11.	SHAREHOLDERS’ EQUITY

The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for net income and net income available to common shareholders:


	Income (Numerator)		Shares (Denominator)		Per Share		Income (Numerator)		Shares (Denominator)		Per Share
	Three Months Ended						Three Months Ended
(in thousands, except per share amounts)	June 30, 2016						June 30, 2015
Net income	$	4,386					$	3,661
Basic EPS:
Net income available to common shareholders	$	4,386		14,112	$	0.31	$	3,661		13,947	$	0.26
Effect of dilutive securities:
Stock options				186						220
Diluted EPS:
Net income available to common shareholders plus assumed conversions	$	4,386		14,298	$	0.31	$	3,661		14,167	$	0.26


	Six Months Ended						Six Months Ended
(in thousands, except per share amounts)	June 30, 2016						June 30, 2015
Net income	$	8,788					$	7,773
Basic EPS:
Net income available to common shareholders	$	8,788		14,084	$	0.62	$	7,773		13,965	$	0.56
Effect of dilutive securities:
Stock options				159						238
Diluted EPS:
Net income available to common shareholders plus assumed conversions	$	8,788		14,243	$	0.62	$	7,773	$	14,203	$	0.55

For the three months ended June 30, 2016, weighted average options to purchase 185,724 shares of common stock were outstanding but were not included in the computation of diluted EPS because the options were antidilutive under the treasury stock method. For the three months ended June 30, 2015, weighted average options to purchase 323,201 shares of common stock were not included in the computation of diluted EPS because the options were antidilutive under the treasury stock method.

For the six months ended June 30, 2016, weighted average options to purchase 182,625 shares of common stock were outstanding but were not included in the computation of diluted EPS because the options were antidilutive under the treasury stock method. For the six months ended June 30, 2015, weighted average options to purchase 262,770 shares of common stock were not included in the computation of diluted EPS because the options were antidilutive under the treasury stock method.

Changes in Shareholders’ Equity:

The following is a summary of the changes in shareholders’ equity for the six months ended June 30, 2016:


	Common Stock				Additional Paid-In			Common Stock Held in			Retained		Accumulated Other Comprehensive
(in thousands)	Shares		Amount		Capital			Treasury			Earnings		Income (Loss)			Total
Balance December 31, 2015		14,154	$	142	$	81,963		$	—		$	158,270	$	(11,986	)	$	228,389
Net income		—		—		—			—			8,788		—			8,788
Other comprehensive income (loss), net of tax		—		—		—			—			—		1,548			1,548
Exercise of stock options		123		1		2,074			—			—		—			2,075
Issuance of restricted common stock for services		9		—		193			—			—		—			193
Issuance of common stock under Employee Stock Purchase Plan		23		—		358			—			—		—			358
Repurchase of common stock		—		—		—			(3,042	)		—		—			(3,042	)
Compensation cost of stock options		—		—		988			—			—		—			988
Tax impact on stock awards		—		—		(420	)		—			—		—			(420	)
Balance June 30, 2016		14,309	$	143	$	85,156		$	(3,042	)	$	167,058	$	(10,438	)	$	238,877

Treasury Stock:

In December 2015, our Board of Directors authorized the repurchase of up to 1.0 million shares of our common stock over a two-year period. As of June 30, 2016, we had repurchased 163,529 shares of our common stock at an average price of $18.60 per share, or an aggregate of $3.0 million.

Stock-based Compensation Awards:

We sponsor an Executive Incentive Compensation Plan, which provides for the award of stock-based compensation, including options, stock appreciation rights, restricted stock and other stock-based incentive compensation awards to key employees, directors and independent agents and consultants. We implemented a comprehensive, consolidated incentive compensation plan upon shareholder approval at our Annual Meeting of Shareholders on May 7, 2009, which was amended and restated at our 2014 Annual Meeting of Shareholders, held on May 8, 2014, to increase the maximum number of shares issuable under the 2009 Plan by 500,000. We refer to this plan, as amended, as the 2009 Plan. The maximum number of common shares issuable under the 2009 Plan is 1,500,000 plus (a) the number of shares with respect to awards previously granted under our preexisting plans that terminate without being exercised, expire, are forfeited or canceled, plus (b) the number of shares that remain available for future issuance under our preexisting plans plus (c) the number of shares that are surrendered in payment of any awards or any tax withholding with respect thereto. Common stock issued upon exercise of stock options is settled with authorized but unissued shares available. Under the 2009 Plan, the exercise price of option awards equals the market price of our common stock on the date of grant, and each award has a maximum term of ten years. As of June 30, 2016, there were 417,679 total shares remaining issuable under the 2009 Plan.

