8.	STOCK-BASED COMPENSATION

In March 2008, we adopted the Hurco Companies, Inc. 2008 Equity Incentive Plan (the “2008 Plan”), which allows us to grant awards of stock options, Stock Appreciation Rights settled in stock (SARs), restricted shares, performance shares and performance units. The 2008 Plan replaced the 1997 Stock Option and Incentive Plan (the “1997 Plan”) which expired in March 2007. The Compensation Committee of the Board of Directors has authority to determine the officers, directors and key employees who will be granted awards; designate the number of shares subject to each award; determine the terms and conditions upon which awards will be granted; and prescribe the form and terms of award agreements. We have granted stock options under both plans which are currently outstanding, and restricted stock awards under the 2008 Plan. No stock option may be exercised more than ten years after the date of grant or such shorter period as the Compensation Committee may determine at the date of grant. The total number of shares of our common stock that may be issued as awards under the 2008 Plan is 750,000. The market value of a share of our common stock, for purposes of the 2008 Plan, is the closing sale price as reported by the Nasdaq Global Select Market on the date in question or, if not a trading day, on the last preceding trading date.

During fiscal 2011, 2010 and 2009, we recorded approximately $470,000, $141,000 and $246,000, respectively, of stock-based compensation expense related to grants under the plans. As of October 31, 2011, there was approximately $750,000 of total unrecognized stock-based compensation cost that we expect to recognize by the end of fiscal 2014.

On March 17, 2011, the Compensation Committee granted a total of 5,859 shares of restricted stock under the 2008 Plan to our board of directors. The restricted stock vests one year from the date of grant provided the recipient remains on the board of directors through that date. The grant date fair value of the restricted stock is based on the closing sales price of our common stock on the grant date which was $29.86 per share.

On December 22, 2010, the Compensation Committee granted a total of 25,000 shares of restricted stock under the 2008 Plan to our executive officers. The restricted stock vests in full three years from the date of grant provided the recipient remains employed by us through that date. The grant date fair value of the restricted stock is based on the closing sales price of our common stock on the grant date which was $23.10 per share.

On May 13, 2010, the Compensation Committee granted a total of 20,000 stock options under the 2008 Plan to four executive employees. The fair value of the options was estimated on the date of grant using a Black-Scholes valuation model with assumptions for expected volatility based on the historical volatility of our common stock of 63%, expected term of the options, dividend yield rate of 0% and a risk-free interest rate of 2.3% based upon the five-year U.S. Treasury yield as of the date of grant. The options vest over a three-year period beginning one year from the date of grant. Based upon the foregoing factors, the grant date fair value of the stock options was determined to be $9.90 per share.

On December 18, 2009, the Compensation Committee granted a total of 30,000 stock options under the 2008 Plan to four executive employees. The fair value of the options was estimated on the date of grant using a Black-Scholes valuation model with assumptions for expected volatility based on the historical volatility of our common stock of 65%, expected term of the options, dividend yield rate of 0% and a risk-free interest rate of 2.3% based upon the five-year U.S. Treasury yield as of the date of grant. The options vest over a three-year period beginning one year from the date of grant. Based upon the foregoing factors, the grant date fair value of the stock options was determined to be $8.29 per share.

During fiscal 2009, options to purchase 20,000 shares were exercised, resulting in cash proceeds of approximately $43,000 and an additional tax benefit of approximately $26,000.

On April 16, 2009, the Compensation Committee granted a total of 21,000 options under the 2008 Plan to three new employees. The fair value of the options was estimated on the date of grant using a Black-Scholes valuation model with assumptions for expected volatility based on the historical volatility of our common stock of 69%, the expected term of the options, dividend yield rate of 0% and a risk-free interest rate based upon the five-year U.S. Treasury yield as of the date of grant of 1.8%. The options granted to the employees vest over a five-year period beginning one year from the date of grant. Based upon the foregoing factors, the grant date fair value of the options was determined to be $8.62 per share.

A reconciliation of the Company’s restricted stock activity and related information is as follows:

	Number of Shares		Weighted Average Grant Date Fair Value
Unvested at October 31, 2010		—		—
Shares granted		30,859	$	24.38
Shares vested		—		—
Shares cancelled		—		—
Unvested at October 31, 2011		30,859	$	24.38

A summary of the status of the options as of October 31, 2011, 2010 and 2009 and the related activity for the year is as follows:

	Shares Under Option			Weighted Average Exercise Price Per Share
Balance October 31, 2008		64,369		$	20.29
Granted		21,000			14.88
Cancelled		—			—
Expired		—			—
Exercised		(20,000	)	$	2.15
Balance October 31, 2009		65,369		$	24.11
Granted		50,000			16.14
Cancelled		—			—
Expired		—			—
Exercised		—			—
Balance October 31, 2010		115,369		$	20.66
Granted		—			—
Cancelled		—			—
Expired		—			—
Exercised		—			—
Balance October 31, 2011		115,369		$	20.66

The total intrinsic value of stock options exercised during the twelve months ended October 31, 2011, 2010 and 2009 was approximately $0, $0 and $275,000, respectively.

As of October 31, 2011, the total intrinsic value of outstanding stock options already vested and expected to vest and the intrinsic value of options that are outstanding and exercisable as of October 31, 2011 was $747,000. Stock options outstanding and exercisable on October 31, 2011, are as follows:

Range of Exercise Prices Per Share		Shares Under Option		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life in Years
Outstanding
$	2.15		500	$	2.15		0.1
	14.82		30,000		14.82		8.1
	14.88		21,000		14.88		7.5
	18.13		20,000		18.13		8.5
	26.69		33,869		26.69		5.0
	35.83		10,000		35.83		6.6
	$2.15 – 35.83		115,369	$	20.66		7.0
Exercisable
$	2.15		500	$	2.15		0.1
	14.82		10,000		14.82		2.7
	14.88		7,000		14.88		2.5
	18.13		6,667		18.13		2.8
	26.69		33,869		26.69		5.0
	35.83		10,000		35.83		6.6
	$2.15 – 35.83		68,036	$	24.05		4.4