2.	Share-Based Compensation

In April 2015, the Company’s shareholders approved the Providence and Worcester Railroad Company 2015 Equity Incentive Plan (“Plan”), which replaced the Company’s non-qualified stock option plan (“SOP”). The awards below were issued under the SOP. No awards were made under the Plan during 2015. In January 2016, 54,000 options and 70,500 restricted stock units (“RSU”) were awarded under the Plan. The option awards vest in accordance with the term of the option awards (mainly time vested over a 5 year period) and the RSU are performance based. Options issued but not exercised under the SOP totaling 43,931 remains outstanding until they are either exercised or expire.

The Company had a SOP covering all management personnel who have a minimum of one year of service with the Company and who are not holders of a majority of either its outstanding common stock or its outstanding preferred stock. In addition, the Company’s outside directors are eligible to participate in the SOP. Options granted under the SOP, which are fully vested when granted, are exercisable over a ten year period at the closing market price for the Company’s common stock on the last business day of the year prior to the date the options are granted. The Company issues new common stock to satisfy stock options exercised.

The Company recognizes compensation expense for new stock option grants at fair value on the grant date, less estimated forfeitures. Stock-based employee compensation expense, net of income taxes, in the amounts of $85 and $73, has been charged against income in 2015 and 2014, respectively, for stock options granted. The Company’s policy is to estimate the fair market value of each option granted on the date of grant, the first business day in January of each year, using the Black-Scholes option pricing model, and to record the compensation expense in the year in which the grant was made. Management’s estimates requires the use of assumptions that are highly subjective including items such as the expected life of the option grants, the expected stock price volatility and the expected dividend payment rate. The expected life is based upon historical experience and is estimated for each grant. The expected volatility is based upon a combination of historical and implied volatility. The expected dividend rate is based upon historical yields. The risk free rate is based upon on a zero-coupon U.S. Treasury rate at the time of grant with maturity dates that coincide with the expected life of the options.

Key assumptions used to apply the Black-Scholes option pricing model are set forth below:

	2015			2014
Average risk-free interest rate		1.64	%		1.17	%
Expected life of option grants	5.0 years			5.0 years
Expected volatility of underlying stock		72.55	%		99.00	%
Expected dividend payment rate, as a percentage of the share price on the date of grant		0.89	%		0.82	%
Weighted average grant date fair value	$	10.20		$	13.80

The following table summarizes the stock option activity under the Company’s plan:

				Weighted Average
	Number			Exercise		Fair
	Of Options			Price		Value
Outstanding and exercisable at December 31, 2013		67,082		$	14.26
Granted		8,240			19.55	$	13.80
Exercised		(6,709	)		12.72
Expired		(5,328	)		14.37
Outstanding and exercisable at December 31, 2014		63,285		$	15.12
Granted		8,300			18.06	$	10.20
Exercised		(1,119	)		14.11
Expired		(5,029	)		14.43
Outstanding and exercisable at December 31, 2015		65,437		$	15.55

The total intrinsic value of options exercised for the years ended December 31, 2015 and 2014 totaled approximately $1 and $38, respectively, and cash proceeds from the exercise of stock options totaled approximately $16 and $85 for the years ended December 31, 2015 and 2014, respectively. The income tax benefits realized from the exercise of stock options were not material for the periods presented.

The aggregate intrinsic value of the stock options outstanding, based on the closing stock price of the Company’s common stock as of December 31, 2015 and 2014, totaled approximately $45 and $208, respectively. The weighted average of the remaining life was five years at December 31, 2015 and 2014.

Common Stock Awards

The Company has awarded certain of its employee’s common stock under stock award plans. During the years ended December 31, 2015 and 2014, the Company awarded 40 and 50 shares, respectively. The compensation expense recorded for these awards was de minimus for 2015 and 2014. Common stock awarded under such stock award plans vests immediately.