NOTE 13 – 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, was established in order to succeed 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 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 typically become exercisable one year from the date of award.

At January 31, 2014, there were 1,448,650 remaining shares of the Company’s common stock reserved for issuance under the two plans, including approximately 532,500 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 three years ended January 31, 2014 is presented below:


	Shares			Weighted Average Exercise Price		Weighted Average Remaining Term (years)		Weighted Average Fair Value
Outstanding, February1, 2011		675,724		$	11.29		5.78	$	5.79
Granted		212,500		$	13.92
Exercised		(55,038	)	$	9.36
Forfeited		(16,000	)	$	11.36

Outstanding, January 31, 2012		817,186		$	12.10		4.94	$	5.68
Granted		293,000		$	17.36
Exercised		(153,962	)	$	9.33
Forfeited		(30,000	)	$	8.66

Outstanding, January 31, 2013		926,224		$	14.34		5.39	$	5.93
Granted		303,000		$	21.32
Exercised		(309,074	)	$	12.20
Forfeited		(4,000	)	$	17.33

Outstanding, January 31, 2014		916,150		$	17.36		6.04	$	5.58

Exercisable, January 31, 2014		613,150		$	15.40		5.09	$	6.15

The total intrinsic values for the stock options exercised during the years ended January 31, 2014, 2013 and 2012 were $3,158,000, $1,242,000 and $238,000, respectively. At January 31, 2014, the aggregate intrinsic value amounts for outstanding and exercisable stock options were $10,124,000 and $7,977,000, respectively.

A summary of the change in the number of shares of common stock subject to non-vested options to purchase such shares for the three years ended January 31, 2014 is presented below:


	Shares			Weighted Average Fair Value
Non-vested, February 1, 2011		237,000		$	6.31
Granted		212,500		$	5.09
Vested		(232,000	)	$	6.34
Forfeited (non-vested)		(5,000	)	$	4.98

Non-vested, January 31, 2012		212,500		$	5.09
Granted		293,000		$	5.65
Vested		(112,000	)	$	4.51
Forfeited (non-vested)		(5,000	)	$	6.32

Non-vested, January 31, 2013		388,500		$	5.67
Granted		303,000		$	4.40
Vested		(384,500	)	$	5.67
Forfeited (non-vested)		(4,000	)	$	5.71

Non-vested, January 31, 2014		303,000		$	4.40

Compensation expense amounts recorded in the years ended January 31, 2014, 2013 and 2012 related to stock options were $1,536,000, $1,316,000 and $637,000, respectively. At January 31, 2014, there was $825,000 in unrecognized compensation cost related to stock options granted under the Stock Plan. The end of the period over which the compensation expense for these awards is expected to be recognized is December 2014.

The Company estimates the weighted average fair value of stock options on the date of award using a Black-Scholes option pricing model, which was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Current guidance provided by the SEC permits the use of a “simplified method” in developing the estimates of the expected terms of “plain-vanilla’’ share options under certain circumstances, including situations where a company having historical stock option exercise experience that is insufficient to provide a reasonable basis upon which to estimate expected terms. The Company utilizes the simplified method to estimate the expected terms of its stock option awards. The risk-free interest rates and expected volatility factors used in the determinations of the fair value of stock options awarded during the year ended January 31, 2014 ranged from 0.73% to 1.52% and from 32.3% to 34.3%, respectively. For stock options awarded during the year ended January 31, 2013, the comparable ranges were 1.82% to 2.01% and 34.5% to 36.4%, respectively. For stock options awarded during the year ended January 31, 2012, the comparable ranges were 1.98% to 3.42% and 36.1% to 57.6%, respectively. The calculations of the expected volatility factors were based on the monthly closing prices of the Company’s common stock for the five-year periods preceding the dates of the corresponding awards.

The fair value amounts per share of options to purchase shares of the Company’s common stock awarded during the fiscal years ended January 31, 2014, 2013 and 2012 were determined at the dates of grant using the following weighted-average assumptions:


	2014	2013	2012
Risk-free interest rate	1.33%	1.93%	2.57%
Expected volatility	32.73%	35.51%	44.88%
Expected life	4.70 years	4.56 years	4.26 years
Dividend yield	3.39%	— %	— %

During the years ended January 31, 2012, the Company awarded 5,000 shares of restricted stock to an employee. The aggregate market value of the shares was amortized to compensation expense over the two-year vesting period, which was approximately $10,000, $25,000 and $15,000 for the years ended January 31, 2014, 2013 and 2012, respectively.

Warrants for the purchase of 160,000 shares of the Company’s common stock were converted in the year ended January 31, 2013. The warrants, convertible at a price of $7.75 per share, were issued in connection with the Company’s private placement of common stock in April 2003 to three individuals who became the executive officers of the Company upon completion of the offering and also to an investment advisory firm. A former director of the Company is the chief executive officer of the investment advisory firm. The aggregate fair value amount of the warrants, $849,000, was treated as a cost of the related stock offering.

The Company also has 401(k) savings plans pursuant to which the Company makes discretionary contributions for the eligible and participating employees. The Company’s expense for these defined contribution plans totaled approximately $677,000 for the year ended January 31, 2014, including a profit-sharing contribution of $404,000. The comparable expense amounts for the years ended January 31, 2013 and 2012 were $36,000 and $31,000, respectively.