,142
Shares vested	(289,111	)
Shares forfeited	(87,500	)
Shares outstanding at September 30, 2016	1,723,920
Per share price on grant date	$1.34 - $6.80

As of September 30, 2016, the weighted average grant-date fair value of restricted shares granted was $1.39.

As of September 30, 2016, the amount of deferred stock-based compensation expense related to grants of restricted shares, to be recognized over a remaining period of 2.37 years, was approximately $2,500,000.