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STOCK BASED COMPENSATION
9 Months Ended
Sep. 30, 2011
Notes to Financial Statements 
STOCK BASED COMPENSATION

 

The Company has two stock option plans, the 1992 Stock Incentive Plan (“1992 Plan”) and 2001 Stock Option Plan (“2001 Plan”). No additional grants may be made under the 1992 Plan. The 2001 Plan, which was approved by the shareholders, permits the grant of stock options and restricted stock awards for up to 900,000 shares. All stock options have an exercise price that is equal to the fair market value of the Company’s stock on the date the options were granted. Administration of the plan, including determination of the number, term, and type of options to be granted, lies with the Board of Directors or a duly authorized committee of the Board of Directors. Options are generally granted based on employee performance with vesting periods ranging from date of grant to seven years. The maximum term before expiration for all grants is ten years.

 

The following table presents information related to the value of outstanding stock options for the periods shown:

 

          Three months ended   Nine months ended
          September 30, 2011   September 30, 2011
                       
          Weighted Average Exercise   Weighted Average Exercise
          Shares   Price   Shares   Price
                       
Outstanding at beginning of period          208,700    $             4.12      208,700    $       4.12
  Granted            155,000                   3.17      155,000             3.17
  Exercised                        -                        -                      -                  -  
  Forfeited               (7,500)                   4.17         (7,500)             4.17
                       
Outstanding at end of period          356,200    $             3.71      356,200    $       3.71

 

In accordance with the current accounting guidance for share-based payments, the Company recognizes compensation expense for options awarded under its stock incentive plans. Current accounting guidance requires the grant-date fair value of all share-based payment awards, including employee stock options, to be recognized as employee compensation expense over the requisite service period. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes stock option valuation model. This model uses the assumptions listed in the table below. Expected volatilities are based on implied volatilities from the Company’s stock, historical volatility of the Company’s stock, and other factors. Expected dividends are based on the Company’s plan not to pay dividends for the foreseeable future. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

 

Black-Scholes assumptions

 

    September 30, 2011 
    155,000 Shares 
      
      
Risk free interest rates   1.37%
Expected dividend  $0.00 
Expected lives, in years   5.2 
Expected volatility   32.6%

 

The Company expenses stock options on a straight-line basis over the options’ related vesting term. For the three months ended September 30, 2011, the Company recognized pretax compensation expense related to stock options of $5,708, in comparison to pretax compensation expense related to stock options of $6,626 for the three months ended September 30, 2010. For the nine months ended September 30, 2011, the Company recognized pretax compensation expense related to stock options of $5,708, in comparison to pretax compensation expense related to stock options of $8,836 for the nine months ended September 30, 2010.

 

During the nine months ended September 30, 2011, there were no transactions related to stock options exercise activity.