H. Capital Stock

Common Stock Reserved

At December 31, 2017, the Company has reserved 17.7 million shares of authorized common stock for the future issuance of shares under the 2006 and 2016 Plans and the 2004 Director Plan. See “Stock‑Based Compensation” in Note B for a description of the 2016 Plan and below for a description of the 2004 Director Plan.

Stock Options

As of December 31, 2017, the 2016 Plan was the only employee share‑based compensation plan of the Company under which grants can be made. During the year ended December 31, 2017, holders of options issued under the 2016 Plan exercised their rights to acquire an aggregate of 191,000 shares of common stock at prices ranging from $2.68 to $6.11 per share. The total proceeds to the Company from these option exercises were $650,000.

The Company granted options with an exercise price equal to the fair market value of the common stock on the date of such grant. The following options and their respective weighted‑average exercise prices per share were exercisable at December 31, 2017 and 2016 and June 30, 2016 and 2015:


		Weighted‑
	Exercisable	Average
	(in thousands)	Exercise Price
December 31, 2017	7,996	$	12.16
December 31, 2016	7,898	$	13.15
June 30, 2016	6,453	$	12.63
June 30, 2015	5,380	$	11.89

2001 Non‑Employee Director Stock Plan

In 2001, the Company’s shareholders approved the establishment of the 2001 Non‑Employee Director Stock Plan, or the 2001 Director Plan, and 50,000 shares of common stock to be reserved for grant thereunder. The 2001 Director Plan provided for the granting of awards to Non‑Employee Directors and, at the election of Non‑Employee Directors, to have all or a portion of their awards in the form of cash, stock, or stock units. All stock or stock units are immediately vested. The number of stock or stock units issued was determined by the market value of the Company’s common stock on the last date of the Company’s fiscal quarter for which the services are rendered. The 2001 Director Plan was administered by the Board of Directors which was authorized to interpret the provisions of the 2001 Director Plan, determine which Non‑Employee Directors would be granted awards, and determine the number of shares of stock for which a stock right will be granted. The 2001 Director Plan was replaced in 2004 by the 2004 Non‑Employee Director Compensation and Deferred Share Unit Plan.

During the year ended December 31, 2017, the six months ended December 31, 2016 and the fiscal years ended June 30, 2016 and 2015, the Company recorded $28,000, $(7,000), $(72,000), and $16,000 in compensation expense (expense reduction), respectively, related to approximately 6,000 stock units outstanding under the 2001 Director Plan. The value of the stock units is adjusted to market value at each reporting period. No stock units have been issued under the 2001 Plan subsequent to June 30, 2004.

2004 Non‑Employee Director Compensation and Deferred Share Unit Plan

Under the 2004 Non-Employee Director Compensation and Deferred Share Unit Plan, or the 2004 Director Plan, as amended, between 2004 and 2009 non-employee directors were paid their annual retainers in the form of deferred stock units, based on the fair market value of the Company’s common stock on the last date of the Company’s fiscal year prior to the year for which services were rendered, and in cash, with the option, at their discretion, to have all or a portion of the cash portion paid in additional deferred stock units. All deferred stock units awarded under the 2004 Director Plan have vested, and are redeemed on the date a director ceases to be a member of the Board, at which time such director’s deferred stock units will be settled in shares of common stock of the Company issued under the 2006 Plan at a rate of one share for each vested.

Compensation Policy for Non‑Employee Directors

In September 2009, the Board adopted a new Compensation Policy for Non‑Employee Directors, which superseded the 2004 Plan and made certain changes to the compensation of its non‑employee directors. The Compensation Policy for Non-Employee Directors, as amended, consists of three elements: cash compensation; deferred stock units; and stock options.

Cash Compensation

Each non-employee director receives annual meeting fees which are paid in quarterly installments in, at each director’s election, either cash or deferred stock units.

Deferred Stock Units

Non-employee directors receive deferred stock units as follows:

 New non-employee directors are initially awarded 6,500 deferred stock units, with each unit relating to one share of the Company’s common stock. These awards vest quarterly over three years from the date of grant, contingent upon the individual remaining a director of the Company as of each vesting date.

