Note 7.

Stock Compensation

Employee Stock Purchase Plan

Under the terms of our employee stock purchase plan, participating employees may acquire shares of common stock through payroll deductions of not more than 10% of their compensation. Shares are purchased on one specified date, the end of the plan year. The purchase price is 85% of the average closing price for the five days previous to the purchase date. As of December 31, 2013, there were 500,000 common shares reserved for this plan and 359,316 shares still available for issuance. As of December 31, 2013 employees had subscribed to purchase approximately 22,913 shares for the plan year ended August 31, 2014. Employees purchased 22,412 shares for the plan year ended August 31, 2013. We recorded stock compensation expense in selling, general and administrative expenses in the amount of $39,000, $29,000 and $27,000 in 2013, 2012 and 2011, respectively, related to this plan.

Retainer Stock Plan for Directors

Under the terms of a corporate retainer stock plan for directors, participating directors may acquire shares of common stock in exchange for their quarterly retainers. The price at which the shares can be purchased is 100% of the fair market value for such shares on the date of purchase. In 2013, directors received $30,000 of their annual retainer solely in shares of HickoryTech stock. As of December 31, 2013, there were 300,000 common shares reserved for this plan and 97,712 shares still available for future issuance.

Non-Employee Directors' Incentive Plan

The Non-Employee Directors' Incentive plan provided for each director to receive common stock contingent upon HickoryTech meeting pre-established objectives. This plan was not utilized in 2013 or 2012. As of December 31, 2013 there were 200,000 common shares reserved for this plan and 152,000 shares remain unissued under the plan.

1993 Stock Award Plan

HickoryTech's Stock Award Plan provides for the granting of stock awards, restricted stock awards and non-qualified stock options to employees. Shares issued under the stock award plan are new common shares. As of December 31, 2013, there were 1,750,000 common shares reserved for this plan and 704,143 shares available for future grants.

We recognize compensation for share-based payments based on management's best estimates and assumptions that the performance and service requirements of the plan will be achieved. Such compensation charges are recorded based upon the grant date fair value or settlement date fair value (as applicable) of our stock and are recognized over the requisite service period specified by the specific award plans. Share-based compensation expense recognized in selling, general and administrative expenses was $823,000, $761,000 and $1,119,000 in 2013, 2012 and 2011, respectively. This includes compensation expense for share-based payment awards granted prior to, but not vested as of December 31, 2013. Historical data is used to estimate pre-vesting forfeitures and are estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimate.

As of December 31, 2013, unrecognized compensation expense related to non-vested awards was $1,110,000. The weighted average period over which this compensation expense will be recognized is 2.11 years.

Long-Term Executive Incentive Program (LTEIP)

Under this program, executives can earn shares of common stock based on pre-established objective(s) over a three-year performance period. Shares issued under this Program are granted under the 1993 Stock Award Plan. An award is earned if at least 75% of the at-target objective(s) are achieved and a higher level award can be earned if performance exceeds the at-target objective(s) up to 125% of target. For program periods initiated between 2007 and 2009, the at-target awards were stated as a number of shares of common stock (equity classified). For program periods initiated in 2010 and after, the at-target awards are stated in dollars (liability classified) until the end of the performance period at which time the award is converted to shares based on a five day average share price and classified in equity. The Company carries liabilities of $971,000 and $1,028,000 as of December 31, 2013 and 2012, respectively, related to liability classified program periods that will be settled in company common stock in future periods.

Following the performance period, shares earned are issued in the name of the executive as restricted stock and are subject to a vesting period. Half of the shares vest 30 days after they are awarded and the remainder vest 12 months after the award date. The requisite service period (combined performance period plus vesting) totals 51 months under this program. Compensation expense related to the LTEIP plan is recognized over the 51 month requisite service period.

Non-vested restricted stock activity for the years ended December 31, 2013, 2012 and 2011 is depicted in the table below. Granted shares represent non-vested shares issued to settle an obligation under the LTEIP plan during the period.

