7.	Equity Compensation Plans

We have adopted the following equity compensation plans, referred to collectively as the “Plans”:

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ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan – On May 7, 2013, our shareholders approved the ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan (the “Amended 2006 Plan”). Prior to May 7, 2013, we adopted and our shareholders approved the 2006 ITT Educational Services, Inc. Equity Compensation Plan (the “Original 2006 Plan”). Awards may be granted to our employees and directors under the Amended 2006 Plan in the form of stock options (incentive and nonqualified), stock appreciation rights (“SARs”), restricted stock, RSUs, performance shares, performance units and other stock-based awards as defined in the plan. The Amended 2006 Plan increased the maximum number of shares of our common stock that may be issued pursuant to awards under the plan to 7,350,000, an increase of 3,350,000 over the 4,000,000 maximum under the Original 2006 Plan. Each share underlying stock options and SARs granted and not forfeited or terminated, reduces the number of shares available for future awards by one share. The delivery of a share in connection with a “full-value award” (i.e., an award of restricted stock, RSUs, performance shares, performance units or any other stock-based award with value denominated in shares) reduces the number of shares remaining for other awards by two shares. As of December 31, 2013, restricted stock, RSUs and nonqualified stock options have been awarded under this plan.

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1999 Outside Directors Stock Option Plan – A maximum of 500,000 shares of our common stock were available to be issued upon the exercise of nonqualified stock options granted to non-employee directors under the 1999 Outside Directors Stock Option Plan (“1999 Directors Stock Plan”).

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1997 ITT Educational Services, Inc. Incentive Stock Plan – A maximum of 8,100,000 shares of our common stock were available to be issued upon the exercise of stock options and pursuant to other forms of awards under the 1997 ITT Educational Services, Inc. Incentive Stock Plan (“1997 Stock Plan”), but no more than 20% of the total number of shares on a cumulative basis could have been used for restricted stock or performance share awards. A maximum of 1.5% of our outstanding shares of common stock could have been issued annually, with any unissued shares available to be issued in later years.

No additional awards have been or will be granted after May 9, 2006 under the 1999 Directors Stock Plan or the 1997 Stock Plan. All awards outstanding as of December 31, 2013 under the 1999 Directors Stock Plan and the 1997 Stock Plan will expire in 2014.

The stock-based compensation expense and related income tax benefit recognized in our Consolidated Statements of Income in the periods indicated were as follows:


	Year Ended December 31,
	2013			2012			2011
Stock-based compensation expense	$	11,638		$	16,658		$	17,074
Income tax (benefit)	($	4,481	)	($	6,414	)	($	6,574	)

We did not capitalize any stock-based compensation cost in the years ended December 31, 2013, 2012 and 2011.

As of December 31, 2013, we estimated that pre-tax compensation expense for unvested stock-based compensation grants in the amount of approximately $13,900, net of estimated forfeitures, will be recognized in future periods. This expense will be recognized over the remaining service period applicable to the grantees which, on a weighted-average basis, is approximately 2.0 years.

Stock Options. Under the Plans, the stock option exercise price may not be less than 100% of the fair market value of our common stock on the date of grant. The maximum term of any stock option granted under the Amended 2006 Plan and Original 2006 Plan may not exceed seven years from the date of grant, and those stock options will be exercisable at such times and under conditions as determined by the Compensation Committee of our Board of Directors, subject to the limitations contained in the plan. All stock options awarded under the Amended 2006 Plan and Original 2006 Plan typically vest and become exercisable in three equal installments commencing with the first anniversary of the date of grant.

Under the 1999 Directors Stock Plan, the stock options granted typically vested and became exercisable on the first anniversary of the grant. The maximum term of any stock option granted under the 1999 Directors Stock Plan was: (a) 10 years from the date of grant for any stock options granted prior to January 25, 2005; and (b) seven years from the date of grant for any stock options granted on or after January 25, 2005.

Under the 1997 Stock Plan, the stock options granted typically vested and became exercisable in three equal annual installments commencing with the first anniversary of the date of grant. The maximum term of any stock option granted under the 1997 Stock Plan was 10 years and two days from the date of grant.

The stock options granted, forfeited, exercised and expired in the period indicated were as follows:


	Year Ended December 31, 2013
				Weighted					Weighted
				Average		Aggregate			Average	Aggregate
	# of			Exercise		Exercise			Remaining	Intrinsic
	Shares			Price		Price			Contractual Term	Value ⁽¹⁾
Outstanding at beginning of period		1,574,604		$	84.90	$	133,691
Granted		156,500		$	19.55		3,059
Forfeited		(16,668	)	$	75.11		(1,252	)
Exercised		0		$	0.00		0
Expired		(381,988	)	$	69.48		(26,543	)

Outstanding at end of period		1,332,448		$	81.77	$	108,955		2.4 years	$	2,198

Exercisable at end of period		1,040,443		$	92.28	$	96,016		2.1 years	$	0

(1)

The aggregate intrinsic value of the stock options was calculated by identifying those stock options that had a lower exercise price than the closing market price of our common stock on December 31, 2013 and multiplying the difference between the closing market price of our common stock and the exercise price of each of those stock options by the number of shares subject to those stock options that were outstanding or exercisable, as applicable.

The following table sets forth information regarding the stock options granted and exercised in the periods indicated:


	Year Ended December 31,
	2013		2012		2011
Shares subject to stock options granted		156,500		156,500		159,500
Weighted average grant date fair value	$	9.27	$	31.36	$	28.90
Shares subject to stock options exercised		0		202,820		118,410
Intrinsic value of stock options exercised	$	0	$	4,802	$	3,095
Proceeds received from stock options exercised	$	0	$	8,345	$	5,599
Tax benefits realized from stock options exercised	$	0	$	1,602	$	1,190

The intrinsic value of a stock option is the difference between the fair market value of the stock and the option exercise price. The fair value of each stock option grant was estimated on the date of grant using the following assumptions:


	Year Ended December 31,
	2013			2012			2011
Risk-free interest rates		0.7	%		0.7	%		1.8	%
Expected lives (in years)		4.6			4.5			4.7
Volatility		60	%		51	%		48	%
Dividend yield		None			None			None

Restricted Stock Units. Under the Amended 2006 Plan and Original 2006 Plan, RSUs awarded are subject to a restriction period of at least: (a) for awards made prior to November 24, 2010, three years in the case of a time-based period of restriction and one year in the case of a performance-based period of restriction; and (b) for awards made after November 24, 2010, one year. All RSUs awarded under the Amended 2006 Plan and Original 2006 Plan that were not vested as of December 31, 2013 have a time-based restriction period that ranges from ending on the first to the third anniversary of the date of grant.

The following table sets forth the number of RSUs that were granted, forfeited and vested in the period indicated:


	Year Ended December 31, 2013
	# of RSUs			Weighted Average Grant Date Fair Value
Unvested at beginning of period		413,645		$	75.35
Granted		522,014		$	19.98
Forfeited		(129,327	)	$	46.72
Vested		(68,488	)	$	88.60

Unvested at end of period		737,844		$	39.96

The total fair market value of the RSUs that vested and were settled in shares of our common stock was $1,241 in the year ended December 31, 2013, $4,568 in the year ended December 31, 2012 and $2,454 in the year ended December 31, 2011. Also, in the year ended December 31, 2012, 48,935 RSUs vested and were settled in cash for $3,073.