Stock Options

The Company adopted, with stockholder approval, the Innodata Inc. 2013 Stock Plan (the “2013 Plan”). The maximum number of shares of common stock that may be delivered, purchased or used for reference purposes with respect to awards granted under the 2013 Plan is 1,041,096 shares, plus any shares subject to an award or portion of any award under the Innodata Isogen, Inc. 2009 Stock Plan, as amended and restated (the “Prior Plan”) that were outstanding as of June 4, 2013 that expire or terminate unexercised, become unexercisable or are forfeited or otherwise terminated, surrendered or canceled as to any shares without the delivery of shares of stock or other consideration. Shares of stock subject to options or stock appreciation rights (“SARs”) granted under the 2013 Plan count against the share reserve as one share for every one share subject to such option or SAR and shares subject to any other type of award granted under the 2013 Plan count against the share reserve as two shares for every one share subject to such award. If any award, or portion of an award, under the 2013 Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares without the delivery of shares of stock or other consideration, the shares subject to such award will thereafter be available for further awards under the 2013 Plan as provided in the next sentence. Shares of stock that again become available for awards pursuant to the expiration, termination, forfeiture or cancellation of any award (other than an option or SAR) granted under the 2013 Plan, or of any award (other than an option or SAR) granted after March 31, 2011 under the Prior Plan, will be added back as two shares for every one share subject to such award or Prior Plan award. All other awards under the 2013 Plan and all other awards under the Prior Plan will be added back as one share for every one share subject to such award or Prior Plan award. The number of shares used for reference purposes in connection with these awards will be considered "delivered" for purposes of computing the maximum number of shares that may be delivered under the Plan.

A summary of option activity under the Company’s stock option plans as of March 31, 2014, and changes during the period then ended, is presented below:

		Weighted-		Weighted-Average
	Number of	Average		Remaining Contractual	Aggregate
	Options	Exercise Price		Term (years)	Intrinsic Value
Outstanding at January 1, 2014	3,048,069	$	2.99
Granted	100,000		3.21
Exercised	(154,000)		2.59
Forfeited/Expired	(78,239)		2.76
Outstanding at March 31, 2014	2,915,830	$	3.03	4.59	$	793,777

Exercisable at March 31, 2014	843,057	$	3.03	2.54	$	466,027

Vested and Expected to Vest at March 31, 2014	2,915,830	$	3.03	4.59	$	793,777

The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. The weighted average fair values of the options granted and weighted average assumptions are as follows:

	Three Months Ended
	March 31,
	2014			2013
Weighted average fair value of options granted	$	1.55		$	1.86

Risk-free interest rate		1.53	%		0.76	%
Expected life (years)		5			5
Expected volatility factor		54.96	%		67	%
Expected dividends		-			-

A summary of restricted shares under the Company’s stock plans as of March 31, 2014, and changes during the period then ended, are presented below:

		Weighted-Average Grant
	Number of Shares	Date Fair Value
Unvested at January 1, 2014	25,000	$	3.31
Granted
Vested	(10,000)		4.39
Forfeited/Expired	-		-
Unvested at March 31, 2014	15,000	$	2.59

The total compensation cost related to non-vested stock awards not yet recognized as of March 31, 2014 totaled approximately $1.4 million. The weighted-average period over which these costs will be recognized is twenty-four months.

The stock-based compensation expense related to the Company’s various stock awards was allocated as follows (in thousands):

	Three months ended March 31,
	2014		2013

Direct operating costs	$	69	$	51
Selling and adminstrative expenses		129		227
Total stock-based compensation	$	198	$	278

In March 2014, the Company’s Chairman and CEO (the “CEO”) exercised 154,000 stock options at a total exercise price of $0.4 million. The CEO paid the exercise price by surrendering to the Company 137,065 of the shares of common stock he would have otherwise received on the option exercise. In addition, the CEO surrendered 7,866 shares to the Company in consideration of the payment by the Company on his behalf of $22,891 of the Company’s minimum withholding tax requirement payable in respect of the option exercise. Because the payment value attributable to the surrendered shares upon settlement does not exceed the fair value of the option, no compensation cost was recognized at the date of settlement. In connection with this transaction, the Company issued a net total of 9,069 shares of common stock to the CEO.