STOCK-BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS

The Company has one shareholder-approved plan, the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan, under which the Company’s officers, senior management, other key employees, consultants and directors may be granted options to purchase the Company’s common stock or other forms of equity-based awards. The Company also grants shares under its 2019 Equity Inducement Award Program to induce selected individuals to become employees of the Company.

2002 Long-Term Incentive and Stock Award Plan, as amended

In November 2002, our stockholders approved the 2002 Long-Term Incentive and Stock Award Plan. An aggregate of 3,200 shares of common stock were originally reserved for issuance under this plan. At various Annual Meetings of Stockholders, including the 2014 Annual Meeting, the plan was amended to increase the number of shares issuable to 31,500 shares. The plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted share units, performance shares, performance share units and other equity awards to employees, directors and consultants. Awards denominated in shares of common stock other than options and stock appreciation rights will be counted against the available share limit as two and seven hundredths shares for every one share covered by such award. All of the options granted to date under the plan have been incentive or non-qualified stock options providing for the exercise price equal to the fair market price at the date of grant. Stock option awards granted under the plan expire seven years after the date of grant. Options and other stock-based awards vest in accordance with provisions set forth in the applicable award agreements. No awards shall be granted under this plan after November 20, 2024. As of June 30, 2019, no options are outstanding under the plan.

There were no options granted under this plan in fiscal years 2019, 2018 or 2017.

There were 1,626, 685 and 195 shares of restricted stock and restricted share units granted under this plan during fiscal years 2019, 2018 and 2017, respectively, of which 1,130, 307 and 0, respectively, are subject to the achievement of minimum performance goals established under those programs or market conditions.

At June 30, 2019, 1,898 unvested restricted stock and restricted share units were outstanding under this plan, and there were 3,774 shares available for grant under this plan. At June 30, 2019, there were no options outstanding under this plan.

Other Plans

At June 30, 2019, there were 122 options outstanding that were granted under a prior Celestial Seasonings plan. Although no further awards can be granted under the prior Celestial Seasonings plan, the options outstanding continue in accordance with the terms of the plan and grants.

Compensation cost and related income tax benefits recognized in the Consolidated Statements of Operations for stock-based compensation plans were as follows:



	Fiscal Year Ended June 30,
	2019		2018			2017
Selling, general and administrative expense	$	9,503	$	13,380		$	9,658
Chief Executive Officer Succession Plan expense, net	429		(2,203		)	—
Discontinued operations	133		—			—
Total compensation cost recognized for stock-based compensation plans	$	10,065	$	11,177		$	9,658
Related income tax benefit	$	1,189	$	2,165		$	3,622

In the fiscal year ended June 30, 2019, the Company recorded a benefit of $1,867 related to the reversal of expense associated with the total share return (“TSR”) Grant under the 2017-2019 LTIP, as defined and discussed further below.

In the fiscal year ended June 30, 2018, the Company recorded a net benefit of $2,203 primarily in connection with the modification of Irwin D. Simon’s TSR performance based awards granted on September 26, 2017. Refer to Note 3, Chief Executive Officer Succession Plan, for further discussion.

Restricted Stock

Awards of restricted stock may be either grants of restricted stock or restricted share units that are issued at no cost to the recipient. For restricted stock grants, at the date of grant the recipient has all rights of a stockholder, subject to certain restrictions on transferability and a risk of forfeiture. For restricted share units, legal ownership of the shares is not transferred to the employee until the unit vests. Restricted stock and restricted share unit grants vest in accordance with provisions set forth in the applicable award agreements, which may include performance criteria for certain grants. The compensation cost of these awards is determined using the fair market value of the Company’s common stock on the date of the grant. Compensation expense for restricted stock awards with a service condition is recognized on a straight-line basis over the vesting term. Compensation expense for restricted stock awards with a performance condition is recorded when the achievement of the performance criteria is probable and is recognized over the performance and vesting service periods.

A summary of the restricted stock and restricted share units activity for the three fiscal years ended June 30 is as follows:



	2019		Weighted Average Grant Date Fair Value (per share)	2018		Weighted Average Grant Date Fair Value (per share)	2017		Weighted Average Grant Date Fair Value (per share)
Non-vested restricted stock and restricted share units - beginning of year	1,057		$22.29	992		$27.59	1,121		$28.24
Granted	4,088		$7.11	685		$26.13	195		$33.68
Vested	(411	)	$27.36	(433	)	$36.68	(290	)	$33.89
Forfeited	(374	)	$18.33	(187	)	$31.15	(34	)	$29.88
Non-vested restricted stock and restricted share units - end of year	4,360		$7.92	1,057		$22.29	992		$27.59



	Fiscal Year Ended June 30,
	2019		2018		2017
Fair value of restricted stock and restricted share units granted	$	29,067	$	17,898	$	6,567
Fair value of shares vested	$	11,232	$	15,736	$	9,866
Tax benefit recognized from restricted shares vesting	$	3,241	$	5,235	$	3,768

At June 30, 2019, $23,942 of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards was expected to be recognized over a weighted-average period of approximately 2.1 years.

