NOTE 14 - STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

The Company's 2008 Incentive Compensation Plan, which was shareholder-approved, permits the grant of share-based awards to its employees. At December 31, 2011, 2.5 million shares were available for issuance. The granting of awards to key employees is typically in the form of restricted stock or options to purchase common shares of stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Total compensation cost that has been charged against income for these plans was $3.4 million, $2.4 million, and $1.3 million for 2011, 2010, and 2009, respectively. The total income tax benefit was $1.4 million, $0.9 million, and $0.5 million, respectively.

Stock Options

Option awards are generally granted with an exercise price equal to the market price of the Company's common stock at the date of grant; these option awards have vesting periods ranging from 3 to 5 years and have 10-year contractual terms.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model and the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company's common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted represents the period of time that options granted are expected to be outstanding and is calculated using the simplified method allowed by SAB 110. The simplified method is used in lieu of historical experience because Old National does not have adequate historical experience to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date. In connection with the acquisition of Monroe Bancorp on January 1, 2011, 0.3 million options for shares of Monroe Bancorp stock were converted to 0.3 million options for shares of Old National Bancorp stock. Old National recorded no incremental expense associated with the conversion of these options.


	2011		2010		2009
Wtd-average risk-free interest rate	0	%	0	%	2.1	%
Expected life of option (years)	0		0		6
Expected stock volatility	0	%	0	%	28.8	%
Expected dividend yield	0	%	0	%	5.3	%

A summary of the activity in the stock option plan for 2011 follows:


					Weighted
				Weighted	Average		Aggregate
				Average	Remaining		Intrinsic
				Exercise	Contractual		Value
(shares in thousands)	Shares			Price	Term in Years		(in thousands)
Outstanding, January 1	6,018		$	20.37
Granted	0			0
Acquired	319			15.15
Exercised	(28	)		4.94
Forfeited/expired	(1,645	)		21.55
Outstanding, December 31	4,664		$	19.69	1.7	$	163.1
Options exercisable at end of year	4,604		$	19.77	1.7	$	163.1

Information related to the stock option plan during each year follows:


(dollars in thousands)		2011		2010		2009
Intrinsic value of options exercised	$	175	$	13	$	44
Cash received from option exercises		140		12		97
Tax benefit realized from option exercises		0		0		0
Weighted average fair value of options granted		0		0		2.03

As of December 31, 2011, there was $9 thousand of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 0.09 year.

During 2009, the Company modified the term of 23 thousand share options. As a result of the modification, the Company recognized additional compensation expense of $35 thousand for the year ended December 31, 2009. There were no modifications during 2011 or 2010.

Restricted Stock

Restricted stock awards require certain service-based or performance requirements and commonly have vesting periods ranging from 3 to 5 years. Compensation expense is recognized over the vesting period of the award based on the fair value of the stock at the date of issue adjusted for various performance conditions.

A summary of changes in the Company's nonvested shares for the year follows:


				Weighted Average
	Number			Grant-Date
(shares in thousands)	Outstanding			Fair Value
Nonvested balance at January 1, 2011	376		$	14.49
Granted during the year	127			11.44
Vested during the year	(94	)		13.74
Forfeited during the year	(147	)		15.23
Nonvested balance at December 31, 2011	262		$	12.88

As of December 31, 2011, there was $1.4 million of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.72 years. The total fair value of the shares vested during the years ended December 31, 2011, 2010 and 2009 was $1.0 million, $1.3 million and $1.4 million, respectively.

During the third quarter of 2011, the Company modified the vesting eligibility of 10 thousand shares of restricted stock issued to an employee. As a result of the modification, the Company reversed $0.1 million of expense for the year ended December 31, 2011. There were no restricted stock modifications during 2010 or 2009.

Restricted Stock Units

Restricted stock units require certain performance requirements and have vesting periods of 3 years. Compensation expense is recognized over the vesting period of the award based on the fair value of the stock at the date of issue adjusted for various performance conditions.

A summary of changes in the Company's nonvested shares for the year follows:


				Weighted Average
	Number			Grant-Date
(shares in thousands)	Outstanding			Fair Value
Nonvested balance at January 1, 2011	253		$	12.83
Granted during the year	159			12.23
Forfeited during the year	(12	)		12.66
Reinvested dividend equivalents	10			11.92
Nonvested balance at December 31, 2011	410		$	12.58

As of December 31, 2011, 2010 and 2009, there was $2.4 million, $1.8 million and $0.9 million, respectively, of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.7 years. Old National began granting restricted stock units during 2009 and no shares had vested as of December 31, 2011.