7. STOCK INCENTIVE PLANS

The Company sponsored a stock option plan, the 2001 Equity Plan (the “2001 Plan”), which allowed for the granting of incentive and nonqualified stock options for the purchase of common stock. The maximum number of shares which could be awarded or sold under the 2001 Plan was 1,449,667 shares. Each option entitles the holder to purchase one share of common stock at the specified option exercise price. The exercise price of each incentive stock option granted must not be less than the fair market value on the grant date. At the discretion of management and with the approval of the Board of Directors, the Company granted options under the 2001 Plan. Management and the Board of Directors determined vesting periods and expiration dates at the time of the grant. On August 2, 2011, the plan expired.

In August 2007, the Company adopted the 2007 Plan, which allows for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and bonus shares. On June 22, 2011, the stockholders of the Company approved an amendment to the 2007 Plan to increase the maximum number of shares that may be awarded or sold under the 2007 Plan by 2,100,000 from 2,307,692 to 4,407,692 shares. The Board of Directors has appointed a committee to administer the plan. The plan committee determines the type of award to be granted, the fair market value, the number of shares covered by the award, and the time when the award vests and may be exercised.

The following table summarizes the activity of the stock incentive and equity plans:


	Shares available for grant			Number of options outstanding			Weighted- average option exercise price		Number of restricted stock shares issued		Number of restricted stock units outstanding
Outstanding at January 1, 2011		643,850			1,830,397		$	12.98		34,863		—
Authorized		2,100,000			—			—		—		—
Granted		(389,774	)		382,050			16.02		7,724		—
Exercised		—			(73,428	)		10.78		—		—
Expired		(139,988	)		—			—		—		—
Canceled/forfeited		45,911			(45,911	)		20.15		—		—

Outstanding at December 31, 2011		2,259,999			2,093,108			13.45		42,587		—
Granted		(106,395	)		89,050			9.72		17,345		—
Exercised		—			(17,885	)		4.01		—		—
Canceled/forfeited		47,000			(47,163	)		15.13		—		—

Outstanding at December 31, 2012		2,200,604			2,117,110			13.32		59,932		—
Granted		(216,913	)		97,265			8.43		73,707		45,941
Exercised		—			(27,930	)		5.02		—		—
Canceled/forfeited		256,412			(260,375	)		18.31		—		—

Outstanding at December 31, 2013		2,240,103			1,926,070		$	12.46		133,639		45,941

The following table sets forth option grants made during 2013, 2012 and 2011 with intrinsic value calculated based on grant date fair value.


Date of Grant	Number of options granted		Exercise price		Intrinsic value per share
January 2011		26,000	$	18.80 - $21.64		—
March - April 2011		73,500	$	25.61 - $27.63		—
May 2011		51,650	$	22.92		—
July 2011		12,500	$	16,86		—
October 2011		75,400	$	10.81 - $10.93		—
December 2011		143,000	$	10.19		—
January 2012		8,500	$	9.39		—
April-May 2012		36,750	$	9.45 - $10.43		—
July 2012		7,000	$	10.20		—
September - October 2012		36,800	$	9.41 - $9.58
January - July 2013		82,815	$	6.60 - $7.97		—
October 2013		14,450	$	12.11		—

At December 31, 2013, the exercise prices of outstanding options units were as follows:


Exercise Price	Number of options outstanding		Average remaining contractual life (years)		Number of options exercisable
$0.78 - $4.94		533,365		4.05		533,365
$6.11 - $9.58		385,054		6.84		274,089
$10.02 - $14.00		374,867		7.93		250,417
$15.00 - $18.80		66,979		5.71		61,854
$19.21 - $22.92		375,150		6.76		353,625
$24.95 - $32.67		190,655		6.70		126,155

		1,926,070		6.36		1,599,505

The weighted average fair value of the options that became vested in the years ended 2013, 2012 and 2011 was $4.8 million, $8.0 million and $3.9 million, respectively.