Stock Options

A summary of the stock option activity for the three fiscal years ended June 30 is as follows:



	2019	Weighted Average Exercise Price		2018	Weighted Average Exercise Price		2017		Weighted Average Exercise Price
Outstanding at beginning of year	122	$	2.26	122	$	2.26	342		$	6.66
Exercised	—	$	—	—	$	—	(220	)	$	9.10
Outstanding at end of year	122	$	2.26	122	$	2.26	122		$	2.26

Options exercisable at end of year	122	$	2.26	122	$	2.26	122		$	2.26



	Fiscal Year Ended June 30,
	2019		2018		2017
Intrinsic value of options exercised	$	—	$	—	$	6,507
Cash received from stock option exercises	$	—	$	—	$	—
Tax benefit recognized from stock option exercises	$	—	$	—	$	2,538

For options outstanding and exercisable at June 30, 2019, the aggregate intrinsic value (the difference between the closing stock price on the last day of trading in the year and the exercise price) was $2,394, and the weighted average remaining contractual life was 12.0 years. At June 30, 2019, there was no unrecognized compensation expense related to stock option awards.

Long-Term Incentive Plan

The Company maintains a long-term incentive program (the “LTI Plan”). The LTI Plan currently consists of four performance-based long-term incentive plans (the “2016-2018 LTIP”, “2017-2019 LTIP”, “2018-2020 LTIP” and “2019-2021 LTIP”) that provide for performance equity awards that can be earned over defined performance periods. Participants in the LTI Plan include certain of the Company’s executive officers and other key executives.

The Compensation Committee administers the LTI Plan and is responsible for, among other items, selecting the specific performance measures for awards and setting the target performance required to receive an award after the completion of the performance period. The Compensation Committee determines the specific payout to the participants. Any such stock-based awards shall be issued pursuant to and be subject to the terms and conditions of the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan, as in effect and as amended from time-to-time, and the 2019 Equity Inducement Award Program, as applicable.

Grants Made Pursuant to the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan

2019-2021 LTIP

On January 24, 2019, upon adoption of the 2019-2021 LTIP, the Compensation Committee granted 912 performance share units (“PSUs”), the achievement of which is dependent upon a defined calculation of relative TSR over the period from November 6, 2018 to November 6, 2021. The PSUs granted represent 100% of the targeted award and will vest pursuant to the achievement of pre-established three-year compound annual TSR levels that are aligned with the CEO inducement grant (as further discussed below). The number of shares actually issued will range from zero to 300% of the shares granted. No PSUs will vest if the three-year compound annual TSR is below 15%. Of the 912 PSUs issued, 451 are subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value for those shares subject to the one year holding period. The total grant date fair value with and without the illiquidity discount was estimated to be $5.99 and $5.26 per share, respectively. The total grant date fair value of this award was $5,132. Total compensation cost related to this PSU award was $872 in the twelve months ended June 30, 2019.

The Company also issued 156 three-year time-based restricted share units under the 2019-2021 LTIP.

2018-2020 LTIP

Upon adoption of the 2018-2020 LTIP, the Compensation Committee granted 45 PSUs, the achievement of which is dependent upon a defined calculation of relative TSR over the period from January 24, 2019 to June 30, 2020. The total grant date fair value of this award was estimated to be $18.32 per share, or $819.

2016-2018 and 2017-2019 LTIP

Upon adoption of the 2016-2018 LTIP and 2017-2019 LTIP, the Compensation Committee granted PSUs to each participant, the achievement of which is dependent upon a defined calculation of relative TSR over the period from July 1, 2015 to June 30, 2018 and from July 1, 2017 to June 30, 2019 (the “TSR Grant”), respectively. The grant date fair value for these awards was separately estimated based on a Monte Carlo simulation that calculated the likelihood of goal attainment. Each performance unit translates into one unit of common stock. The TSR Grant represents half of each participant’s target award. The other half of the 2016-2018 LTIP and 2017-2019 LTIP is based on the Company’s achievement of specified net sales growth targets over the respective three-year period. If the targets are achieved, the award in connection with the 2017-2019 LTIP may be paid only in unrestricted shares of the Company’s common stock.

