Note 10 - Stock options

On June 20, 2013, the stockholders approved the 2013 Omnibus Stock Incentive Plan ("Omnibus Plan"). Under the Omnibus Plan, 350,000 shares of common stock are reserved for issuance to employees, officers, and directors of, and other individuals providing bona fide services to or for, the Company and its affiliates. In addition, on January 31, 2014 and each January 31 thereafter until January 31, 2023, the aggregate number of shares that may be issued with respect to Awards pursuant to the terms of this Plan will be increased by the number equal to 2% of the aggregate amount of common stock outstanding as of such date, provided, however, the maximum number of additional shares that may be issued pursuant to this sentence will not exceed 400,000. The Omnibus Plan permits the granting of stock options (including incentive stock options qualifying under Code section 422 and nonstatutory stock options), stock appreciation rights, restricted or unrestricted stock awards, restricted stock units, performance awards, deferred stock awards, other stock-based awards, or any combination of the foregoing. Awards will be valued at the Company's closing stock price on the date of grant.

Options vest ratably over four years and are exercisable for up to ten years from the date of grant. To cover the exercise of vested options, the Company issues new shares from its authorized but unissued share pool. The Company calculates all stock compensation expense based on the grant date fair value of the option and recognizes expense on a straight-line basis over the four-year vesting period of the option.

The fair value of each option award was estimated on the date of grant using the Black-Scholes option-pricing model that used the assumptions noted in the following table. The principal variable assumptions utilized in valuing options and the methodology for estimating such model inputs include:


1.	risk-free interest rate - an estimate based on the "Market yield on U.S. Treasury securities at the rate for the period described in assumption 3 below, quoted on investment basis" for the end of week closest to the stock option grant date, from the Federal Reserve website;


2.	expected volatility - an estimate based on the historical volatility of MFRI Common Stock's weekly closing stock price for the expected life ; and


3.	expected life of the option - an estimate based on historical experience including the effect of employee terminations.



		2013	2012
1.	Risk-free interest rate	.74%-2.82%	.74%-3.57%
2.	Expected volatility	42.12%-65.54%	53.90%-66.82%
3.	Expected life in years	4.9 to 5.7	4.9 to 5.7
4.	Dividend yield	—	—

The following summarizes the activity related to options outstanding under all plans for the years ended January 31, 2013 and 2014:



	Options		Weighted average exercise price	Weighted average remaining contractual term	Aggregate intrinsic value
Outstanding at January 31, 2012	843		$11.48	6.9	$430

Granted	173		6.78
Exercised	(11	)	3.10		46
Expired or forfeited	(36	)	10.47
Outstanding at January 31, 2013	969		10.77	6.6	40

Options exercisable at January 31, 2013	586		$13.30	5.3	37

Granted	103		10.55
Exercised	(223	)	7.11		1,082
Expired or forfeited	(73	)	11.90
Outstanding at January 31, 2014	776		11.69	6.1	3,859

Options exercisable at January 31, 2014	513		$13.43	4.8	$2,226

The weighted average fair value of options granted, net of options surrendered, during 2013 and 2012 are estimated at $4.78 and $3.31, per share, respectively, on the date of grant.



Unvested options outstanding	Options		Weighted-average grant date fair value	Aggregate intrinsic value
Outstanding at beginning of year	383		$6.91	$4
Granted	103		10.55
Vested	(184	)
Expired or forfeited	(39	)	7.05
Outstanding at January 31, 2014	263		$8.31	$1,633

Based on historical experience the Company expects 85% of these options to vest.

As of January 31, 2014, there was $0.9 million of unrecognized compensation cost related to unvested stock options granted under the plans. That cost is expected to be recognized over the weighted-average period of 2.4 years. The stock-based compensation expense for the years ended January 31, 2014 and 2013 was $0.2 million and $0.5 million, respectively.