	Shares									Weighted Average Fair Value
	2013			2012			2011			2013		2012		2011
Non-vested at beginning of year		32,447			22,813			46,854		$	3.43	$	7.84	$	5.88
Granted/settled		68,699			73,946			51,992		$	9.83	$	3.43	$	7.84
Vested		(72,621	)		(64,312	)		(76,033	)	$	6.97	$	4.99	$	6.63
Forfeited		-			-			-		$	-	$	-	$	-
Non-vested at end of year		28,525			32,447			22,813		$	9.83	$	3.43	$	7.84

Employee Stock Retention

Under this program, designated employees can earn shares of common stock if they complete a requisite service period which typically ranges from 11 to 36 months. Shares are granted under the 1993 Stock Award Plan. Compensation expense related to the Employee Stock Retention program is recognized over the requisite service period.

Retention stock activity for the years ended December 31, 2013, 2012 and 2011 is as follows:

	Shares									Weighted Average Fair Value
	2013			2012			2011			2013		2012		2011
Non-vested at beginning of year		11,150			20,159			29,920		$	10.28	$	7.68	$	7.47
Granted		33,950			14,300			7,600		$	8.76	$	10.88	$	9.31
Vested		(13,015	)		(19,609	)		(13,861	)	$	9.78	$	8.35	$	8.13
Forfeited		(800	)		(3,700	)		(3,500	)	$	10.57	$	8.65	$	7.66
Non-vested at end of year		31,285			11,150			20,159		$	8.77	$	10.28	$	7.68

Stock Options

Stock options granted under the stock option component of the 1993 Stock Award Plan may be exercised no later than ten years after the date of grant, with one-third of the options vesting each year. The fair value of each option award is estimated on the date of the grant using a Black-Scholes option valuation model.

The weighted average grant date fair value of options issued in 2011 was $0.80 per share. Other than this stock award, options were last granted under the Company's Stock Award Plan in September 2006. As of December 31, 2013, unrecognized compensation cost related to non-vested stock options granted under the Company's Stock Award Plan is $1,000. This expense is expected to be recognized in the first quarter of 2014.

A summary of all stock option activity for the years ended December 31, 2013, 2012 and 2011 was as follows:

	Stock Options									Weighted Average Exercise Price
	2013			2012			2011			2013		2012		2011
Outstanding at beginning of year		143,817			247,650			343,250		$	9.95	$	11.28	$	12.45
Granted		-			-			10,000		$	-	$	-	$	9.03
Exercised		(25,117	)		(9,833	)		(13,000	)	$	8.87	$	8.82	$	8.94
Forfeited		-			(5,800	)		(5,800	)	$	-	$	10.98	$	12.51
Expired		(16,250	)		(88,200	)		(86,800	)	$	9.15	$	13.73	$	15.94
Outstanding at end of year		102,450			143,817			247,650		$	10.35	$	9.95	$	11.28

Exercisable at end of year		99,116			137,150			237,650		$	10.39	$	10.00	$	11.37

Fair value of options vesting during the year	$	3,000		$	3,000		$	-

Intrinsic value of options exercised during the year	$	32,000		$	8,000		$	36,000

In 2013, we received $223,000 in cash related to stock options exercised during the year.

The following tables provide certain information with respect to stock options outstanding and exercisable at December 31, 2013:

Range of Exercise Prices	Stock Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$6.00 - $8.00		15,000	$	6.95		2.67
$8.00 - $12.00		87,450		10.93		1.36
		102,450	$	10.35		1.56

Aggregate intrinsic value			$	254,000

Range of Exercise Prices	Stock Options Exercisable		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$6.00 - $8.00		15,000	$	6.95		2.67
$8.00 - $12.00		84,116		11.00		1.13
		99,116	$	10.39		1.36

Aggregate intrinsic value			$	242,000