In the first quarter of fiscal 2019, in connection with the 2016-2018 LTIP, for the three-year performance period of July 1, 2015 through June 30, 2018, the Compensation Committee determined that the adjusted operating income goal required to be met for Section 162(m) funding was not achieved and determined that no awards would be paid or vested pursuant to the 2016-2018 LTIP. Accordingly, the 223 unvested performance stock unit awards previously granted in connection with the relative TSR portion of the award were forfeited, and amounts accrued relating to the net sales portion of the award were reversed. As such, in the first quarter of fiscal 2019, the Company recorded a benefit of $6,482 associated with the reversal of previously accrued amounts under the net sales portion of the 2016-2018 LTIP, of which $5,065 was recorded in Chief Executive Officer Succession Plan expense, net on the Consolidated Statements of Operations.

In connection with the 2017-2019 LTIP, in the first quarter of fiscal 2019, the Company determined that the achievement of the adjusted operating income goal required to be met for Section 162(m) funding was not probable. Accordingly, in the first quarter of fiscal 2019, the Company recorded benefits of $1,129 and $1,867 associated with the reversal of previously accrued amounts under the portions of the 2017-2019 LTIP that were dependent on the achievement of pre-determined performance measures of net sales and relative TSR, respectively.

Other Grants

In the twelve months ended June 30, 2019, the Company granted 262 time-based restricted share units to certain key employees and members of the Company’s Board of Directors that vest primarily over three years. Additionally, the Company issued 173 PSUs to certain key executives vesting over a period of one to two years based upon the achievement of certain market and/or performance based metrics being met.

Grants Made Pursuant to the 2019 Equity Inducement Award Program

The primary purpose of the 2019 Equity Inducement Award Program is to further the long term stability and success of the Company by providing a program to reward selected individuals newly hired as employees of the Company with grants of inducement awards. Shares issued under this program are granted outside of the Amended and Restated 2002 Long-Term Incentive and Stock Award Plan. At June 30, 2019, 1,412 unvested restricted stock and restricted share units were outstanding under this plan, and there were 1,588 shares available for grant under this plan.

In the twelve months ended June 30, 2019, the Compensation Committee granted 1,398 PSUs to selected individuals hired as employees of the Company, the achievement of which is dependent upon a defined calculation of relative TSR over the period from November 6, 2018 to November 6, 2021. The PSUs granted represent 300% of the targeted award and will vest pursuant to the achievement of pre-established three-year compound annual TSR levels, which are aligned with the CEO Inducement Grant (defined and discussed further below). Additionally, 14 time-based restricted share units were granted under the 2019 Equity Inducement Award Program in fiscal 2019.

The number of PSUs expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the service period, regardless of the eventual number of PSUs that are earned based upon the market condition, provided that each grantee remains an employee at the end of the performance period. Compensation expense is reversed if at any time during the service period a grantee is no longer an employee. With the exception of the April 25, 2019 grant, these PSUs are subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value.



Grant Date	Shares Issued	Fair Value Per Share		Grant Date Fair Value
February 19, 2019	739	$	1.79	$	1,324
March 29, 2019	187	$	3.01	563
April 15, 2019	136	$	2.83	$	385
April 25, 2019	123	$	2.64	325
May 15, 2019	213	$	3.55	$	755
Total	1,398			$	3,352

The fair value per share amounts reflect the number of shares granted at 300% of the target award. The total number of shares actually issued will range from zero to 1,398. No PSUs will vest if the three-year compound annual TSR is below 15%.

Total compensation cost related to these awards recognized in the fiscal year ended June 30, 2019 was $289.

CEO Inducement Grant

On November 6, 2018, Mr. Schiller received an award of 1,050 PSUs intended to represent the total three-year long-term incentive opportunity that would have been made in fiscal years 2019 – 2021. The PSUs will vest pursuant to the achievement of pre-established three-year compound annual TSR levels. The number of shares actually issued will range from zero to 1,050. No PSUs will vest if the three-year compound annual TSR is below 15%. This award was granted outside of Amended and Restated 2002 Long-Term Incentive and Stock Award Plan and the 2019 Equity Inducement Award Program.

The number of PSUs expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the three-year service period, regardless of the eventual number of PSUs that are earned based upon the market condition, provided Mr. Schiller remains an employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period Mr. Schiller is no longer an employee, subject to certain termination and change in control eligibility provisions. These PSUs are subject to a holding period of one year after the vesting date. As such, an illiquidity discount was applied to the grant date fair value. The total grant date fair value of the award was estimated to be $7,571, or $7.21 per share.

Total compensation cost related to this award recognized in the fiscal year ended June 30, 2019 was $1,636.

The Company also issued 79 three-year time-based restricted share units to Mr. Schiller.