Share-Based Compensation

9 Months Ended

Mar. 27, 2016

NOTE 10 – Share-Based Compensation

In November 2015, the Company’s stockholders approved the ARC Group Worldwide, Inc. 2015 Equity Incentive Plan (“2015 Plan”), which is administered by the Compensation Committee (“Committee”) of the Board of Directors. The 2015 Plan reserves for issuance a total of 950,000 shares of common stock, which may be in the form of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, or other types of awards as authorized under the plan. As of March 27, 2016, there were approximately 183,825 shares of common stock available to be granted under the 2015 Plan. In the case of stock options, the exercise price of the options granted may not be less than the fair market value of a share of common stock at the date of grant. The Committee determines the vesting conditions of awards; however, the performance period for an award subject to the satisfaction of performance measures may not exceed five years. The 2015 Plan will terminate ten years after its adoption, unless terminated earlier by the Company’s Board of Directors.

A summary of stock option activity under the 2015 Plan as of March 27, 2016 is as follows:


		Weighted		Weighted Average
		Average Exercise		Remaining Contractual
	Shares	Price		Term (in years)
Outstanding as of June 30, 2015	-		-	-
Granted	766,175	$	1.51	6.80
Outstanding as of March 27, 2016	766,175	$	1.51	6.80
Vested and exercisable as of March 27, 2016	114,950	$	1.51	6.80
Vested and expected to vest as of March 27, 2016	629,513

Options granted during the three month period ending March 27, 2016 have contractual lives of seven years. The weighted-average grant date fair value of options granted during the three months ended March 27, 2016 was $0.98. The total fair value of shares vested during the three months ended March 27, 2016 was $0.1 million.

Determining Fair Value

The Company estimates the fair value of stock options granted using the Black-Scholes method. The assumptions used to determine the value of the Company’s stock options granted to employees during the three month period ended March 27, 2016 were as follows:


Expected term	4.50		-	4.75	years
Expected volatility	84.0	%	-	85.1	%
Expected dividend yield	-	%
Risk-free interest rate	1.37	%	-	1.41	%

Expected Term – The expected term represents the period of time the options are expected to be outstanding. The Company uses the simplified method, as permitted by the SEC, to calculate the expected term, as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected life in years. The simplified method is calculated as the average of the time-to-vesting and the contractual life of the options.

Expected Volatility – Expected volatility is based on the historical volatility of the Company’s common stock, which we believe will be indicative of future experience.

Expected Dividends – The Company has never paid dividends on its common stock and currently does not intend to do so in the near term, and accordingly, the dividend yield percentage is zero.

Risk-Free Interest Rate - The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant with a term equal to the expected term of the stock option granted.

Share-Based Compensation Expense

Compensation expense recognized during the three and nine month periods ended March 27, 2016 was $0.1 million, and is included in selling, general and administrative expense. As of March 27, 2016, there was $0.5 million of total unrecognized compensation expense related to non-vested stock options, which is expected to be recognized over a weighted-average period of 3.8 years. The Company estimated expected forfeitures and is recognizing compensation expense only for those option grants expected to vest. The Company’s estimate of forfeitures may be adjusted throughout the requisite service period based on the extent to which actual forfeitures differ, or are likely to differ, from the Company’s previous estimates. At the end of the service period compensation cost will have been recognized only for those awards for which the employee has provided the requisite service.