Note F – Stock Incentive Plans

On April 5, 2013, the shareholders approved the 2013 Stock Incentive Plan, which was previously adopted by the Board of Directors on March 1, 2013, subject to shareholder approval. The aggregate number of shares of common stock that are subject to awards under the 2013 Stock Incentive Plan, subject to adjustment upon a change in capitalization, is 4.0 million. On June 20, 2006, the shareholders approved the 2006 Stock Incentive Plan and, as amended, the aggregate number of shares of common stock that are subject to awards is 7.9 million.

The 2013 Stock Incentive Plan and 2006 Stock Incentive Plan allow for the issuance of stock options, stock appreciation rights, restricted stock and common stock, subject to share availability. Vesting of equity instruments is determined on a grant-by-grant basis. Options expire at the end of 10 years from the date of grant, and Kforce issues new shares upon exercise of options.

The 2013 Stock Incentive Plan terminates on April 5, 2023 and the 2006 Stock Incentive Plan terminates on April 28, 2016. The Incentive Stock Option Plan expired in 2005.

During the three months ended September 30, 2014 and 2013, Kforce recognized total stock-based compensation expense of $3.1 million and $336 thousand, respectively. During the nine months ended September 30, 2014 and 2013, Kforce recognized total stock-based compensation expense of $4.5 million and $937 thousand, respectively. During the three months ended September 30, 2014 and 2013, Kforce recognized stock-based compensation expense from continuing operations of $671 thousand and $336 thousand, respectively. During the nine months ended September 30, 2014 and 2013, Kforce recognized stock-based compensation expense from continuing operations of $2.1 million and $937 thousand, respectively.

Stock Options

The following table presents stock option activity during the nine months ended September 30, 2014 (in thousands, except per share amounts):


	Incentive Stock Option Plan			2006 Stock Incentive Plan			Total			Weighted Average Exercise Price per Share		Total Intrinsic Value of Options Exercised
Outstanding and Exercisable as of December 31, 2013		97			83			180		$	11.57
Exercised		(57	)		(33	)		(90	)	$	11.53	$	860
Forfeited/Cancelled		(1	)		—			(1	)	$	11.00

Outstanding and Exercisable as of September 30, 2014		39			50			89		$	11.63

As of September 30, 2014, there was no unrecognized compensation cost related to non-vested options.

Restricted Stock

Kforce’s annual restricted stock grants made to executives and management are generally based on the extent by which annual long-term incentive performance goals, which are established by Kforce’s Compensation Committee during the first quarter of the year of performance, have been met, as approved by the Compensation Committee. Additionally, Kforce, with the approval of the Compensation Committee, grants restricted stock in varying amounts as determined appropriate during the year to retain executives and management. Restricted stock granted during the nine months ended September 30, 2014 will vest over a period of two to ten years, with equal vesting annually.

Restricted stock contain the same voting rights as other common stock and are included in the number of shares of common stock issued and outstanding. Restricted stock contain the right to dividends in the form of additional shares of restricted stock at the same rate as the cash dividend on common stock and containing the same vesting provisions as the underlying award. The following table presents the activity for the nine months ended September 30, 2014 (in thousands, except per share amounts):


	Number of Restricted Stock			Weighted Average Grant Date Fair Value		Total Intrinsic Value of Restricted Stock Vested
Outstanding as of December 31, 2013		811		$	16.89
Granted		408		$	20.03
Forfeited/Cancelled		(55	)	$	18.25
Vested		(125	)	$	15.24	$	2,532

Outstanding as of September 30, 2014		1,039		$	18.02

During the three months ended December 31, 2013, Kforce granted certain restricted stock awards containing time-based vesting terms of ten years, with an equal number of shares vesting in each of years six through ten, as well as a performance-acceleration feature upon which vesting would accelerate if Kforce’s closing stock price exceeded the stock price at the date of grant by a pre-established percentage for a period of 10 trading days. During the three months ended March 31, 2014, the Firm modified all awards containing a performance-acceleration feature that were granted during the three months ended December 31, 2013, as follows: (i) eliminated the performance-acceleration feature and (ii) reduced the time-based vesting term to five years, with equal vesting annually. The total number of restricted shares impacted by this modification was 268 thousand, excluding already forfeited shares, and the number of employees impacted was 87. The total incremental compensation cost resulting from the modification was $109 thousand, which will be amortized on a straight-line basis over the requisite service period of the modified awards.

The fair market value of restricted stock is determined based on the closing stock price of Kforce’s common stock at the date of grant, and is amortized on a straight-line basis over the requisite service period. As of September 30, 2014, total unrecognized compensation expense related to restricted stock was $12.0 million, which will be recognized over a weighted average remaining period of 4.8 years.

Common Stock

As discussed within Note B “Discontinued Operations,” the transaction expense related to the sale of HIM included commissions and transaction bonuses paid by the Firm in the form of Kforce common stock. As a result, during the three and nine months ended September 30, 2014, Kforce issued 92 thousand shares of common stock. During the three and nine months ended September 30, 2013, there was no similar common stock issuance.