Note 3 – Stock Based Compensation and Employee Stock Option Plan

Stock Based Compensation

As part of his compensation package, Mr. James J. Cotter, our Chairman of the Board and Chief Executive Officer, was granted $950,000, $750,000, and $750,000, respectively, of restricted class A non-voting common stock (“Class A Stock”) for each of the years ended December 31, 2012, 2011, and 2010, respectively. The 2012, 2011, and 2010 stock grants of 217,890, 155,925, and 174,825 shares, respectively, were granted with stock grant prices of $4.36, $4.81, and $4.29, respectively. Mr. Cotter’s stock compensation is granted fully vested with a five-year restriction on sale. As of December 31, 2012, the 2012 stock grant had not yet been issued to Mr. Cotter. During 2012, we issued to Mr. Cotter 155,925 of Class A Stock for his 2011 vested stock grants which had a stock grant price of $4.81 and a grant date fair value of $750,000.

During 2012, we issued 9,680 shares as a one-time stock grant of Class A Nonvoting shares to our employees valued at $44,000. During 2010, as part of Mr. John Hunter’s, our Chief Operating Officer, compensation package, $100,000 of restricted Class A Stock vested relating to Mr. Hunter’s 2009 and 2008 stock grants. During 2010, we issued to Mr. Hunter 5,154 shares related to his 2009 vested stock compensation.

During the years ended December 31, 2012, 2011, and 2010, we recorded compensation expense of $994,000, $750,000, and $754,000, respectively, for the vesting of all our restricted stock grants. The following table details the grants and vesting of restricted stock to our employees (dollars in thousands):



	Non-Vested Restricted Stock		Weighted Average Fair Value at Grant Date
Outstanding – January 1, 2010	--	$	--
Granted	174,825		750
Vested	(174,825)		(750)
Outstanding – December 31, 2010	--	$	--
Granted	155,925		750
Vested	(155,925)		(750)
Outstanding – December 31, 2011	--	$	--
Granted	227,570		994
Vested	(227,570)		(994)
Outstanding – December 31, 2012	--	$	--

On April 1, 2010, we terminated our then existing contractual relationship with Doug Osborne, at that time the chief executive officer of our Landplan real estate operations. Mr. Osborne’s incentive interest in our various Landplan projects, which was valued at $0, was revoked at that time. Mr. Osborne continues to provide services to us on a non-exclusive independent contractor basis.

Employee Stock Option Plan

We have a long-term incentive stock option plan that provides for the grant to eligible employees, directors, and consultants of incentive or nonstatutory options to purchase shares of our Class A Nonvoting Common Stock. Our 1999 Stock Option Plan expired in November 2009, and was replaced by our new 2010 Stock Incentive Plan, which was approved by the holders of our Class B Voting Common Stock in May 2010. For the stock options exercised during the years ended December 31, 2012 and 2010, we issued 95,000 and 90,000 shares of Class A Stock for cash to employees of the corporation under this stock based compensation plan at exercise prices of $4.68 and $2.76, respectively. During the year ended December 31, 2011, we did not issue any shares under this stock based compensation plan.

FASB ASC 718-10 – Stock Compensation (“ASC 718-10”) requires that all stock-based compensation be recognized as an expense in the financial statements and that such costs be measured at the fair value of the award. We estimate the valuation of stock based compensation using a Black-Scholes option-pricing model.

When our tax deduction from an option exercise exceeds the compensation cost resulting from the option, a tax benefit is created. ASC 718-10 requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows. For the years ended December 31, 2012, 2011, and 2010, there was no impact to the consolidated statements of cash flows because there were no recognized tax benefits during these periods.

ASC 718-10 requires companies to estimate forfeitures. Based on our historical experience, we did not estimate any forfeitures for the options granted during the years ended December 31, 2012, 2011, and 2010.

