(5) Share-Based Compensation

Astro-Med has one equity incentive plan (the "Plan") under which incentive stock options, non-qualified stock options, restricted stock units ("RSUs") and other equity based awards may be granted to officers and certain employees. An aggregate of 1,000,000 shares were authorized for awards under the Plan. Options granted to employees vest over four years. The exercise price of each stock option will be established at the discretion of the Compensation Committee; however, any incentive stock options granted must be at an exercise price of not less than fair market value at the date of grant. The Plan provides for an automatic annual grant of ten-year options to purchase 5,000 shares of stock to each non-employee director upon the adjournment of each annual shareholders' meeting. Each such option is exercisable at the fair market value as of the grant date and vests immediately prior to the next succeeding annual shareholders' meeting. Beginning in fiscal year 2013, a portion of the Company's long-term incentive compensation will be awarded in the form of RSUs. The RSUs vest fifty-percent on the first anniversary of the grant date and fifty-percent on the second anniversary of the grant date provided that the grantee is employed on each vesting date by Astro-Med or an affiliate company if the Company achieves specific thresholds of net sales and annual operating income as established under the Management Bonus Domestic Plan. At April 28, 2012, 579,563 shares were available for grant under the Plan.

We account for compensation cost related to share-based payments based on fair value of the stock options and RSUs when awarded to an employee or director. We have estimated the fair value of each option on the date of grant using the Black-Scholes option-pricing model. Our estimate requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), the risk-free interest rate and the Company's dividend yield. The stock price volatility assumption is based on the historical weekly price data of our common stock over a period equivalent to the weighted average expected life of our options. Management evaluated whether there were factors during that period which were unusual and would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors. In determining the expected life of the option grants, the Company has observed the actual terms of prior grants with similar characteristics and the actual vesting schedule of the grant and has assessed the expected risk tolerance of different option groups. The risk-free interest rate is based on the actual U.S. Treasury zero coupon rates for bonds matching the expected term of the option as of the option grant date. Our accounting for share-based compensation for RSUs is also based on the fair value method. The fair value of the RSUs is based on the closing market price of the Company's common stock on the date of the RSU award.

In addition to the Plan, the Company adopted a Non-Employee Director Annual Compensation Program (the "Program") effective as of February 1, 2012. The Program provides that each non-employee director is entitled to an annual cash retainer of $7,000 (the "Cash Retainer"), plus $500 for each Board and committee meeting attended, provided that if more than one meeting occurs on the same day, no more than $500 shall be paid for such day. The non-employee director may elect for any fiscal year to receive all or a portion of the Cash Retainer in the form of common stock of the Company.

If a non-employee director elects to receive all or a portion of the Cash Retainer in the form of common stock, such shares shall be issued in four quarterly installments on the first day of each fiscal quarter, and the number of shares of common stock to be issued shall be based on the fair market value of such common stock on the date such installment is payable. The common stock received in lieu of such Cash Retainer will be fully vested. However, a non-employee director who receives common stock in lieu of all or a portion of the Cash Retainer may not sell, transfer, assign, pledge or otherwise encumber the common stock prior to the first anniversary of the date on which such shares were granted. In the event of the death or disability of a nonemployee director, or a change in control of the Company, any shares of common stock issued in lieu of such Cash Retainer, shall no longer be subject to such restrictions on transfer.

In addition, under the Program, commencing with the 2012 annual meeting, the non-employee director will receive a restricted stock award with a value equal to $20,000 (the "Equity Retainer"). If a non-employee director is first appointed or elected to the Board of Directors effective on a date other than at the annual shareholders meeting, on the date of such appointment or election the director shall receive a pro rata award of restricted common stock having a value based on the number of days remaining until the next annual meeting. The Equity Retainer will vest on the earlier of 12 months after the grant date or the date immediately prior to the next annual meeting of the shareholders following the meeting at which such restricted stock award was granted. However, a non-employee director may not sell, transfer, assign, pledge or otherwise encumber the vested common stock prior to the second anniversary of the vesting date. In the event of the death or disability of a non-employee director, or a change in control of the Company, the restricted stock award shall immediately vest and shall no longer be subject to such restrictions on transfer.

Share-based compensation expense was recognized as follows:


	Three Months Ended
	April 28, 2012		April 30, 2011
Stock Options	$	39,222	$	77,638
Restricted Stock Units		7,811		—

Total	$	47,033	$	77,638

Stock Options

The fair value of stock options granted during the three months ended April 28, 2012 and April 30, 2011 was estimated using the following assumptions:


	Three Months Ended
	April 28, 2012			April 30, 2011
Risk Free Interest Rate		1.11	%		2.00	%
Expected Volatility		39.4	%		39.4	%
Expected Life (in years)		5.0			5.0
Dividend Yield		3.5	%		3.9	%

The weighted average fair value per share for options granted was $2.09 during the first quarter of fiscal 2013 compared to $2.03 during the first quarter of fiscal 2012.

Aggregated information regarding stock options granted under the Plan for the three months ended April 28, 2012 is summarized below:


	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding at January 31, 2012		888,097		$	8.27		4.7	$	547,874
Granted		74,000			8.22
Exercised		(41,063	)		4.41
Expired or canceled		(9,875	)		5.99

Outstanding at April 28, 2012		911,159		$	8.47		4.9	$	439,778

Exercisable at April 28, 2012		746,284		$	8.62		4.0	$	366,211

As of April 28, 2012 there was $285,952 of unrecognized compensation expense related to unvested options.

Restricted Stock Units (RSUs)

Aggregated information regarding RSUs granted under the Plan for the three months ended April 28, 2012 is summarized below:


	Number of Options		Weighted Average Grant Date Fair Value
Outstanding at January 31, 2012		—	$	—
Granted		37,000		8.35
Exercised		—		—
Expired or canceled		—		—

Outstanding at April 28, 2012		37,000	$	8.35

As of April 28, 2012 there was $115,769 of unrecognized compensation expense related to unvested RSUs.

Employee Stock Purchase Plan

Astro-Med has an Employee Stock Purchase Plan allowing eligible employees to purchase shares of common stock at a 15% discount from fair value on the date of purchase. A total of 247,500 shares were reserved for issuance under this plan. During the quarter ended April 28, 2012 and April 30, 2011, 997 and 1,718 shares respectively, were purchased under this plan. As of April 28, 2012, 69,210 shares remain available.