—Stock Options and Incentive Compensation

For the Company, FASB ASC Topic 718 “Compensation – Stock Compensation” affects the stock options that have been granted and requires the Company to expense share-based payment (“SBP”) awards with compensation cost for SBP transactions measured at fair value. The Company has elected to use the simplified method of calculating the expected term of the stock options and historical volatility to compute fair value under the Black-Scholes option-pricing model. The risk-free rate for periods within the contractual life of the option is based on the U.S. zero coupon Treasury yield in effect at the time of grant. Forfeitures have been estimated based upon the Company’s historical experience.

1993 Key Employee Stock Incentive Plan

The Company maintains the Amended and Restated 1993 Key Employee Stock Incentive Program (as amended and restated December 12, 2002 and December 10, 2009) (the “Incentive Plan”), which authorizes grants to officers and other key employees of the Company and its subsidiaries of (i) stock options that are intended to qualify as incentive stock options, (ii) nonqualified stock options and (iii) restricted stock awards. An aggregate of 2,700,000 shares of Common Stock, subject to adjustment upon occurrence of certain events to prevent dilution or expansion of the rights of participants that might otherwise result from the occurrence of such events, has been reserved for issuance pursuant to the Incentive Plan. An individual’s award of stock options is limited to 500,000 shares in a five-year period.

Non-qualified stock options and incentive stock options have been granted to date and all options have been granted at an exercise price at least equal to market price at the date of grant. Options expire over a period not to exceed ten years from the date of grant and vest ratably over a three year period. In December 2011 options to purchase 56,500 shares were awarded to several officers and employees at an exercise price of $8.10 for stock options that are intended to qualify as incentive stock options. A summary of option activity under the plans is as follows:



		Number of Shares Under Option		Weighted Average Option Price



Outstanding at November 1, 2010		683,692		$6.13
	Granted	154,000		12.10
	Exercised	(208,107	)	$3.62
	Canceled	(109,400	)	$8.15
Outstanding at October 31, 2011		520,185		$8.54
	Granted	56,500		$8.10
	Exercised	(158,513	)	$4.01
	Canceled	(56,087	)	$10.96
Outstanding at October 31, 2012		362,085		$9.99

There were 225,585 options exercisable as of October 31, 2012 with a weighted average exercise price of $9.71. At October 31, 2012 options outstanding had an intrinsic value of $838 and options exercisable had an intrinsic value of $653. Options that have an exercise price greater than the market price on October 31, 2012 were excluded from the intrinsic value computation. The intrinsic value of options exercised during fiscal 2012 and 2011 was $1,167 and $901, respectively.

The following table provides additional information regarding options outstanding as of October 31, 2012:



Exercise Prices	Options Outstanding	Exercise Price of Options Outstanding and Options Exercisable	Options Exercisable	Weighted Average Remaining Contractual Life


$8.96	2,000	$8.96	2,000	1.97
$13.06	15,000	$13.06	15,000	2.99
$14.74	65,649	$14.74	65,649	4.29
$8.83	2,670	$8.83	2,670	5.32
$2.11	10,000	$2.11	10,000	6.12
$5.30	90,266	$5.30	90,266	6.78
$12.04	111,695	$12.04	37,232	8.11
$13.24	8,305	$13.24	2,768	3.11
$8.10	56,500	$8.10	—	9.15

Totals	362,085		225,585

In September 2012, 80,257 shares of restricted stock were granted to the newly appointed chief executive officer as part of his compensation package.

For the fiscal years ended October 31, 2012 and 2011, the Company recorded compensation expense related to the stock options currently vesting, effectively reducing pretax income by $730 and $799, respectively. The impact on earnings per share for each of the fiscal years ended October 31, 2012 and 2011 was a reduction of $0.03 per share basic and diluted. The total compensation cost related to nonvested awards not yet recognized as of October 31, 2012 and 2011 is a total of $620 and $1,191, respectively, which will be recognized over the next four fiscal years. The total compensation cost related to the restricted stock currently vesting is $24 and for the non-vesting restricted stock is $793.

The fair values of these options were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants awarded during fiscal year 2012:



	2012
Risk-free interest	1.20	%
Dividend yield	—	%
Volatility factor—market	88.26	%
Expected life of options—years	6.00

Based upon the preceding assumptions, the weighted average fair value of stock options granted during fiscal year 2012 was $8.10 per share.

Executive Incentive Bonus Plans

The Company maintains a Senior Management Bonus Plan (the “Management Plan”) to provide the Chief Executive Officer and certain eligible executive officers incentives for superior performance. The Management Plan, which was reapproved by the stockholders of the Company and is administered by the Compensation Committee of the Board of Directors, entitles the executives to be paid a cash bonus based upon the attainment of objective performance criteria established annually by the Compensation Committee. In accordance with the Plan, the Compensation Committee has typically established performance goals. For fiscal years 2012 and 2011, the Compensation Committee established goals based on the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA"), entitling these executives to be paid a bonus based upon varying percentages of their respective base salaries and the level of achievement of EBITDA in relation to the target established by the Compensation Committee. For fiscal 2012, these executives are entitled to receive an aggregate of $1,277 under the Management Plan. For fiscal 2011, these executives were entitled to receive an aggregate of $719 under the Management Plan, which was paid in the first quarter of fiscal 2012.

The Company maintains a Short-Term Incentive Plan (the “Bonus Plan”), which provides annual incentive bonuses to its eligible employees (other than those employees that participate in the Management Plan). The measurement criteria for the Bonus Plan, including eligible employees, is determined annually by the Compensation Committee and approved by the Board of Directors. Payments are made to participants of the Bonus Plan based upon the achievement of defined objectives. In the case of corporate executives eligible for the Bonus Plan, 100% of the incentive depends upon meeting the goals for Company performance including specific individual goals as established by the Chief Executive Officer. Finally, in the case of the remaining employees eligible for the Bonus Plan, 50% of the incentive depends upon meeting the operating targets and metrics of the employees' operating unit including specific individual goals as established by the Chief Executive Officer and 50% is based upon attaining the corporate goals for Company performance.