Stock-Based Compensation

The Company has granted restricted stock awards and stock options under its 2007 Incentive Stock Plan, as amended ("2007 Plan"), to certain employees, members of the Board of Directors and service providers. The Company's stockholders have authorized the issuance of 2,075,000 shares under the 2007 Plan. As of December 31, 2014, there were 635,652 shares reserved for future issuance under the 2007 Plan.

Restricted Stock

Restricted stock grants made to employees are in lieu of a long-term incentive plan component in the Company's bonus plan for those individuals who receive shares of restricted stock. Compensation expense is measured based on the fair value of the stock-based awards on the grant date, as measured by the NASDAQ closing price for the Company's common stock. Compensation expense is recognized in the consolidated income statement on a straight-line basis over the requisite service period, which is the vesting period. Restricted stock grants made to the employees and service providers vest in approximately equal annual installments over a three year period from the grant date. Restricted stock grants to the Company's non-employee directors vest one year from the grant date. The Company allows certain grantees to forego the issuance of shares to meet applicable income tax withholding due as a result of the vesting of restricted stock. Such shares are returned to the unissued shares of the Company's common stock.

Restricted stock activity under the 2007 Plan was as follows for the year end December 31, 2014:



	Employees and
(shares)	Service Providers		Directors	Total
Balance, January 1, 2014	645,411		620,000	1,265,411
Granted	54,483		165,000	219,483
Forfeited	(31,024	)	—	(31,024	)
Reduced for income tax obligations	(52,622	)	—	(52,622	)
Balance, December 31, 2014	616,248		785,000	1,401,248

Vested at December 31, 2014	400,383		620,000	1,020,383
Non-vested at December 31, 2014	215,865		165,000	380,865

The Company recognized compensation expense related to restricted shares of $5.1 million, $4.9 million and $4.5 million for the years ended December 31, 2014, 2013 and 2012, respectively. Unearned compensation expense related to restricted shares at December 31, 2014 is $2.5 million, which is net of an estimated 5% forfeiture rate for employees and service providers. This amount will be recognized over the remaining vesting period of the restricted shares.

Stock Options

In July 2007, stock options were granted to certain employees and Directors under the 2007 Plan. The 2007 Plan permits options to be granted up to a maximum contractual term of 10 years. The Company's policy is to use shares of unissued common stock upon exercise of stock options.

The Company estimated the fair value of the stock options granted in accordance with U.S. GAAP using a Black-Scholes option-pricing model. The expected average risk-free rate was based on a U.S. treasury yield curve. The expected average life represented the period of time that options granted are expected to be outstanding. Expected volatility was based on historical volatilities of HNH's common stock. The expected dividend yield was based on historical information and management's plan.

The Company recorded no compensation expense related to its stock options in 2014, 2013 or 2012 since the options were fully vested.

Stock option activity under the Company's 2007 Plan was as follows in 2014:



Options	Shares (000's)		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (000's)

Outstanding options at December 31, 2013	42		$	90	2.34	$	—
Granted	—		—			—
Exercised	—		—			—
Forfeited	(4	)	90			—
Outstanding at December 31, 2014	38		$	90	1.34	$	—
Exercisable at December 31, 2014	38		$	90	1.34	$	—

On July 6, 2007, the Company's Compensation Committee adopted an incentive arrangement for a member of the Board of Directors. This arrangement provides, among other things, for this individual to receive a bonus equal to 10,000 multiplied by the difference of the fair market value of the Company's stock price and $90.00 per share. The incentive arrangement terminates July 6, 2015, to the extent not previously received. Under U.S. GAAP, the Company is required to adjust its obligation for the fair value of this incentive arrangement from the date of grant to the latest balance sheet date and to record the incentive arrangement as a liability on the consolidated balance sheet. Income or expense associated with this award was not significant in 2014, 2013 or 2012.