6. 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, 2012		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
Granted		(706,056	)		574,950			5.04		27,925			103,181
Exercised/issued		—			(47,654	)		5.37		—			(10,525	)
Canceled/forfeited		238,482			(215,080	)		16.72		(20,911	)		(3,866	)

Outstanding at December 31, 2014		1,772,529			2,238,286		$	10.31		140,653			134,731

The following table sets forth option grants made during 2014, 2013 and 2012 with intrinsic value calculated based on grant date fair value.


Date of Grant	Number of options granted		Exercise price		Intrinsic value per share
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		—
January – July 2014		39,300	$	7.69 - $11.29		—
September 2014		300,000	$	4.30 - $5.20		—
October – December 2014		235,650	$	4.25 - $4.41		—

At December 31, 2014, the exercise prices of outstanding options were as follows:


Exercise Price	Number of options outstanding		Average remaining contractual life (years)		Number of options exercisable
$0.78 - $4.94		806,655		6.24		498,005
$5.12 - $9.95		585,369		6.38		328,790
$10.02 - $14.00		311,442		5.19		259,891
$15.00 - $18.80		45,427		3.62		43,927
$19.21 - $22.92		368,738		5.06		363,910
$24.95 - $32.67		120,655		5.63		115,030

		2,238,286		5.85		1,609,553

The weighted average fair value of the options that became vested in the years ended 2014, 2013 and 2012 was $2.9 million, $4.8 million and $8.0 million, respectively.

The following table summarizes the activity of non-vested options as follows:


	Non-vested options			Weighted- Average Option Exercise price
Non-vested at January 1, 2012		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		97,265			8.43
Vested		(380,413	)		12.50
Cancelled		(211,288	)		18.55

Non-vested at December 31, 2013		326,566			13.57
Granted		574,950			5.04
Vested		(169,361	)		14.84
Cancelled		(103,422	)		12.74

Non-vested at December 31, 2014		628,733		$	5.93

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, 2014 and 2013, there was no aggregate intrinsic value for options outstanding and exercisable.

For the years ended December 31, 2014 and 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, 2014, 2013 and 2012, the Company recorded $840,000, $1.2 million and $1.8 million, respectively, of stock option compensation expense. As of December 31, 2014, the Company has $1.8 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 2.69 years.

For the years ended December 31, 2014, 2013 and 2012, the assumptions used for the estimated fair value at the date of option grant using the Black-Scholes option-pricing model were as follows:


	2014	2013	2012
Weighted average fair value per share of option	$5.04	$8.49	$9.72
Expected term	5.3 years	5.3 years	5.3 years
Risk free interest rate	1.66% - 1.83%	0.76% - 1.42%	0.62% - 1.04%
Volatility	77%	77%	52%
Dividend yield	None	None	None
Forfeiture rate	25.56%	19.18%	16.59%

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

A summary of the Company’s restricted stock units (“RSUs”) is as follows:


	RSUs outstanding			Weighted average price at time of grant		Aggregate intrinsic value
Non-vested restricted stock units as of January 1, 2013		—		$	—
Granted		45,941			8.60

Non-vested restricted stock units as of December 31, 2013		45,941			8.60
Granted		103,181			4.43
Vested		(10,525	)		8.60
Cancelled		(3,866	)		8.60

Non-vested at December 31, 2014		134,731		$	5.41	$	616,000

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. For the years ended December 31, 2014 and 2013, the Company recorded $120,000 and $25,000 of RSU expense, respectively. 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, 2014, there was $688,000 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 2.8 years.

An analysis of restricted stock issued is as follows:


Non-vested restricted stock as of January 1, 2013	4,336
Granted	73,707
Vested	(24,329	)

Non-vested restricted stock as of December 31, 2013	53,714
Granted	27,925
Vested	(48,521	)
Cancelled	(20,911	)

Non-vested restricted stock as of December 31, 2014	12,207

For the years ended December 31, 2014, 2013 and 2012, the Company recorded $448,000, $292,000 and $162,000, 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 was subject to achievement of specified targets by December 31, 2013 and March 31, 2014. All of the milestones were achieved by the specified dates. As of December 31, 2014, 20,911 restricted shares and 31,274 stock options were cancelled. The Company is recording stock compensation expense related to the remaining outstanding shares.