The aggregate compensation cost charged against income with respect to awards issued under the 2009 Plan and the 2009 Employee Stock Purchase Plan, referred to as the 2009 ESPP, was $1.0 million and $0.9 million for the six months ended June 30, 2016 and 2015, respectively. Income tax benefit on exercises of non-qualified stock options was $0.3 million and $0.3 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, total unrecognized compensation cost related to unvested awards was $1.4 million and is expected to be recognized over a weighted-average period of 1.8 years.

Stock Options:

A summary of the status of stock option activity under our stock-based compensation plans as of June 30, 2016 and changes during the year to date is presented below:


	2016
	Options			Weighted Avg Exercise Price		Weighted Avg Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding - January 1		1,217,003		$	18.70
Granted		18,500			23.00
Exercised		(122,644	)		16.92			$	446
Forfeited or Expired		(139,566	)		17.65
Outstanding - June 30		973,293		$	19.16		3.74	$	7,376
Exercisable - June 30		550,921		$	18.01		3.00	$	4,808

Outstanding options, consisting of five-year to ten-year incentive and non-qualified stock options, vest and become exercisable ratably over a three to five year period from the date of grant. The outstanding options expire from five to ten years from the date of grant or upon termination of employment with Exactech, and are contingent upon continued employment during the applicable option term. Certain non-qualified stock options are granted to non-employee sales agents and consultants, and they typically vest ratably over a period of three to four years from the date of grant and expire in five years or less from the date of grant, or upon termination of the agent's or consultant’s contract with Exactech. Stock options for the purchase of 18,500 shares of common stock were granted during the six months ended June 30, 2016, compared to stock options for the purchase of 176,125 shares of common stock granted during the same period in 2015.

Restricted Stock Awards:

Under the 2009 Plan, we may grant restricted stock awards to eligible employees, directors, and independent agents and consultants. Restrictions on transferability, risk of forfeiture and other restrictions are determined by the Compensation Committee of the Board of Directors, or the Committee, at the time of the award. During February 2016, the Committee approved equity compensation to the outside members of the Board of Directors for their service on the Board of Directors. The annual compensation for each outside director consists of the grant of stock awards with an aggregate market value of $77,500, payable in four equal quarterly grants of common stock based on the market prices of our common stock on the respective dates of grant. The summary information of the restricted stock grants for the first three months of 2016 is presented below:


Grant date	February 29, 2016		May 31, 2016
Aggregate shares of restricted stock granted		5,190		3,925
Grant date fair value	$	97,000	$	97,000
Weighted average fair value per share	$	18.65	$	24.68

During February 2015, the Committee approved equity compensation to the outside members of the Board of Directors for their service on the Board of Directors. The annual compensation for each outside director consisted of the grant of stock awards with an aggregate market value of $77,500, payable in four equal quarterly grants of common stock based on the market prices of our common stock on the respective dates of grant. The summary information of the restricted stock grants for the first three months of 2015 is presented below:


Grant date	February 27, 2015		May 29, 2015
Aggregate shares of restricted stock granted		4,974		4,530
Grant date fair value	$	116,000	$	97,000
Weighted average fair value per share	$	23.35	$	21.38

All of the restricted stock awards in 2016 and 2015 were fully vested at each of the grant dates. The restricted stock awards require no service period and thus contain no risk of, or provision for, forfeiture.

Employee Stock Purchase Plan:

On February 18, 2009, our Board of Directors adopted the 2009 ESPP, and our shareholders approved the 2009 ESPP at our Annual Meeting of Shareholders on May 7, 2009. Under the 2009 ESPP, employees are able to purchase shares of our common stock at a fifteen percent (15%) discount via payroll deduction, up to a maximum number of shares issuable under the 2009 ESPP of 300,000. In February 2016, our Board of Directors adopted an amendment to the 2009 ESPP, to increase the maximum number of shares issuable under the 2009 ESPP to 450,000, which was approved by our shareholders at our Annual Meeting of Shareholders held on May 2, 2016. There are four offering periods during an annual period. As of June 30, 2016, 166,000 shares remained available for purchase under the 2009 ESPP. The fair value of the employees' purchase rights is estimated using the Black-Scholes model. Purchase information and fair value assumptions are presented in the following table:


Six Months Ended June 30,	2016			2015
Shares purchased		23,179			19,737
Dividend yield		—			—
Expected life	1 year			1 year
Expected volatility		32	%		31	%
Risk free interest rates		0.7	%		0.2	%
Weighted average per share fair value	$	4.08		$	5.08