8. STOCK INCENTIVE PLANS

The Company sponsored a stock option 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 that may 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. 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 Company uses the Black-Scholes option pricing model to value stock options issued after January 1, 2006. The Company uses a three year historical stock price average to determine its volatility assumptions. 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 three months ended March 31, 2014 and 2013, the Company recorded $289,000 and $365,000, respectively, of stock option compensation expense. As of March 31, 2014, the Company had $1.3 million of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s stock-based plans that it expects to recognize over a weighted-average period of 1.97 years. The Company accounts for options issued prior to January 1, 2006 under the intrinsic value method.

The following table summarizes the activity of the stock incentive and equity plans as of March 31, 2014 and changes during the three months then ended:


	Shares available for grant			Number of options outstanding			Weighted- average option exercise price		Number of restricted stock and board shares issued		Number of restricted stock units outstanding
At January 1, 2014		2,240,103			1,926,070		$	12.46		59,932		45,941
Granted		(39,925	)		12,000			9.95		27,925		—
Exercised		—			(47,654	)		5.37		—		—
Cancelled/forfeited		28,626			(28,645	)		17.35		—		—

At March 31, 2014		2,228,804			1,861,771		$	12.56		87,857		45,941

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 March 31, 2014 and 2013, there was no intrinsic value for options outstanding. The weighted average fair value per share of options granted for the three months ended March 31, 2014 was $9.95 and the fair value of each option grant was estimated at the date of grant using the Black-Scholes option pricing model using an expected term of 5.3 years, risk-free interest rate of 1.72%, expected volatility of 77% and no dividend yield. The Company used an expected forfeiture rate of 25.56%.

For the three months ended March 31, 2014 the Company recorded $25,000 of restricted stock unit (“RSU”) expense. As of March 31, 2014, there was $346,000 of unrecognized compensation cost related to the non-vested RSUs. This cost is expected to be recognized over a weighted-average period of 3.5 years. At March 31, 2014 the intrinsic value of these RSUs was $519,000.

For the three months ended March 31, 2014 and 2013, the Company recorded $134,000 and $41,000, respectively, of stock compensation expense related to restricted stock.

A summary of the Company’s non-vested options during the three month period ended March 31, 2014 is presented below:


	Options			Weighted- average exercise price
Non-vested at January 1, 2014		372,507		$	13.57
Granted		12,000			9.95
Vested		(22,125	)		22.93
Forfeited		(24,664	)		17.52

Non-vested at March 31, 2014		337,718		$	12.54

An analysis of restricted stock issued is as follows:


Non-vested restricted stock as of January 1, 2014	53,714
Granted	27,925
Vested	(6,664	)

Non-vested restricted stock as of March 31, 2014	74,975