On February 5, 2008, the Company's Board of Directors adopted a Shareholder Rights Plan and declared a dividend distribution of one preferred stock purchase right for each outstanding share of the Company's common stock to shareholders of record as of the close of business on February 6, 2008. Initially, these rights will not be exercisable and will trade with the shares of the Company's common stock. Under the Shareholder Rights Plan, the rights generally will become exercisable if a person becomes an “acquiring person” by acquiring 20% or more of the common stock of the Company or if a person commences a tender offer that could result in that person owning 20% or more of the common stock of the Company. If a person becomes an acquiring person, each holder of a right (other than the acquiring person) would be entitled to purchase, at the then-current exercise price, such number of shares of preferred stock which are equivalent to shares of the Company's common stock having a value of twice the exercise price of the right. If the Company is acquired in a merger or other business combination transaction after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company's common stock having a value of twice the exercise price of the right.

The Company's Board of Directors has the authority to issue up to 5.0 million shares of preferred stock and to determine the price privileges and other terms of the shares. The Board of Directors may exercise this authority without any further approval of stockholders. As of December 31, 2013, the Company had no preferred stock issued or outstanding.

In 2000, the Company approved the ESPP. Under this ESPP, participating employees can authorize the Company to withhold a portion of their base pay during consecutive six-month payment periods for the purchase of shares of the Company's common stock. At the conclusion of the period, participating employees can purchase shares of the Company's common stock at 85% of the lower of the fair market value of the Company's common stock at the beginning or end of the period. Shares are issued under the ESPP for the six-month periods ending June 30 and December 31. Under this plan, 750,000 shares of common stock are authorized for issuance of which 527,340 shares were issued as of December 31, 2013. During the years ended December 31, 2013 and 2012, the Company issued 56,938 shares and 60,028 shares, respectively, under the ESPP.

The Company accounts for stock-based payment awards in accordance with the provisions of FASB ASC 718, which requires it to recognize compensation expense for all stock-based payment awards made to employees and directors including stock options, restricted stock units, and employee stock purchases related to the ESPP (“employee stock purchases”).

FASB ASC 718 requires companies to estimate the fair value of stock-based payment awards, except restricted stock units, on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in its consolidated statements of income.

Upon adoption of FASB ASC 718, the Company elected to retain its method of valuation for stock-based payment awards using the Black-Scholes option-pricing model (“Black-Scholes model”). The determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by its stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to its expected stock price volatility over the term of the awards and actual and projected stock option exercise behaviors. The Company records stock compensation expense on a straight-line basis over the requisite service period for all awards granted since the adoption of FASB ASC 718.

In 1996, the Company adopted the 1996 Stock Option and Grant Plan (the “1996 Stock Plan”) pursuant to which the Board of Directors could grant stock options to employees, directors and consultants. The 1996 Stock Plan authorized grants of options to purchase 4,072,480 shares of authorized but unissued common stock. In 2000, the 1996 Stock Plan was replaced by the 2000 Stock Option and Incentive Plan. As of December 31, 2013, there were no options to purchase shares outstanding under the 1996 Stock Plan.

The Third Amended and Restated 2000 Stock Option and Incentive Plan (as amended, the “2000 Plan”) was adopted by the Board of Directors on April 13, 2011. Such amendment to the 2000 Plan was approved by the stockholders at the Company's 2011 Annual Meeting. The 2000 Plan made the following changes, among others, to the Second Amended and Restated 2000 Stock Option and Incentive Plan (the “Plan”):

The Company currently has 13,067,675 shares of its common stock reserved for the issuance of awards under the 2000 Plan. As of December 31, 2013, there were options to purchase 6,690,845 shares, and 463,973 restricted stock units outstanding.

Through December 31, 2013 and 2012, incentive stock options to purchase 10,218,057 and 8,990,395 shares and non-qualified stock options to purchase 11,028,074 and 8,906,684 shares, respectively, had been granted to employees and directors under the Stock Plans. Generally, both the incentive stock options and non-qualified stock options become fully vested over a range of one to four-year periods.

During the years ended December 31, 2013, 2012 and 2011, 3,349,052, 1,220,934 and 1,030,500 options, respectively, were granted to employees and directors at exercise prices equal to or greater than fair market value of the Company's common stock on the date of grant.

During 2013, 2012 and 2011, 259,931, 349,295 and 188,750 restricted stock units, respectively, were granted to certain employees and directors under the 2000 Plan.

Basic earnings per share is based upon net income divided by the number of weighted average common shares outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options and restricted stock units into common stock using the treasury method. The weighted average number of shares used to compute basic and diluted earnings per share consists of the following:

	Year ended December 31,
	2013	2012	2011

Basic	30,384,010	28,799,377	28,451,386
Effect of assumed conversion of employee and director stock options and restricted stock units	1,529,789	992,730	1,367,348
Diluted	31,913,799	29,792,107	29,818,734

Excluded from the shares used in calculating the diluted earnings per common share in the above table are options to purchase approximately 2,547,580 shares, 4,700,033 shares and 3,653,317 shares of common stock for the years ended December 31, 2013, 2012 and 2011, respectively, as the impact of these shares would be anti-dilutive.

