Note 12.

Stock-Based Plans and Stock-Based Compensation

We maintain several stock incentive plans under which stock-based awards are, or have been, granted to employees and non-employee directors. We issue new shares of common stock upon exercise or settlement of the stock-based awards. 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 awards may be exercised or settled and the exercise or grant prices of such shares, among other terms and conditions of stock-based awards under our stock-based plans.

With the approval of the 2014 Stock Incentive Plan (the “2014 Plan”) in May 2014, no further grants of stock-based awards may be made under our 2002 Stock Option Plan (the “2002 Plan”), our 2007 Stock Incentive Plan (the “2007 Plan”) or our 2010 Stock Incentive Plan (the “2010 Plan”). However, the provisions of these plans will remain in effect until all outstanding awards are exercised, settled or terminated. Shares subject to terminated awards under the 2002 Plan, the 2007 Plan and the 2010 Plan are not added to the pool of shares available for grant pursuant to the 2014 Plan.

2014 Stock Incentive Plan

The 2014 Plan provides for grants of stock options, restricted stock, restricted stock units, performance awards and stock appreciation rights, as well as other stock-based awards. While incentive stock options may only be granted to employees, awards other than incentive stock options may be granted to employees, non-employee directors and outside consultants. Options granted to our employees have generally been subject to a five-year vesting period. Vested options generally remain exercisable until ten years following the date of grant. The exercise price of stock options must be at least equal to the fair market value per share of our common stock on the date of grant. A maximum of 1,000,000 shares of common stock are authorized for issuance under the 2014 Plan. As of December 31, 2014, there were 988,347 shares available for future awards pursuant to the 2014 Plan.

Terms of awards granted pursuant to the 2002 Plan, the 2007 Plan and the 2010 Plan were similar to the terms of awards granted pursuant to the 2014 Plan.

Stock-Based Compensation

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

	Year Ended December 31,
	2014		2013		2012
Weighted average per share fair value of stock options granted	$	6.89	$	4.90	$	4.84
Intrinsic value of stock options exercised		932		554		40
Intrinsic value of fully-vested stock awards granted		288		1,039		366

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

	Year Ended December 31,
	2014		2013		2012
Selling, general and administrative expense	$	666	$	464	$	547
Cost of sales		118		85		-
Total stock-based compensation expense	$	784	$	549	$	547

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, 2014, we had total unrecognized stock-based compensation expense of $1.7 million, 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,
	2014			2013			2012
Risk-free interest rate		2.11	%		1.61	%		1.46	%
Dividend yield		0.0	%		0.0	%		0.0	%
Expected life	7.34 years			7.85 years			8.15 years
Volatility		60.20	%		58.91	%		60.39	%

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, 2014 was as follows:

	Options Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2013		298,954		$	6.73
Granted		141,955			11.17
Exercised		(104,804	)		4.65
Cancelled		(31,074	)		8.33
Forfeited		-			-
Outstanding at December 31, 2014		305,031			9.35

Certain information regarding options outstanding as of December 31, 2014 was as follows:

	Options Outstanding		Options Exercisable
Number		305,031		53,390
Weighted average exercise price	$	9.35	$	8.00
Aggregate intrinsic value	$	1,248,000	$	288,000
Weighted average remaining contractual term	8.5 years		7.5 years

Performance-Based Stock Grants

During the second quarter of each of 2014, 2013, 2012 and 2011, we granted performance-based common stock awards to selected executives under the 2010 Plan, with vesting contingent upon meeting various company-wide performance goals. The performance goals were tied to target amounts of adjusted EBITDA and Net sales for each of the three-year periods ending December 31, 2015, 2014 and 2013, respectively; for the awards in 2014, the measurement period is the 11 quarters ending December 31, 2016. The awards earned on the 2014, 2013 and 2012 grants will range from zero to 125% of the targeted number of performance shares for the performance periods ending March 31, 2017, 2016 and 2015, respectively. For the 2011 grant, 50% of the targeted number of performance shares were earned for the performance period ended March 31, 2014. Awards, if earned, are paid in shares of common stock.

Activity related to performance-based awards was as follows (in shares):

	2014 Awards			2013 Awards			2012 Awards			2011 Awards			Total
Granted (target amount)		77,443			50,347			42,450			57,145			227,385
Vested		-			-			-			(28,571	)		(28,571	)
Canceled due to termination of employee		(12,561	)		(16,999	)		-			-			(29,560	)
Canceled due to failure to meet performance goals		-			-			-			(28,574	)		(28,574	)
Not expected to vest due to failure to meet performance goals		-			-			(22,938	)		-			(22,938	)
Expected to vest as of December 31, 2014		64,882			33,348			19,512			-			117,742

Stock Grants

On the date of our Annual Meeting of Shareholders, each non-employee director received an annual grant of fully-vested shares of our common stock with a fair value of $30,000 in 2014 and $25,000 in each of 2013 and 2012. The 2014 amount included 2,804 fully-vested shares of common stock granted to each of our seven non-employee directors for a total of 19,628 shares.