5.STOCK-BASED COMPENSATION

Stock-based compensation is recorded at fair value as of the date of grant and included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to $217,000 and $270,000 for the years ended December 31, 2014 and 2013, respectively.

Stock Options:

The Company’s 1994 Stock Plan (the “Plan”) provides for the granting of awards in the form of stock options, restricted stock, stock appreciation rights, and deferred stock to key employees and non-employees, including directors of and consultants to the Company and any subsidiary, to purchase up to a maximum of 1,450,000 shares of common stock. The Company currently has 159,100 shares available for grant under the Plan. The Plan is administered by the Board of Directors which determines the persons who are to receive awards under the Plan, the type of award to be granted, the number of shares subject to each award and, if an option, the exercise price of each option.

The Plan provides that payment of the exercise price may be made in the form of unrestricted shares of common stock already owned by the optionee. The Company calculates the fair market value of unrestricted shares as the average of the high and low sales prices on the date of exercise. The Company’s common stock is purchased upon the exercise of stock options, and restricted stock awards are settled in shares of the Company’s common stock.

Stock option activity related to the Plan during the years ended December 31, 2014 and 2013 is summarized below:



	2014				2013
			Weighted				Weighted
			Average				Average
	Number of		Exercise		Number of		Exercise
	Shares		Price		Shares		Price

Outstanding at beginning of year		271,752	$	9.99		292,267	$	10.13

Granted		-		-		-		-
Exercised		(2,000)		6.57		(5,515)		7.14
Expired/Forfeited		(14,500)		16.78		(15,000)		13.86

Outstanding at end of year		255,252	$	9.63		271,752	$	9.99

Options exercisable at end of year		255,252	$	9.63		272,142	$	9.99

The grant-date fair value of options outstanding and exercisable at December 31, 2014 and 2013 was $908,000 and $1,063,000, respectively. The weighted average remaining contractual term of these options is 3.9.

There were no options granted in 2014 or 2013. The total fair value of options exercised during the years ended December 31, 2014 and 2013 was $3,500 and $13,000, respectively. The total income tax expense (benefit) recognized in the consolidated statements of operations for stock-based compensation arrangements was $(8,000) and $2,000 for 2014 and 2013, respectively.

The following table summarizes information concerning all options outstanding and options exercisable as of December 31, 2014:



		Options Outstanding						Options Exercisable
			Weighted		Weighted					Weighted
			Average		Average		Aggregate			Average		Aggregate
Range of		Number	Life		Exercise		Intrinsic	Number		Exercise		Intrinsic
Exercise Price		Outstanding	Remaining		Price		Value	Exercisable		Price		Value
$	6.00 - 7.05	88,002	4.4	$	6.23	$	119,962	88,002	$	6.23	$	119,962
$	8.28 - 9.15	77,250	5.2	$	8.34		291,878	77,250	$	8.34		291,878
$	11.35 - 14.55	75,000	2.7	$	13.45		-	75,000	$	13.45		-
$	16.68 - 17.25	15,000	0.1	$	17.1		-	15,000	$	17.1		-
	Total	255,252	3.9	$	9.63	$	411,840	255,252	$	9.63	$	411,840

Board of Directors Stock Option and Restricted Stock Grants

The Company’s Stock Plan was amended to authorize annual grants to non-employee members of the Board of Directors of restricted stock or stock options, or both, as determined by the Board. Options granted under the Plan generally expire ten years after the grant date and generally become exercisable over a four year period. Generally the restricted stock vests 100% after one year and is subject to restrictions on resale for an additional year.

Restricted stock awards are subject to forfeiture if a board member terminates prior to the shares vesting. A summary of changes in Board of Directors restricted stock as December 31, 2014:


			Weighted
			Average
	Restricted		Fair Value
	Stock		Per Share
Non-Vested Balance, December 31, 2012		11,820	$	12.69
Granted		18,290		10.52
Vested		(11,820)		12.69
Forfeited		-		-
Non-Vested Balance, December 31, 2013		18,290	$	10.52
Granted		13,040		10.61
Vested		(18,290)		10.52
Forfeited		-		-
Non-Vested Balance, December 31, 2014		13,040	$	10.61

Employee Deferred Stock Award Grants

Employee deferred stock awards are subject to forfeiture if an employee terminates prior to the vesting. Generally, the awards vest ratably over a four-year period and compensation costs are recognized over the vesting period. Compensation costs are recorded in “Salaries and benefits” on the Consolidated Statements of Operations.

A summary of the changes in employee deferred stock award grants as of December 31, 2014, is as follows:



			Weighted
			Average
	Deferred		Fair Value
	Stock		Per Share
Non-Vested Balance, December 31, 2012		20,500	$	9.84
Granted		2,000		10.10
Vested		(4,375)		9.84
Forfeited		(2,000)		9.84
Non-Vested Balance, December 31, 2013		16,125	$	9.87
Granted		23,000		10.46
Vested		(4,375)		9.84
Forfeited		-		-
Non-Vested Balance, December 31, 2014		34,750	$	10.27

At December 31, 2014, there was approximately $365,000 of total unrecognized stock-based compensation expense related to unvested restricted stock and deferred stock awards the Company expects to recognize over a weighted-average period of 2.2 years.

Stock Appreciation Rights (“SARs”)

As part of the Cooperative Marketing Agreement discussed in Note 13, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued SARs to non-employees. The SAR Agreement granted rights to non-employees to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in January 2013. As of December 31, 2014, 49,500 rights had vested. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. SARs have no effect on dilutive shares or shares outstanding as any appreciation of the Company’s common stock value over the grant price is paid in cash and not in common stock. The SAR Agreement and all rights granted expire on December 31, 2022.

The fair value of SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on the Company’s period-end stock price. The expected term of the SARs granted is based on the contractual term. Expected volatility is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the Company’s anticipated dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the reporting date for the length of time corresponding to the expected term of the SARs.

The following weighted-average assumptions were used in calculating the fair value of SARs granted during the years ended December 31, 2014 and 2013, using the Black-Scholes valuation model:



	2014		2013
Expected dividend yield	0.00	%	0.00	%
Expected weighted-average volatility	52.8	%	49.5	%
Risk-free interest rate	2.04	%	2.84	%
Expected term of SARs (in years)	8.00		9.00

There were no exercises during the years ended December 31, 2014 or 2013. The total liability of the SARs at December 31, 2014 was $499,734.

Changes to the Company’s non-vested SARs during the years ended December 31, 2014 and 2013, are as follows:



	SARs		Weighted Average Fair Value
Non-vested SARs at December 31, 2012		148,500	$	5.24
Granted		-		-
Vested		(16,500)		5.03
Cancellations		-		-
Non-vested SARs at December 31, 2013		132,000	$	5.41
Granted		-		-
Vested		(16,500)		4.50
Cancellations		-		-
Non-vested SARs at December 31, 2014		115,500	$	4.50