 On the first anniversary of a non-employee director’s initial election to the Board, such non-employee director is awarded 3,000 deferred stock units, pro-rated based on the number of whole months remaining between the first day of the month in which such grant date occurs and the first May 31 following the grant date. These awards generally vest quarterly over approximately the period from the grant date to the first June 1 following the grant date, contingent upon the individual remaining a director of the Company as of each vesting date.

 Thereafter, non-employee directors are annually awarded 3,000 deferred stock units. These awards vest quarterly over approximately one year from the date of grant, contingent upon the individual remaining a director of the Company as of each vesting date.

Vested deferred stock units are redeemed on the date a director ceases to be a member of the Board, at which time such director’s deferred stock units will generally be settled in shares of the Company’s common stock issued under our 2016 Plan (or its predecessor 2006 Employee, Director and Consultant Equity Incentive Plan, or 2006 Plan, depending on the grant date of the deferred stock units) at a rate of one share for each vested deferred stock unit then held. Any deferred stock units that remain unvested at that time will be forfeited. All unvested deferred stock units will automatically vest immediately prior to the occurrence of a change of control, as defined in the 2016 Plan (or the substantially identical definition in the 2006 Plan, as applicable). Pursuant to the Compensation Policy for Non-Employee Directors, in January 2017, the Company issued a retiring director 53,248 shares of common stock of the Company to settle outstanding deferred share units.

Pursuant to the Compensation Policy for Non‑Employee Directors, as amended, the Company recorded:

$206,000 in compensation expense during the year ended December 31, 2017 related to the grant of 47,000 deferred share units and 12,000 deferred share units previously granted

$215,000 in compensation expense during the six months ended December 31, 2016 related to the grant of 37,000 deferred share units and 12,000 deferred share units previously granted;

$380,000 in compensation expense during the year ended June 30, 2016 related to the grant of 41,000 deferred share units and 12,000 deferred share units previously granted;

$389,000 in compensation expense during the year ended June 30, 2015 related to the grant of 31,000 deferred share units and 15,000 deferred share units previously granted.

Stock Options

Non-employee directors also receive stock option awards as follows:

 Annual Stock Option Awards. Non-employee directors receive an annual stock option award covering 10,000 shares of our common stock on the date of our annual meeting of shareholders, which is the grant date. These awards will have an exercise price equal to the market price of the Company’s stock on the grant date, will vest quarterly over approximately one year from the grant date, and will expire on the tenth anniversary of the grant date, contingent upon the individual remaining a director of the Company during such period.

 Off-Cycle Initial Awards. If a non-employee director is first elected to the Board other than at an annual meeting of shareholders, such non-employee director will receive a stock option award covering 10,000 shares of our common stock, pro-rated based on the number of whole months remaining between the first day of the month in which such grant date (which will be the date of their initial election to the Board) occurs and the first May 31 following the grant date. These awards will have an exercise price equal to the market price of the Company’s stock on the date of grant, will generally vest quarterly over approximately the period from the grant date to the first June 1 following the date of grant, and will expire on the tenth anniversary of the grant date, contingent upon the individual remaining a director of the Company during such period.

All unvested stock option awards granted to non-employee directors will automatically vest immediately as of the date of a change of control, as defined in the 2016 Plan (or, with respect to stock options granted on or before December 9, 2016, the substantially identical definition in the 2006 Plan).

On December 9, 2016 the Board amended the Compensation Policy for Non-Employee Directors to create a transition period due to the change in the year-end. Effectively, one-half of the annual compensation awards described above were awarded to the directors on December 9, 2016 and a full-year’s compensation awarded on the date of the subsequent annual meetings. The directors received a total of 80,000 options in the year ended December 31, 2017, 40,000 options in the six months ended December 31, 2016 and 80,000 options in each fiscal year ended June 30, 2016 and 2015, and the related stock compensation expense is included in the amounts discussed in the “Stock‑Based Compensation” section of footnote B above.