The following is a summary of stock option and the restricted stock unit activity:

		Stock Options			Restricted Stock Units
				Weighted
		Stock		Average	Restricted
		Options		Exercise	Stock Units		Grant Date
		Outstanding		Price	Outstanding		Fair Value

Balance at December 31, 2010		7,826,200	$	4.38	467,600	$	3.61
	Granted	1,030,500		5.64	188,750		5.64
	Exercised	(105,625)		3.79	-		-
	Vested (RSU's)	-		-	(116,900)		-
	Cancelled / forfeited	(231,500)		5.27	-		-
Balance at December 31, 2011		8,519,575		4.52	539,450		4.32
	Granted	1,220,934		3.60	349,295		3.57
	Exercised	(648,000)		3.94	-		-
	Vested (RSU's)	-		-	(164,090)		-
	Cancelled / forfeited	(1,014,000)		6.36	(47,462)		4.21
Balance at December 31, 2012		8,078,509		4.25	677,193		3.97
	Granted	3,349,052		4.44	259,931		4.62
	Exercised	(3,410,483)		3.20	-		-
	Vested (RSU's)	-		-	(281,650)		-
	Cancelled / forfeited	(1,326,233)		5.26	(191,501)		4.07
Balance at December 31, 2013		6,690,845	$	3.42	463,973	$	4.32

For 2013 and included in the table above are grants of 1,715,164 options and 135,650 restricted stock units related to the spin-off of HART. Pursuant to the spin-off, share amounts and exercise prices of Harvard Bioscience options, as well as share amounts of Harvard Bioscience restricted stock units were adjusted so that the intrinsic value held by the holder pertaining to the existing option or award was maintained immediately following the spin-off.

The Company's policy is to issue stock available from its registered but unissued stock pool through its transfer agent to satisfy stock option exercises and vesting of the restricted stock units.

The following table summarizes information concerning currently outstanding and exercisable options as of December 31, 2013 (Aggregate Intrinsic Value, in thousands):

		Options Outstanding						Options Exercisable
			Weighted						Weighted
			Average		Weighted				Average		Weighted
	Range of	Shares	Remaining		Average		Aggregate	Shares	Remaining		Average		Aggregate
	Exercise	Outstanding at	Contractual Life		Exercise		Intrinsic	Exercisable at	Contractual Life		Exercise		Intrinsic
	Price	Dec. 31, 2013	in Years		Price		Value	Dec. 31, 2013	in Years		Price		Value

$	1.43-2.15	306,358	4.03	$	1.86	$	870	306,358	4.03	$	1.86	$	870
	2.28-2.28	981,082	5.37		2.28		2,372	981,082	5.37		2.28		2,372
	2.45-2.45	13,172	1.43		2.45		30	13,172	1.43		2.45		30
	2.56-2.56	994,618	7.82		2.56		2,128	198,402	7.82		2.56		425
	2.59-3.54	836,338	4.66		3.03		1,397	723,635	4.66		3.10		1,158
	3.64-3.64	935,371	8.89		3.64		991	-	0.00		-		-
	3.68-3.99	486,706	3.30		3.87		404	486,706	3.30		3.87		404
	4.04-4.04	865,617	7.20		4.04		571	444,865	7.20		4.04		294
	4.21-4.31	807,500	9.88		4.31		315	-	0.00		-		-
	5.73-6.57	464,083	0.22		5.75		-	464,083	0.22		5.75		-
$	1.43-6.57	6,690,845	6.34	$	3.42	$	9,078	3,618,303	4.56	$	3.30	$	5,553

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company's closing stock price of $4.70 as of December 31, 2013, which would have been received by the option holders had all option holders exercised their options as of that date. The weighted average exercise prices above were adjusted to reflect the effect of the spin-off of HART on the Company's outstanding options. Pursuant to the spin-off, share amounts and exercise prices of Harvard Bioscience options were adjusted so that the intrinsic value held by the holder pertaining to the existing option was maintained immediately following the spin-off. The aggregate intrinsic value of options exercised for the years ended December 31, 2013, 2012 and 2011 was approximately $5.1 million, $0.3 million and $8,450, respectively. The total number of in-the-money options that were exercisable as of December 31, 2013 was 3,154,220.

For the year ended December 31, 2013, the total compensation costs related to unvested awards not yet recognized is $3.4 million and the weighted average period over which it is expected to be recognized is 2.31 years.

Stock-based compensation expense related to stock options, restricted stock units and the employee stock purchase plan for the years ended December 31, 2013, 2012 and 2011 was allocated as follows:


		Year Ended December 31,
		2013		2012		2011
		(in thousands)

Cost of product revenues	$	131	$	87	$	76
Sales and marketing		223		154		152
General and administrative		2,200		2,990		2,570
Research and development		45		25		21
Discontinued operations		71		65		44
Total stock-based compensation	$	2,670	$	3,321	$	2,863

The weighted-average estimated fair value per share of stock options granted during 2013, 2012 and 2011 was $2.41, $1.84 and $2.94, respectively, using the Black Scholes option-pricing model with the following weighted-average assumptions:


	Years Ended December 31,
	2013		2012		2011
Volatility	57.18	%	55.09	%	54.24	%
Risk-free interest rate	1.42	%	0.80	%	2.01	%
Expected holding period	5.67	years	5.98	years	5.94	years
Dividend Yield	0.00	%	0.00	%	0.00	%

The Company used historical volatility to calculate the expected volatility as of December 31, 2013. Historical volatility was determined by calculating the mean reversion of the daily adjusted closing stock price. The risk-free interest rate assumption is based upon observed Treasury bill interest rates (risk free) appropriate for the term of the Company's stock options. The expected life of stock options represents the period of time options are expected to be outstanding and were based on historical experience. The vesting period ranges from one to four years and the contractual life is ten years.

Stock-based compensation expense recognized in the consolidated statement of income for the years ended December 31, 2013, 2012 and 2011 is based on awards ultimately expected to vest and has been reduced for annualized estimated forfeitures of 6.54%, 5.38% and 5.04%, respectively. Stock-based-payment accounting requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.