EQUITY INCENTIVE PLAN

Stock Options

Under the Company’s 2008 Equity Incentive Plan (the “Plan”), the Company may grant stock options to its directors, employees, and consultants for up to 794,987 shares of common stock. Both incentive stock options and non-qualified stock options may be granted under the Plan. On April 29, 2008, the Board of Directors of the Company granted stock options to purchase 595,000 shares of common stock to its directors and employees. The exercise price of each option equals the market price of the Company’s stock on the date of grant and the maximum term of each option is 10 years. For the options that were awarded on April 29, 2008, the vesting period is five years from date of grant, with vesting at 20% per year, except that the Company’s options granted to its former chief executive officer vest over four years from date of grant at 25% per year. At June 30, 2014, all of these options were fully vested. During the year ended June 30, 2013, 35,000 stock options with an exercise price of $12.51 per share were awarded to employees and the vesting period is five years from date of grant. During the year ended June 30, 2014, 10,000 stock options with an exercise price of $16.49 per share were awarded to an employee and the vesting period is five years from date of grant. There are 188,987 stock options that are available to be granted as of June 30, 2014. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for options granted during the years ended June 30, 2014, 2013 and 2012:



	Years Ended June 30,
	2014			2013			2012
Fair value	$	4.45		$	3.34		$	3.44
Expected dividends	1.49		%	1.26		%	0.94		%
Expected term (years)	6.50			6.50			6.25
Expected volatility	26.45		%	27.97		%	27.97		%
Risk-free interest rate	2.84		%	1.75		%	2.19		%

The expected volatility is based on historical volatility through the date of grant. The risk-free interest rate for periods within the contractual life of the awards is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected term is based on the simplified method calculation allowed for “plain vanilla” share options. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

A summary of options under the Plan for the year ended June 30, 2014 is presented below:



	Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in Years)
Outstanding at June 30, 2013	555,183		$	11.02
Granted	10,000		16.49
Exercised	(126,500	)	10.86
Outstanding at June 30, 2014	438,683		$	11.20	4.4
Exercisable at June 30, 2014	393,183		$	10.95	3.9

Share-based compensation expense applicable to stock options was $37,000, $256,000 and $330,000 for the years ended June 30, 2014, 2013 and 2012, respectively, and the recognized tax benefit related to this expense was $13,000, $63,000 and $84,000, respectively. As of June 30, 2014, unrecognized stock-based compensation expense related to nonvested options amounted to $133,000. This amount is expected to be recognized over a weighted average period of 3.3 years. The intrinsic value of all stock options outstanding and exercisable at June 30, 2014 was $2,484,000 and $2,323,000, respectively. The intrinsic value of stock options that were exercised in fiscal 2014 was $656,000.

Stock Awards

Under the Company’s 2008 Equity Incentive Plan, the Company may grant stock awards to its directors, employees and consultants for up to 317,996 shares of common stock. The stock awards vest at 20% - 25% per year. During the year ended June 30, 2013, 3,000 shares of restricted stock were awarded with a grant date fair value of $12.51 per share that vest over a five years period. There were no shares of restricted stock awarded during the year ended June 30, 2014. The fair market value of the stock awards, based on the market price at grant date, is recorded as unearned compensation. Unearned compensation is amortized over the applicable vesting period. The Company recognized compensation expense related to restricted stock awards of $9,000, $247,000 and $596,000 for the years ended June 30, 2014, 2013 and 2012, respectively. The tax benefit related to the vesting of restricted stock awards was $1,000, $105,000 and $42,000 for the years ended June 30, 2014, 2013 and 2012, respectively. As of June 30, 2014, there was $8,000 of total unrecognized compensation cost related to nonvested stock awards granted under the Plan, which is expected to be recognized over a period of 3.1 years.

A summary of the status of the Company’s stock awards is presented below:



	Nonvested Shares
Balance at June 30, 2013	3,000
Granted	—
Vested	(600	)
Balance at June 30, 2014	2,400

The aggregate fair value of the stock awards that vested in fiscal year 2014 was $9,000.