Note 14. Stock-Based Plans and Stock-Based Compensation

We maintain several stock incentive plans under which stock-based awards are granted to employees and non-employee directors. We issue new shares of common stock upon conversion of the stock-based awards. Under the terms of our stock option plans, subject to certain limitations, employees and directors may be granted options to purchase our common stock at the market price on the date the option is granted. All of our stock plans are administered by the Compensation Committee of our Board of Directors, which determines the grantees, the number of shares of common stock for which options are exercisable and the exercise prices of such shares, among other terms and conditions of stock-based awards under our stock-based plans.

With the approval of the 2010 Stock Incentive Plan (the “2010 Plan”), no further grants of stock-based awards may be made under our 2002 Stock Incentive Plan (the “2002 Plan”) or our 2007 Stock Incentive Plan (the “2007 Plan”); however, the provisions of these plans will remain in effect until all outstanding options are terminated or exercised.

2010 Stock Incentive Plan

On May 26, 2010, our shareholders approved the 2010 Plan, as recommended by our Board of Directors. The 2010 Plan provides for grants of stock options, restricted stock, restricted stock units, performance awards and stock appreciation rights. While incentive stock options may only be granted to employees, awards other than incentive stock options may be granted to employees and non-employee directors. Options granted to our employees are generally designated to vest over a five-year period. Vested options are generally exercisable for ten years from the date of grant. A maximum of 750,000 shares of common stock are authorized for issuance under the 2010 Plan. As of December 31, 2011, there were 576,490 shares available for future awards pursuant to the 2010 Plan, assuming all 67,530 shares subject to performance vesting vest at the end of the performance period.

2007 Stock Incentive Plan

Our 2007 Plan allows for grants of stock options and restricted stock to our employees and restricted stock grants to our Company's directors. These grants have been made since the inception of the 2007 Plan in May 2007 through May 2010. Options granted to the Company's employees were generally designated to vest over a five-year period. Vested options are generally exercisable for ten years from the date of grant.

2002 Stock Option Plan

Our 2002 Plan allowed for the grant of non-qualified stock options and incentive stock options to employees and non-qualified stock options to non-employee directors and independent consultants or advisors, subject to certain limitations. Options granted to our employees were generally designated to vest over either a four-year or five-year period while options granted to our directors were generally designated to become exercisable from the date of grant up to three months following the grant date. Vested options are generally exercisable for ten years from the date of grant.

Stock-Based Compensation Expense

Certain information regarding our stock-based compensation was as follows (in thousands, except per share amounts):

Year Ended December 31,	2011		2010		2009
Weighted average per share fair value of stock options granted	$	5.99	$	2.68	$	0.89
Intrinsic value of stock options exercised		60		252		99
Intrinsic value of fully-vested stock awards granted		243		61		36

Stock-based compensation expense was recognized in our Consolidated Statements of Income as follows (in thousands):

	Year Ended December 31,
	2011		2010		2009
Selling, general and administrative expense	$	467	$	99	$	42

We amortize stock-based compensation on a straight-line basis over the vesting period of the individual awards, which is the requisite service period, with estimated forfeitures considered.

At December 31, 2011, we had total unrecognized stock-based compensation expense of $848,000, which will be recognized over the weighted average remaining vesting period of 3.2 years.

The following weighted average assumptions were utilized in determining fair value pursuant to the Black-Scholes option pricing model:

Year Ended December 31,	2011			2010			2009
Risk-free interest rate		2.84	%		2.64% - 3.86	%		2.87	%
Dividend yield		0.0	%		0.0	%		0.0	%
Expected life		7.5 years			10 years			10 years
Volatility		62.10	%		62.54	%		60.98	%

The risk-free rate used is based on the U.S. Treasury yield curve over the estimated term of the options granted. Expected lives were estimated based on historical exercise data. The expected volatility is calculated based on the historical volatility of our common stock.

Stock-Based Awards Plan Activity

Stock Option Activity

Stock option activity for the year ended December 31, 2011 was as follows:

	Options Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2010		219,000		$	3.14
Granted		46,140			9.26
Exercised		(9,600	)		2.41
Forfeited		(3,300	)		1.92
Outstanding at December 31, 2011		252,240			4.30

Certain information regarding options outstanding as of December 31, 2011 was as follows:

	Options Outstanding		Options Exercisable
Number		252,240		71,900
Weighted average exercise price	$	4.30	$	2.74
Aggregate intrinsic value	$	621,000	$	243,000
Weighted average remaining contractual term	7.8 years		5.8 years

Performance-Based Stock Grants

During the second quarter of 2011, we granted performance-based stock awards covering 67,530 shares of our common stock to selected executives with vesting contingent upon meeting various company-wide performance goals. The performance goals are tied to target amounts of adjusted EBITDA and net sales for the three fiscal years ending December 31, 2013. The awards earned will range from zero to one hundred percent of the targeted number of performance shares for the performance period ending March 31, 2014. Awards, if earned, will be paid in shares of common stock.

Stock Grants

Beginning with the 2011 Annual Meeting of Shareholders, each non-employee director receives an annual grant of shares of our common stock with a fair value of $25,000 upon election at the Annual Meeting of Shareholders. Accordingly, on May 25, 2011, our Board of Directors approved an annual grant of 2,700 shares of fully-vested common stock to each of our six non-employee directors for a total of 16,200 shares of our common stock.