The following table summarizes the activity of non-vested options and restricted stock units as follows:


	Non-vested options			Weighted- Average Option Exercise price
Non-vested at January 1, 2011		1,339,386		$	14.12
Granted		382,050			16.02
Vested		(366,484	)		10.72
Cancelled		(41,775	)		20.39

Non-vested at December 31, 2011		1,313,177			13.58
Granted		89,050			9.72
Vested		(540,050	)		14.77
Cancelled		(41,175	)		15.38

Non-vested at December 31, 2012		821,002			15.24
Granted		143,206			8.49
Vested		(380,413	)		12.50
Cancelled		(211,288	)		18.55

Non-vested at December 31, 2013		372,507		$	13.57

The Company’s aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock. Based on the fair market value of the common stock at December 31, 2013 and 2012, there was no aggregate intrinsic value for options outstanding and exercisable. For the year ended December 31, 2013, the Company used historical stock prices over the past three years as the basis for its volatility assumptions. Prior to 2013, the Company used a review of peer group companies to determine the volatility rate used for its stock option grants. The assumed risk-free rates were based on U.S. Treasury rates in effect at the time of grant with a term consistent with the expected option lives. The expected term is based upon the vesting term of the Company’s options, a review of a peer group of companies, and expected exercise behavior. The forfeiture rate is based on past history of forfeited options. The expense is being allocated using the straight-line method. For the years ended December 31, 2013, 2012 and 2011, the Company recorded $1.2 million, $1.8 million and $2.3 million, respectively of stock option compensation expense. As of December 31, 2013, the Company has $3.1 million of total unrecognized compensation cost related to non-vested options granted under the Company’s stock-based plans that it expects to recognize over a weighted-average period of 1.98 years.

For the years ended December 31, 2013, 2012 and 2011, the assumptions used for the estimated fair value at the date of option grant using the Black-Scholes option-pricing model were as follows:


	2013	2012	2011
Weighted average fair value per share of option	$8.49	$9.72	$16.02
Expected term	5.3 years	5.3 years	5.0 years
Risk free interest rate	0.76% - 1.42%	0.62% - 1.04%	0.85% - 2.24%
Volatility	77%	52%	51%
Dividend yield	None	None	None
Forfeiture rate	19.18%	16.59%	24.53%

The Company continues to account for options issued prior to January 1, 2006 under the intrinsic value method.

In October 2013, the Company granted 45,941 restricted stock units (“RSUs”) to certain key employees at a market price of $8.60. The fair value of each RSU is the market price on the date of grant and is being recorded as compensation expense ratably over the vesting terms. The intrinsic value at date of grant was $395,000. During 2013, the Company recorded $25,000 of RSU expense. Each RSU granted will vest 25% at each anniversary of grant date and settle in common stock (on a one-for-one basis). The RSUs are forfeited by a participant upon termination for any reason and there is no proportionate or partial vesting in the periods between the vesting dates. As of December 31, 2013, there was $370,000 of unrecognized compensation cost related to the non-vested restricted stock units. This cost is expected to be recognized over a weighted-average period of 3.75 years. At December 31, 2013 the intrinsic value of these RSUs was $556,000.

An analysis of restricted stock issued is as follows:


Non-vested restricted stock as of January 1, 2012	1,931
Granted	17,345
Vested	(14,940	)

Non-vested restricted stock as of December 31, 2012	4,336
Granted	73,707
Vested	(24,329	)

Non-vested restricted stock as of December 31, 2013	53,714

For the years ended December 31, 2013, 2012 and 2011, the Company recorded $292,000, $162,000 and $165,000, respectively, of stock compensation expense related to restricted stock.

In 2013, the Board of Directors awarded 47,050 shares of restricted stock and 70,365 stock options to key executives at a price of $7.97, the closing price of the shares on the date of the grant. Vesting of the shares is subject to achievement of specified targets by December 31, 2013 and March 31, 2014. The Company is recording stock compensation expense related to these shares based on the probability of achieving the targets. At December 31, 2013 two of these milestones were achieved and expense was recorded.