Note 10 — Stock Compensation Plans

In April 2007, Shareholders approved the Escalade, Incorporated 2007 Incentive Plan (2007 Incentive Plan), which is an incentive plan for key employees, directors and consultants with various equity-based incentives as described in the plan document. The 2007 Incentive Plan is a replacement for the 1997 Incentive Stock Option Plan and the 1997 Director Stock Compensation and Option Plan which expired at the end of April 2007. All options issued and outstanding under the expired plans will remain in effect until exercised, expired or forfeited.

The 2007 Incentive Plan is administered by the Board of Directors or a committee thereof, which is authorized to determine, among other things, the key employees, directors or consultants who will receive awards under the plan, the amount and type of award, exercise prices or performance criteria, if applicable, and vesting schedules. Under the original terms of the plan and subject to various restrictions contained in the plan document, the total number of shares of common stock which may be issued pursuant to awards under the Plan may not exceed 2,981,491.

Restricted Stock Units

In 2009, 2008, and 2007, the Company granted restricted stock units to certain officers and directors of the Company at fair market value on the date of grant. The restricted stock units granted to employees of the Company vest over three to four years and are dependent on certain market criteria. The restricted stock units granted to directors vest immediately or within two years. All restricted stock units are payable in shares of the Company’s common stock upon vesting, subject to the deferral election arrangement, and are subject to forfeiture if on the vesting date the employee is not employed or the director no longer holds a position with the Company.

The Company issued no restricted stock units to employees or directors in 2013, 2012 and 2011. The following table presents a summary of non-vested restricted stock units granted to directors as of December 28, 2013:

		Number of Shares

Vested but unsettled		33,742

Outstanding restricted stock units as of December 28, 2013		33,742

When vesting is dependent on certain market criteria, the fair value of restricted stock units is determined by the use of Monte Carlo techniques. The market price of the Company’s stock on the grant date is used to value restricted stock units where vesting is not contingent on market criteria. In 2013, 2012, and 2011 the Company recognized $0, $0, and $35 thousand respectively in compensation expense related to restricted stock units and as of December 28, 2013 and December 29, 2012, there was $0 and $0 respectively, of unrecognized compensation expense related to restricted stock units.

Stock Options

Total compensation expense recorded in the statements of operations for 2013, 2012 and 2011 relating to stock options was $557 thousand, $574 thousand and $548 thousand, respectively. As of December 28, 2013, there were $738 thousand of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 2.2 years.

During 2013, the Company awarded 37,500 stock options to directors and 120,000 stock options to employees. The stock options awarded to directors vest at the end of one year and have an exercise price equal to the market price on the date of grant. Director stock options are subject to forfeiture, except for termination of services as a result of retirement, death or disability, if on the vesting date the director no longer holds a position with the Company. The 2013 stock options awarded to employees have a graded vesting of 25% per year over four years and are subject to forfeiture if on the vesting date the employee is no longer employed.

The following table summarizes option activity for each of the three years ended 2013:

	Incentive Stock Options		Director Stock Options
	Granted	Outstanding	Granted	Outstanding

2013	120,000	559,950	37,500	80,000
2012	200,000	607,875	37,500	85,000
2011	200,000	915,625	37,500	69,024

The fair value of each option grant award is estimated on the grant date using the Black-Scholes-Merton option valuation model using the following assumptions:

	2013	2012	2011

Risk-free interest rates	0.52%	0.84%	1.51%
Dividend yields	5.97%	5.50%	1.84%
Volatility factors of expected market price of common stock	48.79% to 74.05%	95.56% to 110.39%	109.71% to 122.17%
Weighted average expected life of the options	1-4 years	1-4 years	1-4 years

The following table summarizes stock option transactions for the three years ended 2013:

	2013				2012				2011
	Shares		Option Price		Shares		Option Price		Shares		Option Price

Outstanding at beginning of year		692,875		$0.64 to $6.07		984,649		$0.64 to $9.35		929,024		$0.64 to $11.26

Issued during year		157,500		$5.85 to $6.06		237,500		$5.28 to $5.66		237,500		$6.07

Canceled or expired		(27,000)				(25,024)				(125,625)

Exercised during year		(183,425)		$0.64 to $6.07		(504,250)		$0.64 to $2.56		(56,250)		$0.64 to $2.56

Outstanding at end of year		639,950		$0.64 to $6.07		692,875		$0.64 to $6.07		984,649		$0.64 to $9.35

Exercisable at end of year		198,825				192,625				69,399
Weighted-average fair value of options granted during the year	$	2.21			$	3.12			$	4.03

The total intrinsic value of options exercised was $929 thousand, $2.4 million, and $185 thousand for 2013, 2012 and 2011, respectively.

The following table summarizes information about stock options outstanding at December 28, 2013:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number of Shares	Weighted-Average Exercise Price

$0.64	5,000	0.3 years	$	0.64	5,000	$	0.64
$2.56	116,750	1.2 years	$	2.56	55,625	$	2.56
$5.28 - $5.66	198,500	3.2 years	$	5.29	59,000	$	5.29
$5.85 - $6.06	155,500	4.2 years	$	5.86	—		—
$6.07	164,200	2.2 years	$	6.07	79,200	$	6.07
	639,950				198,825

During the year ended December 28, 2013, the following activity occurred under the Company’s stock option plan:

	Number of Options	Weighted Average Grant- Date Fair Value

Nonvested balance, beginning of year	500,250	$	3.02
Granted	157,500	$	2.21
Vested	(189,625)	$	2.85
Forfeited	(27,000)	$	3.21

Nonvested balance, end of year	441,125	$	2.79