In accordance with ASC 718-10, we estimate the fair value of our options using the Black-Scholes option-pricing model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock price volatility, and the expected life of the options. The dividend yield is excluded from the calculation, as it is our present intention to retain all earnings. We estimated the expected stock price volatility based on our historical price volatility measured using daily share prices back to the inception of the Company in its current form beginning on December 31, 2001. We estimate the expected option life based on our historical share option exercise experience during this same period. We expense the estimated grant date fair values of options issued on a straight-line basis over their vesting periods.

No options were granted during 2011. For the 206,000 and 157,700 options granted during 2012 and 2010, respectively, we estimated the fair value of these options at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions:



	2012	2010
Stock option exercise price	$5.94	$5.17
Risk-free interest rate	1.71%	2.74%
Expected dividend yield	--	--
Expected option life	7.20 yrs	7.23 yrs
Expected volatility	32.15%	33.01%
Weighted average fair value	$2.62	$1.88

Using the above assumptions and based on our use of the modified prospective method, we recorded $285,000, $189,000, and $67,000 in compensation expense for the total estimated grant date fair value of stock options that vested during the years ended December 31, 2012, 2011, and 2010, respectively. At December 31, 2012 total unrecognized estimated compensation cost related to non-vested stock options granted was $342,000 which is expected to be recognized over a weighted average vesting period of 2.38.

No options were exercised in 2011. The total realized value of stock options exercised during the years ended December 31, 2012 and 2010 was $136,000 and $138,000, respectively. The grant date fair value of options that vested during the years ending December 31, 2012, 2011, and 2010 was $285,000, $189,000, and $67,000, respectively. We recorded cash received from stock options exercised of $308,000 and $248,000 during the years ended December 31, 2012 and 2010, respectively. Additionally, in 2012, 41,000 options were exercised having a realized value of $103,000 for which we did not receive any cash but the employee elected to receive the net incremental number of in-the-money shares of 15,822 based on an exercise price of $4.01 and a market price of $6.53. At December 31, 2012, the intrinsic, unrealized value of all options outstanding, vested and expected to vest, was $509,000 of which 100.0% were currently exercisable.

Pursuant to both our 1999 Stock Option Plan and our 2010 Stock Incentive Plan, all stock options expire within ten years of their grant date. The aggregate total number of shares of Class A Stock and class B voting common stock authorized for issuance under our 2010 Stock Option Plan is 1,250,000. At the time that options are exercised, at the discretion of management, we will either issue treasury shares or make a new issuance of shares to the employee or board member. Dependent on the grant letter to the employee or board member, the required service period for option vesting is between zero and four years.

We had the following stock options outstanding and exercisable:



			Weighted							Weighted Average
	Common Stock		Average Exercise				Common Stock			Price of
	Options		Price of Options				Exercisable			Exercisable
	Outstanding		Outstanding				Options			Options
	Class A	Class B	Class A		Class B		Class A	Class B	Class A		Class B
Outstanding-January 1, 2010	589,750	150,000	$	5.51	$	10.24	534,750	150,000	$	5.62	$	10.24
Granted	122,600	35,100	$	5.17	$	8.47
Exercised	(90,000)	--	$	2.76	$	--
Outstanding- December 31, 2010	622,350	185,100	$	5.65	$	9.90	449,750	150,000	$	6.22	$	10.24
No activity during the period	--	--	$	--	$	--
Outstanding-December 31, 2011	622,350	185,100	$	5.65	$	9.90	544,383	167,550	$	5.86	$	10.05
Granted	206,000	--	$	5.94	$	--
Exercised	(136,000)	--	$	4.68	$	--
Expired	(20,000)	--	$	3.75	$	--
Outstanding-December 31, 2012	672,350	185,100	$	6.24	$	9.90	546,350	185,100	$	6.26	$	9.90

The weighted average remaining contractual life of all options outstanding, vested and expected to vest, at December 31, 2012 and 2011 were approximately 5.32 and 4.13 years, respectively. The weighted average remaining contractual life of the exercisable options outstanding at December 31, 2012 and 2011 was approximately 4.28 and 3.85 years, respectively.