Note 7 — Stock Based Compensation

The Company recognizes all stock-based compensation to employees, including grants of employee stock options and restricted stock awards, in the financial statements as compensation cost over the vesting period based on their fair value on the date of grant. Total stock-based compensation expense included in selling, general and administrative expense in 2012 and 2011 was $649,000, and $595,000, respectively. This amount includes $302,000 and $350,000 in 2012 and 2011, respectively, relating to restricted stock awards. No compensation expense has been capitalized during 2012 and 2011.

The Company has reserved 2,250,000 shares under its 2005 Equity Incentive Plan (EIP). Stock options under this Plan may be incentive stock options or nonqualified stock options. The Plan also provides for restricted stock awards, including performance based awards. Stock options are nontransferable other than upon death. Option grants generally vest over a one to five year period after the grant and typically expire ten years after the date of the grant. The EIP provides for the grant of several different forms of stock-based compensation, including stock options to purchase shares of PAR common stock. The Compensation Committee of the Board of Directors (Compensation Committee) has discretion to determine the material terms and conditions of option awards under the EIP, provided that (i) the exercise price must be no less than the fair market value of PAR common stock (defined as the closing price) on the date of grant, (ii) the term must be no longer than ten years, and (iii) in no event shall the normal vesting schedule provide for vesting in less than one year. Other terms and conditions of an award of stock options will be determined by the Compensation Committee as set forth in the agreement relating to that award. The Compensation Committee has authority to administer the EIP.

Information with respect to stock options included within this plan is as follows:

	No. of Shares (in thousands)			Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2011		757		$	5.47	$	38
Options granted		104			4.91
Exercised		(14	)		1.72
Forfeited and cancelled		(130	)		5.74
Outstanding at December 31, 2012		717		$	5.37	$	116
Vested and expected to vest at December 31, 2012		704		$	5.38	$	113
Total shares exercisable as of December 31, 2012		327		$	6.02	$	50
Shares remaining available for grant		1,277

The weighted average grant date fair value of options granted during the years 2012 and 2011 was $2.04 and $2.32, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012 and 2011 was $31,000 and $236,000, respectively. New shares of the Company's common stock are issued as a result of stock option exercises. The fair value of options at the date of the grant was estimated using the Black-Scholes model with the following assumptions for the respective period ending December 31:

	2012			2011

Expected option life	5.5 years			5.5 years
Weighted average risk-free interest rate		0.9	%		2.1	%
Weighted average expected volatility		45	%		53	%
Expected dividend yield		0	%		0	%

For the years ended December 31, 2012 and 2011, the expected option life was based on the Company's historical experience with similar type options. Expected volatility is based on historical volatility levels of the Company's common stock over the preceding period of time consistent with the expected life. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life. Stock options outstanding at December 31, 2012 are summarized as follows:

Range of Exercise Prices	Number Outstanding (in thousands)	Weighted Average Remaining Life	Weighted Average Exercise Price

$3.22 - $4.81	466	7.9 Years	$4.67
$4.88 - $6.01	155	4.3 Years	$5.62
$6.25 - $11.40	96	4.5 Years	$8.41
$3.22 - $11.40	717	6.7 Years	$5.37

At December 31, 2012 the aggregate unrecognized compensation cost of unvested equity awards, as determined using a Black-Scholes option valuation model, was $432,000 (net of estimated forfeitures) which is expected to be recognized as compensation expense in fiscal years 2013 through 2016.

Current year activity with respect to the Company's non-vested restricted stock awards is as follows:

Non-vested shares (in thousands)	Shares			Weighted Average grant-date fair value
Balance at January 1, 2012		101		$	3.88
Granted		183			4.86
Vested		(87	)		5.18
Forfeited and cancelled		(23	)		4.78
Balance at December 31, 2012		174		$	4.68

The EIP also provides for the issuance of restricted stock, as well as restricted stock units. These types of awards can have either service based or performance based vesting with performance goals being established by the Compensation Committee. Grants of restricted stock with service based vesting are subject to vesting periods ranging from zero to 60 months. Grants of restricted stock with performance based vesting are subject to a vesting period of 48 months and performance conditions measured by cumulative dilutive earnings per share targets (as defined by the Compensation Committee). The Company assesses the likelihood of achievement throughout the performance period and recognizes compensation expense associated with its performance awards based on this assessment. Other terms and conditions applicable to any award of restricted stock will be determined by the Compensation Committee and set forth in the agreement relating to that award.

During 2012 and 2011, the Company issued 183,000 and 40,000 restricted stock awards, respectively, at a per share price of $.02. Included within the total awards granted during 2012 were 121,000 of performance based restricted stock awards. During fiscal year 2012, the Company has not recognized any compensation expense associated with its performance based awards as the achievement of the performance target was deemed not probable in the current period.

The fair value of restricted stock awards is based on the average price of the Company's common stock on the date of grant. The weighted average grant date fair value of restricted stock awards granted during the years 2012 and 2011 was $4.86 and $4.08, respectively. In accordance with the terms of the restricted stock award agreements, the Company released 87,000 and 64,000 shares during 2012 and 2011, respectively. During the year, there were 23,000 shares of restricted stock cancelled, all of which were performance based restricted shares. No restricted stock awards were cancelled during 2011.