NOTE 16.

STOCK-BASED COMPENSATION

EQUITY-CLASSIFIED STOCK COMPENSATION

Market Condition Restricted Shares

Under the 2010 Plan, the Company granted to certain employees non-vested restricted stock where vesting is based upon the achievement of certain market conditions, which are defined as the Company’s total shareholder return as compared to the total shareholder return of a certain peer group during a five-year performance period.

The Company used a Monte Carlo simulation pricing model to determine the fair value of its market condition based awards. The determination of the fair value of market condition-based awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the requisite performance term of awards, the relative performance of the Company’s stock price, and shareholder returns to those companies in its peer group, annual dividends, and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market conditions, provided the requisite service period is met.

A summary of activity during the years ended December 31, 2013 and 2012, is presented below:


Market Condition Non-Vested Restricted Shares	Shares			Wgt. Avg. Fair Value Per Share
Outstanding at December 31, 2011		9,317		$	23.13
Granted		—			—
Vested		—			—
Forfeited/Expired		(1,417	)		23.13

Outstanding at December 31, 2012		7,900			23.13
Granted		—			—
Vested		—			—
Forfeited/Expired		(2,833	)		23.13

Outstanding at December 31, 2013		5,067		$	23.13

As of December 31, 2013, there was approximately $44,000 of unrecognized compensation cost, adjusted for estimated forfeitures, related to market condition non-vested restricted shares, which will be recognized over a weighted average period of 1.9 years.

Market Condition Inducement Grant of Restricted Shares

“Inducement” grants of 96,000 and 17,000 shares of restricted Company common stock were awarded to Mr. Albright and Mr. Patten, in 2011 and 2012, respectively. Mr. Albright’s restricted shares were granted outside of the 2010 Plan while Mr. Patten’s restricted shares were awarded under the 2010 Plan. The Company filed a registration statement with the Securities and Exchange Commission on Form S-8 to register the resale of Mr. Albright’s restricted stock award. The restricted shares will vest in six increments based upon the price per share of Company common stock during the term of their employment (or within 60 days after termination of employment by the Company without cause), meeting or exceeding the target trailing 60-day average closing prices ranging from $36 per share for the first increment to $65 per share for the final increment. If any increment of the restricted shares fails to satisfy the applicable stock price condition prior to six years from the grant date, that increment of the restricted shares will be forfeited.

A summary of the activity for these awards during the years ended December 31, 2013 and 2012, is presented below:


Market Condition Non-Vested Restricted Shares	Shares			Wtd. Avg. Fair Value Per Share
Outstanding at December 31, 2011		96,000		$	18.47
Granted		17,000			18.02
Vested		—			—
Forfeited/Expired		—			—

Outstanding at December 31, 2012		113,000			18.40
Granted		—			—
Vested		(18,500	)		23.89
Forfeited/Expired		—			—

Outstanding at December 31, 2013		94,500		$	17.33

As of December 31, 2013, there was approximately $181,000 of unrecognized compensation cost, adjusted for estimated forfeitures, related to market condition non-vested restricted shares, which will be recognized over a weighted average period of 0.6 years.

Non-Qualified Stock Option Awards

Pursuant to the Non-Qualified Stock Option Award Agreements between the Company and Mr. Albright and Mr. Patten, Mr. Albright and Mr. Patten were granted options to purchase 50,000 and 10,000 shares of Company common stock, in 2011 and 2012, respectively, under the 2010 Plan with an exercise price per share equal to the fair market value on their respective grant dates. One-third of the options will vest on each of the first, second, and third anniversaries of their respective grant dates, provided they are an employee of the Company on those dates. In addition, any unvested portion of the options will vest upon a change in control. The options expire on the earliest of: (a) the tenth anniversary of the grant date; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.

On January 23, 2013, the Company granted options to purchase 51,000 shares of the Company’s common stock under the 2010 Plan to certain employees of the Company, including 10,000 shares to Mr. Patten, with an exercise price of $34.95 per share, which was equal to the fair market value at the date of grant. One-third of these options will vest on each of the first, second, and third anniversaries of the grant date, provided the recipient is an employee of the Company on those dates. Any unvested portion of the options will vest upon a change in control. The options expire on the earliest of: (a) the fifth anniversary of the grant date; (b) twelve months after the employee’s death or termination for disability; or (c) thirty days after the termination of employment for any reason other than death or disability.

The Company used the Black-Scholes valuation pricing model to determine the fair value of its non-qualified stock option awards. The determination of the fair value of the awards is affected by the stock price as well as assumptions regarding a number of other variables. These variables include expected stock price volatility over the term of the awards, annual dividends, and a risk-free interest rate assumption.

A summary of the activity for these awards during the years ended December 31, 2013 and 2012, is presented below:


Non-Qualified Stock Option Awards	Shares			Wtd. Avg. Fair Value Per Share		Wtd. Avg. Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		50,000		$	28.90
Granted		10,000			29.34
Exercised		—			—
Forfeited/Expired		—			—

Outstanding at December 31, 2012		60,000			28.97
Granted		51,000			34.95
Exercised		(16,500	)		28.90
Forfeited/Expired		—			—

Outstanding at December 31, 2013		94,500		$	32.21		5.76	$	385,405


Exercisable at December 31, 2012		16,666		$	28.90		8.60	$	35,167

Exercisable at December 31, 2013		19,800		$	28.97		7.70	$	144,870

A summary of the non-vested options for these awards during the years ended December 31, 2013 and 2012, is presented below:


				Fair Value
				of Shares
Non-Qualified Stock Option Awards	Shares			Vested
Non-Vested at December 31, 2011		50,000
Granted		10,000
Vested		(16,666	)	$	(481,647	)

Non-Vested at December 31, 2012		43,334
Granted		51,000
Vested		(19,634	)	$	(568,875	)

Non-Vested at December 31, 2013		74,700

The weighted-average grant-date fair value of options granted during the year ended December 31, 2013 was $6.58. The total intrinsic value of options exercised during the year ended December 31, 2013 was $166,850. As of December 31, 2013, there was approximately $373,000 of unrecognized compensation related to non-qualified, non-vested stock option awards, which will be recognized over a weighted average period of 1.5 years.

