STOCK COMPENSATION PLAN

12 Months Ended

Dec. 31, 2017

NOTE 12 — STOCK COMPENSATION PLAN

The Company has two share-based compensation plans which are described below.

Stock Option Plan

The Company established the 1999 Stock Option Plan (the “1999 Plan”), as amended, under which certain employees and directors may receive stock options. Stock options are generally granted with an exercise price equal to 100% of the fair value of the common stock at the date of grant. As of December 31, 2017 and 2016, there were no unissued shares of the Company’s common stock authorized for option grants under the Plan.

Equity Incentive Plan

In May 2009 the Company approved the 2009 Equity Incentive Plan (the “2009 Plan”) as a successor to the 1999 Plan. The 2009 Plan permits the granting of restricted shares, incentive stock options (“ISO”), nonqualified stock options, stock appreciation rights, restricted share units and other stock-based awards to employees, directors, officers, consultants, advisors, suppliers and any other persons or entity whose services are considered valuable for up to 423,000 shares. The authorized shares will be new issues upon exercise of any options granted. Under the terms of the 2009 Plan, each option agreement cannot have an exercise price that is less than 100% of the fair value of the shares covered by the option on the date of grant. In the case of an ISO granted to any 10% shareholder, the exercise price shall not be less than 110% of the fair value of the shares covered by the option on the date of grant. In no event shall the exercise price of an option be less than the par value of the shares for which the option is exercisable. In no event shall the exercise period exceed ten years from the date of grant of the option, except, in the case of an ISO granted to a 10% shareholder, the exercise period shall not exceed five years from the date of grant. In the event of a change in control, the Committee may determine that any award then outstanding shall be assumed or an equivalent award shall be substituted by the successor corporation.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities based on historical volatilities of the Company’s common stock are not significant. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Historically, the Company has not paid a dividend on its common shares and does not expect to do so in the near future. No options were granted in 2017 and 2016. The fair value of options granted during 2015 was determined using the following weighted-average assumptions as of grant date:

			2015
Risk-free interest rate			12.19%
Expected term			10 years
Dividend yield			0%

There was no unrecognized compensation cost related to non-vested stock options granted under the Plan as of December 31, 2017 and 2016; and there was $622,000 of total unrecognized compensation cost related to non-vested stock options granted under the Plan as of December 31, 2015. Total compensation cost related to stock option plan was $0, $620,000 and $166,000 for 2017, 2016 and 2015, respectively. 178,600 shares of stock options were accelerated to vest as part of restructuring an executive management employment agreement, during the third quarter of 2016.

A summary of the status of the Company’s stock option plan and the change during the year is presented below:

	2017					2016
	Number of Options		Weighted Average Exercise Price			Number of Options		Weighted Average Exercise Price
Outstanding, beginning of year		276,500		$	19.97		289,000		$	20.41
Granted		—			—		—			—
Exercised		(4,503)			30.00		—			—
Cancelled/forfeited		(497)			30.00		(12,500)			30.00
Outstanding, end of year		271,500		$	19.79		276,500		$	19.97
Options vested and exercisable at year-end		271,500		$	19.79		276,500		$	19.97
Weighted average fair value of options granted during the year				$	—				$	—
Weighted average remaining contractual life (years)					5.57					6.25

The following table summarizes information about stock options outstanding at December 31, 2017:

	Options Outstanding
Range of Average Exercise Prices	Number Outstanding at December 31, 2017		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$10 – 20		231,000		6.38		18.00
$21 – 30		40,500		0.95		30.00
$10 – 30		271,500		5.57		19.79

The Company issued restricted stock awards to certain key personnel under the 2009 Equity Incentive Plan. Each restricted stock award vests based on vesting scheduled outlined in the award agreement. Restricted stock awards are subject to forfeiture if the holder is not employed by the Company on the vesting date. In 2013, shareholders approved an additional 300,000 shares available under the plan. In 2016, additional shares of 760,000 were authorized. Total shares issuable under the plan are 823,629 and 851,571 at December 31, 2017 and 2016, respectively. There were 31,606 and 77,667 shares granted in 2017 and 2016, respectively. The fair value of the shares granted was calculated using the share price as of grant date. As of December 31, 2017, there was $1.06 million of total unrecognized compensation expense related to the restricted stock awards. The cost is expected to be recognized over a weighted-average period of 2.0 years.

Total compensation cost that has been charged against income for this plan was $412,000, $1.7 million and $281,000 for 2017, 2016 and 2015, respectively. Out of the total compensation cost related to restricted stocks in 2016, $1.4 million was associated with the grant and immediate vesting of 66,667 restricted shares. These shares were issued as a part of restructuring an executive management employment agreement, during the third quarter of 2016.

The following table summarizes the changes in the Company’s non-vested restricted stock awards for the year ended December 31, 2017:

	Year Ended December 31, 2017
	Number of Shares		Weighted Average Grant Date Fair Value
Outstanding, beginning of year		64,638		$	20.42
Granted		31,606		$	21.00
Forfeited		(3,167)		$	18.00
Vested		(16,973)		$	18.00
Outstanding at December 31, 2017		76,104		$	20.61

The total fair value of shares vested is $725,000, $1.7 million and $68,000 for the years ended December 31, 2017, 2016 and 2015, respectively.