17. SHARE-BASED COMPENSATION

The Company, through its Compensation Committee of the Board of Directors, offers equity compensation to employees and non-employee directors of National Penn, National Penn Bank and other National Penn subsidiaries in the form of share-based awards. Stock options, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”) vest over time, upon the satisfaction of established performance criteria, or both.

The Company believes such awards better align the interests of its employees and non-employee directors with those of its shareholders. Option awards are granted with an exercise price at least equal to the market price of the Company’s stock at the date of grant. Option and other share-based awards vest at such times as are determined by the Compensation Committee of the Board of Directors at the time of grant, but not before one year from the date of grant or later than five years from the date of grant. The options have a maximum term of ten years for incentive stock options or ten years, one month for non-qualified stock options.

The fair value of RSAs and RSUs is estimated based on the price of the Company’s common stock on the date of grant. Compensation cost is measured ratably over the vesting period of the awards and reversed for awards which are forfeited due to unfulfilled service or performance criteria.

Vesting of share-based awards is immediately accelerated in the event of a change-in-control; in the event the recipient’s service terminates due to death, disability or retirement (including a voluntary termination of employment at age 60 or more); or in the event of an involuntary termination of employment not for cause.

Awards are currently granted under the Long-Term Incentive Compensation Plan, approved by shareholders in April 2005 (“2005 Plan”) and expiring November 30, 2014. Under the terms of the 2005 Plan, a total of 5,304,500 shares of common stock have been made available for option, restricted stock, or other share-based awards. As of December 31, 2013, approximately 1.5 million shares remain available for issuance under the terms of the 2005 Plan.

17. SHARE-BASED COMPENSATION - Continued

Prior to the adoption of the 2005 Plan, the Company maintained other employee stock compensation plans ("Previous Company Plans"). A total of 5,048,577 shares of common stock were made available for option or restricted stock awards. At December 31, 2013, approximately 0.5 million shares remain outstanding from the Previous Company Plans. In addition to the Previous Company Plans, the Company issued 3,022,185 substitute stock options as a result of acquisitions made in 2008, of which, approximately 1.7 million options were outstanding at December 31, 2013.

The impact of shared-based compensation on the Company’s financial results for the following periods:



(dollars in thousands)	Year Ended December 31,
	2013			2012			2011
Share-based compensation expense	$	3,309		$	3,513		$	3,808
Income tax benefit	(1,158		)	(1,230		)	(1,333		)
Reduction to net income	$	2,151		$	2,283		$	2,475

The total unrecognized compensation cost and the weighted-average period over which unrecognized compensation cost is expected to be recognized related to non-vested share-based compensation arrangements at December 31, 2013 is presented below:



(dollars in thousands)	Unrecognized Compensation Cost		Weighted-Average Period Remaining (Years)
Restricted stock	$	3,821	2.4
Stock options	1,164		2.2
Total	$	4,985	2.3

Restricted Stock

Information regarding restricted stock for the following periods is summarized below:



	Year Ended December 31,
	2013		2012		2011
Shares granted	411,723		383,906		305,503
Weighted-average grant date fair value	$	9.85	$	8.80	$	8.32
Fair value of awards vested (000's)	$	1,988	$	2,098	$	1,938

A summary of the status of the Company’s non-vested restricted stock as of December 31, 2013, and changes during the year then ended, is presented below:



	Shares		Weighted- Average Grant-Date Fair Value
Non-vested at January 1, 2013	723,801		$	8.02
Granted	411,723		9.85
Forfeited/Canceled	(44,764	)	8.92
Vested	(204,208	)	7.20
Non-vested at December 31, 2013	886,552		$	9.04

17. SHARE-BASED COMPENSATION - Continued

Stock Options

The Company estimated the fair value of each option grant on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions:



	Year Ended December 31,
	2013		2012		2011
Risk-free interest rates	1.20	%	1.76	%	3.07	%
Expected dividend yield	4.07	%	2.27	%	0.48	%
Expected volatility	53.13	%	51.09	%	49.44	%
Expected lives (years)	6.98		7.88		7.93

Information regarding stock options as of December 31, 2013, and changes during the year ended are presented below:




(dollars in thousands, except per share data)			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value

	Options
Outstanding at January 1, 2013	4,562,227		$	15.31	3.0	$	1,450
Granted	247,750		9.84
Exercised	(122,730	)	7.33
Forfeited	(640,243	)	16.30
Outstanding at December 31, 2013	4,047,004		15.06		2.6	3,032

Exercisable at December 31, 2013	3,443,271		$	16.19	1.7	$	1,419

The following table summarizes information related to stock options:



(dollars in thousands, except share and per share data)	Year Ended December 31,
	2013		2012		2011
Options granted	247,750		239,250		233,500
Weighted-average grant date fair value	$	3.47	$	3.80	$	4.71
Fair value of awards vested	675		588		1,106
Proceeds from stock options exercised	900		708		1,934
Tax benefit recognized from stock options exercised	112		697		1,080
Intrinsic value of stock options exercised	321		352		933

Employee Stock Purchase Plan

Under the 1997 shareholder-approved Employee Stock Purchase Plan (“ESPP”), as amended, the Company is authorized to issue up to 864,723 common shares of the Company to eligible employees of the Company. These shares may be purchased by employees at a price equal to 90% of the fair market value of the shares on the purchase date. Purchases under the ESPP are made four times annually. Employee contributions to the ESPP are made through payroll deductions.



	Year Ended December 31,
	2013		2012		2011
ESPP shares purchased	65,161		66,103		72,364
Weighted-average employee purchase price	$	9.44	$	8.27	$	6.95