LIABILITY-CLASSIFIED STOCK COMPENSATION

The Company previously had a stock option plan (the “2001 Plan”) pursuant to which 500,000 shares of the Company’s common stock could be issued. The 2001 Plan is expired, and no new stock options may be issued thereunder. Under the 2001 Plan, both stock options and stock appreciation rights were issued in prior years and such issuances were deemed to be liability-classified awards under the Share-Based Payment Topic of FASB ASC, which are required to be remeasured at fair value at each balance sheet date until the award is settled.

A summary of share option activity under the 2001 Plan during the years ended December 31, 2013 and 2012 is presented below:

Stock Options


Liability-Classified Stock Options	Shares			Wtd. Avg. Fair Value Per Share		Wtd. Avg. Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		205,800		$	53.12
Granted		—			—
Exercised		(5,600	)		20.12
Forfeited/Expired		(119,400	)		55.13

Outstanding at December 31, 2012		80,800			52.43
Granted		—			—
Exercised		(11,600	)		30.39
Forfeited/Expired		(15,400	)		63.58

Outstanding at December 31, 2013		53,800		$	53.99		3.80	$	46,950


Exercisable at December 31, 2012		78,160		$	56.81		3.98	$	21,780

Exercisable at December 31, 2013		53,800		$	53.99		3.80	$	46,950

In connection with the grant of non-qualified stock options, a stock appreciation right for each share covered by the option was also granted. The stock appreciation right entitles the optionee to receive a supplemental payment, which may be paid in whole or in part in cash or in shares of common stock, equal to a portion of the spread between the exercise price and the fair market value underlying the share at the time of exercise. The total intrinsic value of options exercised during the year ended December 31, 2013 was $82,604.

Stock Appreciation Rights


Liability-Classified Stock Appreciation Rights	Shares			Wtd. Avg. Fair Value Per Share		Wtd. Avg. Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		205,800		$	0.93
Granted		—			—
Exercised		(5,600	)		5.07
Forfeited/Expired		(119,400	)		0.73

Outstanding at December 31, 2012		80,800			1.12
Granted		—			—
Exercised		(11,600	)		4.29
Forfeited/Expired		(15,400	)		0.46

Outstanding at December 31, 2013		53,800		$	1.61		3.80	$	25,281


Exercisable at December 31, 2012		78,160		$	0.92		3.98	$	11,728

Exercisable at December 31, 2013		53,800		$	1.61		3.80	$	25,281

The total intrinsic value of stock appreciation rights exercised during the year ended December 31, 2013 was $44,479.

A summary of the non-vested options for these awards during the years ended December 31, 2013 and 2012, is presented below:


				Fair Value
				of Shares
Liability-Classified Stock Options and Stock Appreciation Rights	Shares			Vested
Non-Vested at December 31, 2011		42,160
Vested		(10,120	)	$	(23,962	)
Forfeited/Expired		(29,400	)

Non-Vested at December 31, 2012		2,640
Vested		(2,640	)	$	(20,038	)

Non-Vested at December 31, 2013		—

The fair value of each share option and stock appreciation right is estimated on the measurement date using the Black-Scholes option pricing model based on assumptions noted in the following table. Expected volatility is based on the historical volatility and other factors of the Company. The Company has elected to use the simplified method of estimating the expected term of the options and stock appreciation rights.

Due to the small number of employees included in the Plan, the Company uses the specific identification method to estimate forfeitures and includes all participants in one group. The risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury rates in effect at the time of measurement.

The Company issues new, previously unissued, shares as options are exercised.

Following are assumptions used in determining the fair value of stock options and stock appreciation rights:


Assumptions at December 31,	2013			2012			2011
Expected Volatility		23.07	%		24.34	%		31.05	%
Expected Dividends		0.11	%		0.13	%		0.15	%
Expected Term		3 years			3 years			2 years
Risk-Free Rate		1.21	%		0.39	%		0.23	%

There were no stock options or stock appreciation rights granted under the 2001 plan in 2013, 2012 or 2011.

The liability for stock options and stock appreciation rights, valued at fair value, reflected on the consolidated balance sheets at December 31, 2013 and 2012, was $247,671 and $265,311, respectively. These fair value measurements are based on Level 2 inputs based on Black-Scholes and market implied volatility. The Black-Scholes determination of fair value is affected by variables including stock price, expected stock price volatility over the term of the awards, annual dividends, and a risk-free interest rate assumption.

Amounts recognized in the financial statements for stock options, stock appreciation rights, and restricted stock are as follows:


	Year Ended December 31,
	2013			2012			2011
Total Cost of Share-Based Plans Charged Against
Income (Added To) Before Tax Effect	$	901,447		$	1,047,335		$	253,812

Income Tax Expense (Benefit)
Recognized in Income	$	(347,733	)	$	(404,010	)	$	(97,908	)

The aggregate intrinsic value of options is calculated by taking the current stock price of the Company as of the balance sheet date less the option exercise price, times the respective number of shares outstanding or exercisable, on a weighted average basis. Options with an exercise price greater than the current stock price are excluded from the calculation.