NOTE 10—STOCK-BASED COMPENSATION

In June 2013, the stockholders approved the amendment of the 2011 Stock Plan (the “Stock Plan”) in order to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 750,000 shares to a total of 1,250,000 shares. The Stock Plan, which will expire in July 2021, served to replace the Argan, Inc. 2001 Stock Option Plan (the “Option Plan”) which expired in July 2011. As was the case under the Option Plan, the Company’s Board of Directors may make awards under the Stock Plan to officers, directors and key employees.

Awards may include incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”), and restricted or unrestricted stock. ISOs granted under the Stock Plan shall have an exercise price per share at least equal to the common stock’s market value per share at the date of grant, shall have a term no longer than ten years, and typically shall become fully exercisable one year from the date of grant. NSOs may be granted at an exercise price per share that differs from the common stock’s market value per share at the date of grant, may have up to a ten-year term, and become exercisable as determined by the Company’s board of directors, typically one year from the date of award. At October 31, 2013, there were 1,537,500 remaining shares of the Company’s common stock reserved for issuance under the two plans, including approximately 603,500 shares of the Company’s common stock available for awards under the Stock Plan.

A summary of activity under the Option and Stock Plans for the nine months ended October 31, 2013 is presented below:


Options	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (Years)		Weighted Average Fair Value
Outstanding, January 31, 2013		926,224		$	14.34		5.39	$	5.93
Granted		228,000		$	19.49
Exercised		(220,224	)	$	11.26

Outstanding, October 31, 2013		934,000		$	16.32		6.30	$	5.62

Exercisable, October 31, 2013		490,500		$	14.03		4.65	$	6.29

Exercisable, January 31, 2013		537,724		$	12.16		4.46	$	6.12

A summary of the change in the number of non-vested options to purchase shares of common stock for the nine months ended October 31, 2013 is presented below:


	Shares			Weighted Average Fair Value
Nonvested, January 31, 2013		388,500		$	5.67
Granted		228,000		$	3.85
Vested		(173,000	)	$	5.29

Nonvested, October 31, 2013		443,500		$	4.88

Compensation expense amounts related to stock options were $393,000 and $338,000 for the three months ended October 31, 2013 and 2012, respectively, and were $1,152,000 and $906,000 for the nine months ended October 31, 2013 and 2012, respectively. At October 31, 2013, there was $775,000 in unrecognized compensation cost related to outstanding stock options. The Company expects to recognize the compensation expense for these awards within the next eleven months. The total intrinsic values of the stock options exercised during the nine months ended October 31, 2013 and 2012 were approximately $1,933,000 and $1,015,000, respectively. At October 31, 2013, the aggregate market values of the shares of common stock subject to outstanding and exercisable stock options exceeded the aggregate exercise prices of such options by approximately $5,534,000 and $4,031,000, respectively.

The fair value of each stock option granted in the nine-month period ended October 31, 2013 was estimated on the corresponding date of award using the Black-Scholes option-pricing model based on the following weighted average assumptions.


	Nine Months Ended October 31, 2013
Dividend yield		3.59	%
Expected volatility		32.87	%
Risk-free interest rate		1.27	%
Expected life in years		4.53

The Company also had outstanding warrants to purchase shares of the Company’s common stock, exercisable at a per share price of $7.75, that were issued in connection with the Company’s private placement in April 2003. Warrants covering 160,000 shares of the Company’s common stock were converted during the year ended January 31, 2013, including warrants converted to 156,000 shares in the nine months ended October 31, 2012. There were no remaining warrants outstanding as of January 31, 2013.