Stock Options

12 Months Ended

Dec. 31, 2013

Stock Options

Stock Options

11. Stock Options

On February 21, 2000, the Company's Board of Directors approved the adoption of the 2000 Incentive Stock Option Plan (the “Plan”) for TOR Minerals International, Inc.  The Plan provides for the award of a variety of incentive compensation arrangements, including restricted stock awards, performance units or other non-option awards, to such employees and directors as may be determined by a Committee of the Board.  At the Annual Shareholders’ meeting on May 11, 2012, the maximum number of shares of the Company’s common stock that may be sold or issued under the Plan was increased to 500,000 shares subject to certain adjustments upon recapitalization, stock splits and combinations, merger, stock dividend and similar events; in addition the Plan was extended to May 23, 2022.  At December 31, 2013, there were 131,164 options outstanding, 112,792 exercised and 256,044 available for future issuance under the Plan.

For the years ended December 31, 2013 and 2012, the Company recorded $109,000 and $90,000, respectively, in stock-based employee compensation.  This compensation cost is included in the general and administrative expenses and cost of sales in the accompanying consolidated statements of operations.

The Company granted options to purchase 20,500 and 21,000 shares of common stock during the years ended December 31, 2013 and 2012, respectively.  The weighted average fair value per option at the date of grant for options granted in the years ended December 31, 2013 and 2012 was $11.37 and $11.03, respectively, as valued using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Twelve Months Ended December 31,
	2013	2012
Risk-free interest rate	1.28%	1.17%
Expected dividend yield	0.00 %	0.00 %
Expected volatility	0.90	0.68
Expected term (in years)	7.00	7.00

The risk free interest rate is based on the Treasury Constant Maturity Rate as quoted by the Federal Reserve at the time of the grant for a term equivalent to the expected term of the grant.  The estimated volatility is based on the historical volatility of our stock and other factors.  The expected term of options represents the period of time the options are expected to be outstanding from grant date.

The following table summarizes certain information regarding stock option activity:

		Options
	Total Reserved	Outstanding	Weighted AvgExercise Price	Range ofExercise Prices
Balances atDecember 31, 2011	177,641	167,983	$12.53	$1.75	-	$30.55
Additional options authorized	250,000
Granted		21,000	$11.03	$16.77	-	$18.22
Exercised	(15,095)	(15,095)	$8.83	$2.90	-	$11.05
Balances atDecember 31, 2012	412,546	173,888	$13.39	$2.70	-	$30.55
Granted		20,500	$8.83	$11.27	-	$11.39
Exercised	(25,338)	(25,338)	$10.69	$2.70	-	$11.05
Forfeited or expired		(37,886)	$14.63	$11.00	-	$29.50
Balances atDecember 31, 2013	387,208	131,164	$13.24	$2.70	-	$30.55

The number of shares of common stock underlying options exercisable at December 31, 2013 and 2012 was 87,664 and 143,388, respectively.  The weighted-average remaining contractual life of those options is 5.93 years.  Exercise prices on options outstanding at December 31, 2013, ranged from $2.70 to $30.55 per share as noted in the following table.

Options Outstanding at December 31,
2013	2012	Range of Exercise Prices
15,028	17,158	$   2.70 - $   9.99
83,116	111,410	$ 10.00 - $ 14.99
23,620	24,620	$ 15.00 - $ 19.99
2,000	12,800	$ 20.00 - $ 24.99
2,000	2,500	$ 25.00 - $ 29.99
5,400	5,400	$ 30.00 - $ 30.55
131,164	173,888

As of December 31, 2013, there was approximately $366,000 of compensation expense related to non-vested awards.  This expense is expected to be recognized over a weighted average period of 3.16 years.

As most options issued under the Plan are Incentive Stock Options, the Company does not receive any excess tax benefits relating to the compensation expense recognized on vested options.