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, 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 shares 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 2013, 2012 and 2011, we recorded approximately $979,000, $870,000 and $470,000, respectively, of stock-based compensation expense related to grants under the plans. As of October 31, 2013, there was approximately $896,000 of total unrecognized stock-based compensation cost that we expect to recognize by the end of the first quarter of fiscal 2016.

During fiscal 2013, options to purchase 11,369 shares were exercised, resulting in cash proceeds of approximately $303,000.

On March 14, 2013, the Compensation Committee granted a total of 6,230 shares of restricted stock to our non-employee directors. The restricted stock vests in full 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 $28.08 per share.

On December 12, 2012, the Compensation Committee granted a total of 24,976 stock options under the 2008 Plan to our executive officers. 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 62%, expected term of the options of five years, dividend yield rate of 0% and a risk-free interest rate of .66% 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 $12.11 per share.

On December 12, 2012, the Compensation Committee granted a total of 12,983 shares of restricted stock 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 $23.30 per share.

On March 15, 2012, the Compensation Committee granted a total of 6,475 shares of restricted stock to our non-employee directors. The restricted stock vests in full 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 $27.00 per share.

On December 14, 2011, the Compensation Committee granted a total of 45,236 stock options under the 2008 Plan to our executive officers. 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 64%, expected term of the options of five years, dividend yield rate of 0% and a risk-free interest rate of .86% 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 $11.50 per share.

On December 14, 2011, the Compensation Committee granted a total of 24,243 shares of restricted stock 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 $21.45 per share.

During fiscal 2012, options to purchase 500 shares were exercised, resulting in cash proceeds of approximately $1,000.

On March 17, 2011, the Compensation Committee granted a total of 5,859 shares of restricted stock under the 2008 Plan to our non-employee 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.

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, 2012		55,718		$	22.84
Shares granted		19,213			24.85
Shares vested		(6,475	)		27.00
Shares cancelled		-			-
Unvested at October 31, 2013		68,456		$	23.01

A summary of the status of the options as of October 31, 2013, 2012 and 2011 and the related activity for the year is as follows:

	Shares Under Option			Weighted Average Exercise Price Per Share
Balance October 31, 2010		115,369		$	20.66
Granted		-			-
Cancelled		-			-
Expired		-			-
Exercised		-			-
Balance October 31, 2011		115,369		$	20.66
Granted		45,236			21.45
Cancelled		(5,000	)		26.69
Expired		-			-
Exercised		(500	)		2.15
Balance October 31, 2012		155,105		$	20.75
Granted		24,976			23.30
Cancelled		-			-
Expired		-			-
Exercised		(11,369	)		26.69
Balance October 31, 2013		168,712		$	20.73

The total intrinsic value of stock options exercised during the twelve months ended October 31, 2013, 2012 and 2011 was approximately $0, $10,000 and $0, respectively.

As of October 31, 2013, 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 was $786,000. Stock options outstanding and exercisable on October 31, 2013, 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
$	14.82		30,000	$	14.82		6.1
	14.88		21,000		14.88		5.5
	18.13		20,000		18.13		6.5
	21.45		45,236		21.45		8.1
	23.30		24,976		23.30		9.1
	26.69		17,500		26.69		3.0
	35.83		10,000		35.83		4.6
$	14.82 - 35.83		168,712	$	20.73		6.7
Exercisable
$	14.82		30,000	$	14.82		6.1
	14.88		14,000		14.88		3.6
	18.13		20,000		18.13		6.5
	21.45		15,079		21.45		2.7
	26.69		17,500		26.69		3.0
	35.83		10,000		35.83		4.6
$	14.82 - 35.83		106,579	$	20.31		4.7