NOTE 11: STOCK OPTION PLAN

Summary of Stock Plan

The Company currently has one active stock-based compensation plan, which was approved by shareholders. The Company grants stock options to employees, consultants, and board members at the fair value of its common stock on the date of grant, with a term no greater than ten years. The majority of stock options vest over two or three years. Shareholders who own 10% or more of the Company’s outstanding stock are granted incentive stock options at an exercise price that may not be less than 110% of the fair market value of the Company’s common stock on the date of grant and have a term no greater than five years.

In February 2008, the Company’s Board of Directors approved the Mannatech, Incorporated 2008 Stock Incentive Plan (the “2008 Plan”), which reserves up to 1,000,000 shares of common stock for issuance of stock options and restricted stock to our employees, board members, and consultants, plus any shares reserved under the Company’s then-existing, unexpired stock plans for which options had not yet been issued, and any shares underlying outstanding options under the then-existing stock option plans that terminate without having been exercised in full. The 2008 Plan was approved by the Company’s shareholders at the 2008 Annual Shareholders’ Meeting. The 2008 Plan was approved by the Company’s shareholders at the 2008 Annual Shareholders’ Meeting and was amended at the 2012 Annual Shareholders’ Meeting held May 30, 2012 to increase the number of shares of common stock subject to the plan by 100,000. As of December 31, 2013, the 2008 Plan had 73,431 stock options available for grant before the plan expires on February 20, 2018.

A summary of changes in stock options outstanding during the year ended December 31, 2013, is as follows:

	2013
	Numberof Options (in thousands)			Weighted average exercise price		Weighted average remaining contractual life (in years)		Aggregate intrinsic value (in thousands)
Outstanding at beginning of year		123		$	19.76
Granted		83		$	6.35
Exercised		(10	)	$	11.89
Forfeited or expired		(8	)	$	19.40
Outstanding at end of year		188		$	14.29		7.6		501
Options exercisable at year end		99		$	21.36		6.3		—

In 2013, the Company issued 5,000 new shares upon the exercise of 9,997 options in cashless transactions. Options exercised during the year ending December 31, 2013 had a total intrinsic value, calculated as the difference between the exercise date stock price and the exercise price of less than $0.2 million. Non-vested shares at December 31, 2013 and 2012 were 89,000 and 33,000, respectively.

Valuation and Expense Information Under FASB ASC Topic 718 Compensation – Stock Compensation

Under the provisions of FASB ASC Topic 718, the Company is required to measure and recognize compensation expense related to any outstanding and unvested stock options previously granted, and thereafter recognize, in its consolidated financial statements, compensation expense related to any new stock options granted after implementation using a calculated fair-value based option-pricing model.

The Company uses the Black-Scholes option-pricing model to calculate the fair value of all of its stock options and its assumptions are based on historical information. The following assumptions were used to calculate the compensation expense and the calculated fair value of stock options granted each year:

	2013			2012
Dividend yield:		—	⁽¹⁾		—	⁽¹⁾
Risk-free interest rate:		0.66 - 1.36	%		0.62 - 0.75	%
Expected market price volatility:		80.3 – 82.3	%		78.4 - 81.6	%
Average expected life of stock options:	4.5 years			4.5 years

⁽¹⁾	The Company declared no dividends in 2013 or 2012.

The computation of the expected volatility assumption used in the Black-Scholes calculations for new grants is based on historical volatilities of the Company’s stock. The expected life assumptions are based on the Company’s historical employee exercise and forfeiture behavior.

The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2013 and 2012 was $3.96 and $3.06 per share, respectively. The total fair value of shares vested during each of the years ended December 31, 2013 and 2012 was $0.1 million.

The Company recorded the following amounts related to the expense of the fair values of options during the years ended December 31, 2013 and 2012 (in thousands):

	2013			2012
Selling, general and administrative expenses and income (loss) from operations before income taxes	$	173		$	209
Benefit for income taxes		(33	)		(44	)
Effect on net income / (loss)	$	140		$	165

As of December 31, 2013, the Company had approximately $0.2 million of total unrecognized compensation expense related to stock options currently outstanding, to be recognized in future years, ending December 31,

as follows (in thousands):

	Total gross unrecognized compensation expense		Total tax benefit associated with unrecognized compensation expense		Total net unrecognized compensation expense
2014	$	118	$	19	$	99
2015		99		15		84
2016		21		2		19
	$	238	$	36	$	202