STOCK-BASED COMPENSATION

Stock Options

As of June 30, 2013, there were 814,459 stock options outstanding and 644,273 stock options which remain unvested. On May 22, 2013, a total of 562,500 stock options were awarded to certain officers and employees of the Company. The options will vest in 33.33% increments over a three year period and will expire on May 22, 2018. The value of these stock options is approximately $2.3 million.

The fair value of the option grants are estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions, as indicated by year:



	2013
Dividend yield	0.6	%
Expected volatility	33.63	%
Risk-free interest rate	0.41	%
Expected life (years)	3.56

We recorded pre-tax stock-based compensation expense for stock options totaling $68,000 and $131,000 for the three months ended June 30, 2012 and 2013, respectively, and $125,000 and $178,000 for the six months ended June 30, 2012 and 2013, respectively.

Employee Stock Purchase Plan

During the second quarter of 2013, employees purchased a total of 20,627 shares of common stock through the employee stock purchase plan (“ESPP”) at a weighted average price of $11.65 per share. We recorded pre-tax stock-based compensation expense for the ESPP totaling $33,000 and $88,000 for the three months ended June 30, 2012 and 2013, respectively, and$73,000 and $187,000 for the six months ended June 30, 2012 and 2013, respectively.

The fair value of the right (option) to purchase shares under the ESPP is estimated on the date of grant (January 1, 2013) associated with the four quarterly purchase dates using the following assumptions:



	2013
Dividend yield	0.6	%
Expected volatility	31	%
Risk-free interest rate	0.08%, 0.12%, 0.135%, 0.15%
Expected life (years)	0.25, 0.50, 0.75, 1.00

Expected volatilities are based on the historical volatility during the previous twelve months of the underlying common stock. The risk-free rate for the quarterly purchase periods is based on the U.S. Treasury yields in effect at the time of grant (January 1). The expected life of the ESPP grants represents the calendar quarters from the grant date (January 1) to the purchase date (end of each quarter).

Restricted Stock Grants

We, from time to time, issue shares of restricted common stock to certain officers and key employees from our stock-based employee plan. The restricted stock shares issued to officers and key employees vest in 33.33% increments over three year periods.

On April 3, 2013, the Company awarded a grant of 38,200 shares of restricted common stock, which will vest over a three year period and have an aggregate grant date market value of $0.8 million.

Related to the vesting of restricted stock awards previously awarded to our officers and employees, we recorded $0.4 million and $0.3 million in pre-tax compensation expense, which is included in general, administrative and other expenses, for the three months ended June 30, 2012 and 2013, respectively, and $0.6 million and $0.7 million in pre-tax compensation expense for the six months ended June 30, 2012 and 2013, respectively.

As of June 30, 2013, we had $2.6 million of unrecognized compensation costs related to unvested restricted stock awards, which are expected to be recognized over a weighted average period of approximately 1.8 years.

Performance-Based Stock Awards

During the third quarter of 2012, the Compensation Committee of our Board of Directors (our “Board”) approved the grant of performance awards with both market and service vesting conditions to certain officers, employees and outside directors. The awards vest and become exercisable only in the event the closing price of our common stock is greater than or equal to $21.50 on any three days, whether or not consecutive, within a period of 30 consecutive calendar days, and the grantee remains continuously employed by us from the grant date through such date, which can be no earlier than the first anniversary of the grant date. If the market condition is met prior to the first anniversary of the grant date, then such award will not become vested until the first anniversary of the grant date, provided that the grantee remains continuously employed by us from the grant date through the first anniversary of the grant date. Promptly following the date a grantee’s award becomes vested (but no later than March 15th of the year following the year in which the award becomes vested) and subject to the grantee’s payment of the purchase price, we will issue and deliver to the grantee the number of shares of our common stock subject to the award. The purchase price is equal to the greater of (a) the fair market value of a share of our common stock on the grant date plus $0.50 or (b) $9.00. A grantee’s award will automatically terminate without payment of any consideration if (i) the grantee’s employment with us terminates for any reason (other than due to death or disability) prior to the vesting or (ii) the vesting does not occur on or before the fifth anniversary of the grant date. No performance awards were granted during the six months ended June 30, 2013. The pre-tax compensation expense associated with these awards for the three and six months ended June 30, 2013 was approximately $0.1 million and $0.3 million, respectively.

Director Compensation Policy

On March 5, 2012, our Board approved a new Director Compensation Policy, which provides for the following: (a) the chairman of our Audit Committee receives an annual cash retainer of $17,500, the chairman of our Compensation and our Corporate Governance Committees receives an annual cash retainer of $15,000 and the Lead Director of our Board receives an annual cash retainer of $115,000, payable in quarterly installments; (b) each independent director of our Board receives an annual cash retainer of $40,000 paid on a quarterly basis and an annual equity retainer of $75,000 in shares of our common stock issued at our annual meeting of stockholders. Additionally, each independent director receives $2,000 for each regular or special meeting of the full Board, our Audit Committee and our Executive Committee attended in person or by phone. Members of the other committees and their chairmen receive $1,600 for each committee meeting held in person or by phone that such director attends. Under our Director Compensation Policy, the annual cash retainers for each committee chairman and the annual equity retainer are paid on the date of our annual meeting of stockholders, which was held on May 22, 2013. We issued 17,928 shares of common stock to the four independent directors for such retainer.

We recorded $455,000 and $476,000 in pre-tax compensation expense, which is included in general, administrative and other expenses, for the three months ended June 30, 2012 and 2013, respectively, and $616,000 and $609,000 for the six months ended June 30, 2012 and 2013, respectively, related to the director fees, annual retainers and deferred compensation amortization.