NOTE 11 – 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 April 2, 2017, there were 7,125 shares of common stock available to be granted under the 2015 Plan. In the case of stock options, the exercise price of the stock 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.

In November 2016, the Company’s stockholders approved the 2016 ARC Group Worldwide, Inc. Equity Incentive Plan (“2016 Plan”), which reserves for issuance a total of 950,000 shares of common stock. The 2016 Plan contains terms and conditions substantially similar to the 2015 Plan. As of April 2, 2017, there were 75,920 shares of common stock available to be granted under the 2016 Plan.

A summary of stock option activity under the 2015 Plan and 2016 Plan as of April 2, 2017 is as follows:


		Weighted		Weighted Average
		Average Exercise		Remaining Contractual
	Shares	Price		Term (in years)
Outstanding as of June 30, 2016	759,050	$	1.51
Granted	1,065,030	$	4.06
Forfeited	(7,125)	$	1.51
Outstanding as of April 2, 2017	1,816,955	$	3.00	7.81
Vested and exercisable as of April 2, 2017	451,754	$	1.90	6.03
Vested and expected to vest as of April 2, 2017	1,603,891	$	2.97	7.75

The vesting of 874,080 shares granted under the 2016 Plan during the third quarter of 2017 is contingent upon the achievement of a market condition. If vesting occurs, the compensation expense related to the vested awards that has not been previously amortized will be recognized upon vesting. As of April 2, 2017, the market-based condition has not been achieved.

Stock options granted during the nine month period ending April 2, 2017 have contractual lives of seven to ten years. The weighted-average grant date fair value of stock options granted during the nine months ended April 2, 2017, was $2.17 per share. The total fair value of shares vested during the nine months ended April 2, 2017 was $1.0 million.

Determining Fair Value

The Company estimated the fair value of stock options granted under the 2015 Plan using the Black-Scholes method. The Company estimated the fair value and derived service period of stock options granted under the 2016 Plan with market-based vesting conditions on the date of grant using a Monte Carlo simulation, with assumptions comparable to those used under the Black-Scholes method. The assumptions used to determine the value of the Company’s stock options granted to employees during the nine month period ended April 2, 2017 were as follows:


Expected term	3.50		-	4.75	years
Expected volatility	78.8	%	-	85.0	%
Expected dividend yield	-	%
Risk-free interest rate	1.02	%	-	2.41	%

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 months ended April 2, 2017 and March 27, 2016 was $0.2 million and $0.1 million, respectively, and during the nine months ended April 2, 2017 and March 27, 2016 was $0.6 million and $0.1 million, respectively, and is included in selling, general and administrative expense. As of April 2, 2017, there was $1.9 million of total unrecognized compensation expense related to non-vested stock options, which is expected to be recognized over a weighted-average period of 1.8 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.

Employee Stock Purchase Plan

Under the terms of the Company’s employee stock purchase plan ("ESPP"), eligible employees may authorize payroll deductions up to 10% of their base pay to purchase shares of the Company’s common stock at a price equal to 85% of the lower of the closing price at the beginning or end of each six-month purchase period. A total of 750,000 shares were authorized under the ESPP. The purchase period began on August 1, 2016. As of April 2, 2017, there were 702,266 shares available for issuance.

During the three months ended April 2, 2017, 47,734 shares were purchased under the ESPP at a price of $2.05 and a grant date fair value of $2.42.