7.	Stock-Based Compensation

2005 Incentive Compensation Plan

On October 16, 2013 our stockholders approved the Second Amended and Restated Saga Communications, Inc. 2005 Incentive Compensation Plan (the “Second Restated 2005 Plan”). The 2005 Incentive Compensation Plan was first approved by stockholders in 2005 and replaced our 2003 Stock Option Plan (the “2003 Plan”). The 2005 Incentive Compensation Plan was re-approved by stockholders in 2010 (the “Amended and Restated Saga Communications, Inc. 2005 Incentive Compensation Plan”). The changes in the Second Restated 2005 Plan (i) increases the number of authorized shares by 233,334 shares of Common Stock, (ii) extends the date for making awards to September 6, 2018, (iii) includes directors as participants, (iv) targets awards according to groupings of participants based on ranges of base salary of employees and/or retainers of directors, (v) requires participants to retain 50% of their net annual restricted stock awards during their employment or service as a director, and (vi) includes a clawback provision. The Second Restated 2005 plan allows for the granting of restricted stock, restricted stock units, incentive stock options, nonqualified stock options, and performance awards to eligible employees and non-employee directors.

The number of shares of Common Stock that may be issued under the Second Restated 2005 Plan may not exceed 280,000 shares of Class B Common Stock, 900,000 shares of Class A Common Stock of which up to 620,000 shares of Class A Common Stock may be issued pursuant to incentive stock options and 280,000 Class A Common Stock issuable upon conversion of Class B Common Stock. Awards denominated in Class A Common Stock may be granted to any employee or director under the Second Restated 2005 Plan. However, awards denominated in Class B Common Stock may only be granted to Edward K. Christian, President, Chief Executive Officer, Chairman of the Board of Directors, and the holder of 100% of the outstanding Class B Common Stock of the Company. Stock options granted under the Second Restated 2005 Plan may be for terms not exceeding ten years from the date of grant and may not be exercised at a price which is less than 100% of the fair market value of shares at the date of grant.

Stock-Based Compensation

The Company’s stock-based compensation expense is measured and recognized for all stock-based awards to employees using the estimated fair value of the award. Compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award. For these awards, we have recognized compensation expense using a straight-line amortization method. Accounting guidance requires that stock-based compensation expense be based on awards that are ultimately expected to vest; therefore stock-based compensation has been adjusted for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of actual option forfeitures. For the years ended December 31, 2012 and 2011, we had $22,000 and $196,000, respectively, of total compensation expense related to stock options. This expense is included in corporate general and administrative expense in our results of operations. The associated future income tax benefit recognized for the years ended December 31, 2012 and 2011 was $9,000 and $80,000, respectively. The stock options were fully expensed at December 31, 2012, therefore there was no compensation expense related to stock options for the year ended December 31, 2013.

We calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The estimated expected volatility, expected term of options and estimated annual forfeiture rate were determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant.

The following summarizes the stock option transactions for the Second Restated 2005 Plan, the 2003 Plan and the 1992 Stock Option Plan (the “1992 Plan”) for the year ended December 31:

					Weighted
					Average
			Weighted		Remaining		Aggregate
	Number of		Average		Contractual		Intrinsic
	Options		Exercise Price		Term (Years)		Value

Outstanding at January 1, 2011		391,948	$	38.78
Granted		—		—
Exercised		—		—
Forfeited/canceled/expired		(88,316)		43.50
Outstanding at December 31, 2011		303,632	$	37.40		3.6	$	135,886
Granted		—		—
Exercised		(9,796)		27.26
Forfeited/canceled/expired		(33,176)		61.69
Outstanding at December 31, 2012		260,660	$	34.69		3.0	$	1,253,039
Granted		—		—
Exercised		(8,910)		29.41
Forfeited/canceled/expired		(17,963)		54.35
Outstanding at December 31, 2013		233,787	$	33.38		2.1	$	4,058,035
Vested and Exercisable at December 31, 2013		233,787	$	33.38		2.1	$	4,058,035

The total intrinsic value of stock options exercised during the years ended December 31, 2013 and 2012 was $155,500 and $72,200, respectively. Cash received from stock options exercised during the years ended December 31, 2013 and 2012 was $311,500 and $287,600, respectively. No options were exercised during the year ended December 31, 2011.

The following summarizes the non-vested stock option transactions for the Second Restated 2005 Plan, the 2003 Plan and 1992 Plan for the year ended December 31:

			Weighted
			Average
	Number of		Grant Date
	Options		Fair Value

Non-vested at January 1, 2011		46,873	$	13.88
Granted		—		—
Vested		(37,150)		13.73
Forfeited/canceled/expired		(440)		14.48
Non-vested at December 31, 2011		9,283	$	14.48
Granted		—		—
Vested		(9,283)		14.48
Forfeited/canceled/expired		—		—
Non-vested at December 31, 2012		—	$	—

There were no options granted during 2013.

The following summarizes the restricted stock transactions for the year ended December 31:

			Weighted
			Average
			Grant Date
	Shares		Fair Value

Outstanding at January 1, 2011		28,164	$	21.55
Granted		—		—
Vested		(14,187)		23.46
Forfeited/canceled/expired		(765)		19.32
Outstanding at December 31, 2011		13,212	$	19.61
Granted		—		—
Vested		(7,641)		20.82
Forfeited/canceled/expired		(40)		17.97
Outstanding at December 31, 2012		5,531	$	17.97
Granted		50,062		46.51
Vested		(5,531)		17.97
Forfeited/canceled/expired		—		—
Non-vested and outstanding at December 31, 2013		50,062	$	46.51
Weighted average remaining contractual life (in years)		2.9

The weighted average grant date fair value of restricted stock that vested during 2013, 2012 and 2011 was $99,000, $159,000 and $333,000, respectively. The net value of unrecognized compensation cost related to unvested restricted stock awards aggregated $2,210,000, $16,000 and $127,000 at December 31, 2013, 2012 and 2011, respectively.

For the years ended December 31, 2013, 2012 and 2011 we had $135,000, $110,000 and $187,000, respectively, of total compensation expense related to restricted stock-based arrangements. The expense is included in corporate general and administrative expenses in our results of operations. The associated tax benefit recognized for the years ended December 31, 2013, 2012 and 2011 was $53,000, $45,000 and $77,000, respectively.