EQUITY INCENTIVE PLAN

The Company’s 2006 Equity Incentive Plan (the “Plan”) allows the Company to make awards of various types of equity-based compensation, including stock options, dividend equivalent rights (“DERs”), stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance units, performance shares and other awards, to employees and directors of the Company. As of December 31, 2013, the Company was authorized to issue 833,333 shares under the Plan; provided, that no more than 416,667 of such shares may be used for grants of restricted stock, restricted stock units, performance units, performance shares and other awards.

The Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), which has the authority to set the number, exercise price, term and vesting provisions of the awards granted under the Plan, subject to the terms thereof. Either incentive or non-qualified stock options may be granted to employees of the Company, but only non-qualified stock options may be granted to non-employee directors and advisors. However, in either case, the Plan requires that stock options must be granted at exercise prices not less than the fair market value of the common stock on the date of the grant. Options issued under the plan vest over periods as determined by the Committee and expire 10 years after the date the option was granted. To date, the only awards made under the Plan have been non-incentive stock options.

For the year ended December 31, 2013, 2012 and 2011, we recorded compensation expense of $0.5 million, $0.7 million and $1.0 million, respectively within selling, general and administrative expense. As of December 31, 2013, there was $1.4 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of approximately three years.

The fair value of the options and SARs granted during 2013 was estimated on their respective grant dates using the Black-Scholes option pricing model. The Black-Scholes model was used with the following assumptions: risk-free interest rates of 0.73% to 1.75%, based on the U.S. Treasury yield in effect at the time of grant; dividend yields of zero percent; expected lives of four to five years, based on historical exercise activity; and volatility of 105% to 106% for grants made during the year ended December 31, 2013 based on the historical volatility of our stock over a time that is consistent with the expected life of the option. A small group of senior executives hold the majority of the stock options granted in 2013 and are expected to hold the options until they are vested. Forfeitures of 2% to 4% have been assumed in the calculation.

The fair value of the options granted during 2012 was estimated on their respective grant dates using the Black-Scholes option-pricing model. The Black-Scholes model was used with the following assumptions: risk-free interest rates of 0.62% to 1.03%, based on the U.S. Treasury yield in effect at the time of grant; dividend yields of zero percent; expected lives of five to eight years, based on historical exercise activity; and volatility of 101% to 114% for grants made during the year ended December 31, 2012 based on the historical volatility of our stock over a time that is consistent with the expected life of the option. Forfeitures of 2% to 4% have been assumed in the calculation.

The fair value of the options granted during 2011 was estimated on their respective grant dates using the Black-Scholes option-pricing model. The Black-Scholes model was used with the following assumptions: risk-free interest rates of 0.92% to 2.16%, based on the U.S. Treasury yield in effect at the time of grant; dividend yields of zero percent; expected lives of five years, based on historical exercise activity; and volatility of 105% to 107% for grants made during the year ended December 31, 2011 based on the historical volatility of our stock over a time that is consistent with the expected life of the option. Forfeitures of 1% to 4% have been assumed in the calculation.

The weighted average grant date fair value per share of options granted during the years ended December 31, 2013, 2012 and 2011 was $3.72, $9.72 and $9.96 respectively.

Stock Options.

The following table summarizes stock option activity under the Plan during the year ended December 31, 2013:



	Number of Options		Weighted Average Exercise Price
Balance at January 1, 2013:	362,764		$	12.60
Granted	421,667		4.56
Forfeited	(80,889	)	(9.48		)
Expired	(138,514	)	(12.48		)
Balance at December 31, 2013:	565,028		$	6.60
Exercisable at December 31, 2013	153,793		$	12.72

All stock options outstanding were issued to employees, officers or outside directors.

As of December 31, 2013, 565,028 outstanding options were expected to vest. The weighted average exercise price of these options was $6.60 and the aggregate intrinsic value was $0.5 million with a remaining weighted average contractual life of 8.7 years.

As of December 31, 2013, 153,793 options were exercisable with a weighted average exercise price of $12.72 and an aggregate intrinsic value of less than $10 thousand. The weighted average contractual life of these options was 6.2 years.

No options were exercised in 2013. During 2012 and 2011, 1,667 and 2,500 shares were exercised, respectively, with an intrinsic value of less than $10,000.

The total fair value of shares that vested during 2013, 2012 and 2011 was $0.6 million, $0.6 million and $0.3 million, respectively.

Stock Appreciation Rights (“SARs”).

The following table summarizes SARs activity under the Plan during the year ended December 31, 2013:



	Number of Options	Weighted Average Exercise Price
Balance at January 1, 2013:	—	$	—
Granted	138,333	4.32
Balance at December 31, 2013:	138,333	$	4.32
Exercisable at December 31, 2013	—	$	—

All SARs outstanding were issued to officers.

As of December 31, 2013, 138,333 outstanding SARs shares were expected to vest. The weighted average exercise price of these options was $4.32 and the aggregate intrinsic value was $0.4 million with a remaining weighted average contractual life of 4.5 years.

As of December 31, 2013, zero SARs shares were exercisable and no SARs shares were exercised in 2013, 2012 and 2011. At December 31, 2013, a liability of $0.1 million was recorded in accrued expenses.