Note 10 — Stock Compensation Plans

In April 2007, Shareholders approved the Escalade, Incorporated 2007 Incentive Plan (2007 Incentive Plan), which is an incentive plan for key employees, directors and consultants with various equity-based incentives as described in the plan document. The 2007 Incentive Plan is a replacement for the 1997 Incentive Stock Option Plan and the 1997 Director Stock Compensation and Option Plan which expired at the end of April 2007. All options issued and outstanding under the expired plans will remain in effect until exercised, expired or forfeited.

The 2007 Incentive Plan is administered by the Board of Directors or a committee thereof, which is authorized to determine, among other things, the key employees, directors or consultants who will receive awards under the plan, the amount and type of award, exercise prices or performance criteria, if applicable, and vesting schedules. Under the original terms of the plan and subject to various restrictions contained in the plan document, the total number of shares of common stock which may be issued pursuant to awards under the Plan may not exceed 2,981,491.

Restricted Stock Units

In 2014, the Company awarded 50,000 restricted stock units to certain employees at fair market value on the date of grant. The 2014 restricted stock units awarded to employees vest over four years (one-third two years from grant date, one-third three years from grant date and one-third four years from grant date) provided that the employee is still employed by the Company and that the performance criteria related to the market price of the Company’s stock is satisfied. The criteria is for any 30 consecutive trading days on the NASDAQ Stock Market (or such other principal securities exchange on which the Company’s shares of common stock are then traded) during the period beginning on the grant date and ending on the fourth anniversary thereof, the cumulative average Volume Weighted Average Price per share is at least 15% higher than the closing price per share on the grant date plus any incremental dividends paid above the quarterly dividend rate on the grant date by the Company during such four year period. The performance criteria for the 2014 restricted stock units awarded to employees was satisfied during the second quarter of 2014.

The restricted stock units granted to directors vest immediately or within two years. All restricted stock units are payable in shares of the Company’s common stock upon vesting, subject to the deferral election arrangement, and are subject to forfeiture if on the vesting date the director no longer holds a position with the Company.

The Company issued no restricted stock units to employees or directors in 2013 and 2012. The following table presents a summary of non-vested restricted stock units granted to employees and directors as of December 27, 2014:

			Weighted
	Number of		Average Grant
	Shares		Date Fair Value

Non-vested stock units as of December 28, 2013		—
Granted		50,000	$	10.49
Vested		—
Forfeited		—
Non-vested stock units as of December 27, 2014		50,000	$	10.49

Vested but unsettled		4,500

Outstanding non-vested restricted stock units as of December 27, 2014		45,500

When vesting is dependent on certain market criteria, the fair value of restricted stock units is determined by the use of Monte Carlo techniques. The market price of the Company’s stock on the grant date is used to value restricted stock units where vesting is not contingent on market criteria. In 2014, 2013, and 2012 the Company recognized $191 thousand, $0, and $0 thousand respectively in compensation expense related to restricted stock units and as of December 27, 2014 and December 28, 2013, there was $334 thousand and $0 respectively, of unrecognized compensation expense related to restricted stock units.

Stock Options

Total compensation expense recorded in the statements of operations for 2014, 2013 and 2012 relating to stock options was $525 thousand, $557 thousand and $574 thousand, respectively. As of December 27, 2014, there were $237 thousand of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 1.5 years.

During 2014, the Company awarded 25,000 stock options to directors. The stock options awarded to directors vest at the end of one year and have an exercise price equal to the market price on the date of grant. Director stock options are subject to forfeiture, except for termination of services as a result of retirement, death or disability, if on the vesting date the director no longer holds a position with the Company. No stock options were awarded to employees during 2014.

The following table summarizes option activity for each of the three years ended 2014:

	Incentive Stock Options				Director Stock Options
	Granted		Outstanding		Granted		Outstanding

2014		—		284,375		25,000		60,000
2013		120,000		559,950		37,500		80,000
2012		200,000		607,875		37,500		85,000

The fair value of each option grant award is estimated on the grant date using the Black-Scholes-Merton option valuation model using the following assumptions:

	2014			2013			2012

Risk-free interest rates		0.68	%		0.52	%		0.84	%
Dividend yields		4.23	%		5.97	%		5.50	%
Volatility factors of expected market price of common stock		35.86	%		48.79% to 74.05	%		95.56% to 110.39	%
Weighted average expected life of the options		1-4 years			1-4 years			1-4 years

The following table summarizes stock option transactions for the three years ended 2014:

	2014			2013			2012
			Option			Option			Option
	Shares		Price	Shares		Price	Shares		Price

Outstanding at beginning of year		639,950	$0.64 to$6.07		692,875	$0.64 to 6.07		984,649	$0.64 to $9.35
Issued during year		25,000	$11.86		157,500	$5.85 to $6.06		237,500	$5.28 to $5.66

Canceled or expired		(19,000)			(27,000)			(25,024)

Exercised during year		(301,575)	$0.64 to $6.07		(183,425)	$0.64 to $6.07		(504,250)	$0.64 to $2.56
Outstanding at end of year		344,375	$2.56 to $11.86		639,950	$0.64 to $6.07		692,875	$0.64 to $6.07
Exercisable at end of year		158,875			198,825			192,625
Weighted-average fair value of options granted during the year	$	3.06		$	2.21		$	3.12

The total intrinsic value of options exercised was $2.7 million, $929 thousand, and $2.4 million for 2014, 2013 and 2012, respectively.

The following table summarizes information about stock options outstanding at December 27, 2014:

	Options Outstanding						Options Exercisable
			Weighted-Average
Range of	Number of		Remaining	Weighted-Average		Number of			Weighted-Average
Exercise Prices	Shares		Contractual Life	Exercise Price		Shares			Exercise Price

$2.56		8,625	0.2 years	$	2.56			8,625	$	2.56
$5.28 - $5.66		116,750	2.2 years	$	5.29			50,000	$	5.30
$5.85 - $6.06		97,875	3.2 years	$	5.86			34,875	$	5.90
$6.07		96,125	1.2 years	$	6.07			65,375	$	6.07
$11.86		25,000	4.2 years	$	11.86
		344,375						158,875

During the year ended December 27, 2014, the following activity occurred under the Company’s stock option plan:

			Weighted Average
	Number of		Grant Date Fair
	Options		Value

Nonvested balance, beginning of year		441,125	$	2.79
Granted		25,000	$	2.31
Vested		(266,625)	$	2.69
Forfeited		(14,000)	$	2.98
Nonvested balance, end of year		185,500	$	2.85