STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2013

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

6. STOCK-BASED COMPENSATION

Under the terms of the Company’s stock option plans adopted in 1999 and 2009, options have been granted to key employees and directors to purchase shares of the Company’s stock. Under the 2009 Stock Incentive Plan (“the Plan”), there are 500,000 shares of the Company’s common stock reserved for issuance, of which 248,000 had been granted as of September 30, 2013. There are no remaining shares reserved for issuance under the 1999 Stock Option Plan. Options are awarded by the Compensation Committee of the Board of Directors. Both plans provide that the option price shall not be less than the fair value of the common stock on the date the option is granted. All options are exercisable for a period of ten years or less. Options granted in 2012 and 2013 are exercisable over a three-year period commencing one year from the date of grant at a rate of one third per year. Options granted in 2011 are exercisable over a three-year period commencing three years from the date of grant at a rate of one third per year. No options were granted in 2010. Options granted prior to 2010 vest after one year.

Both plans provide for but do not require the grant of stock appreciation rights (“SARs”) that the holder may exercise instead of the underlying option. At September 30, 2013, there were 6,000 SARs outstanding related to options granted before 2011. The SARs had no intrinsic value at September 30, 2013. When the SAR is exercised, the underlying option is canceled. The optionee receives shares of common stock or cash with a fair market value equal to the excess of the fair value of the shares subject to the option at the time of exercise (or the portion thereof so exercised) over the aggregate option price of the shares set forth in the option agreement. The exercise of SARs is treated as the exercise of the underlying option.

The total intrinsic value of options exercised for the nine months ended September 30, 2013 was $15 thousand. The total cash received from such option exercises was $92 thousand, excluding the tax benefit realized. In exercising those options, 6,667 new shares of the Company’s common stock were issued.

In 2011 the Company granted an award of 30,000 non-qualified stock options at an exercise price of $10.79 per share to its President and Chief Executive Officer as a material inducement to employment with the Company.  The non-qualified options were not issued as part of any of the Company’s registered stock-based compensation plans. The options are exercisable over a three-year period commencing three years from the date of grant at a rate of one third per year.

A summary of stock option activity follows:

				Weighted-Average
	Number			Exercise Price
	of Shares			Per Share
Outstanding, January 1, 2013		211,500		$	15.41
Granted		98,000		$	16.99
Exercised		(6,667	)	$	13.44
Forfeited or expired		(25,333	)	$	15.50
Outstanding, September 30, 2013		277,500		$	16.01

The following table presents information regarding stock options granted in 2013:

Black-Scholes Assumptions for Options Granted During the Nine Months Ended September 30, 2013:
Risk-free interest rate	1.19	%
Expected dividend yield	-
Expected life in years	10
Expected volatility	43.00	%

The following summarizes shares subject to purchase from stock options outstanding and exercisable as of September 30, 2013:

		Outstanding					Exercisable
				Weighted-Average					Weighted-Average
Range of				Remaining	Weighted-Average				Remaining	Weighted-Average
Exercise Prices		Shares		Contractual Life	Exercise Price		Shares		Contractual Life	Exercise Price
$	10.00 - $14.00		140,000	8.4 years	$	12.01		30,002	8.5 years	$	12.68
$	14.01 - $20.00		108,000	9.7 years	$	16.80		3,334	9.0 years	$	14.97
$	20.01 - $30.00		5,000	5.3 years	$	28.30		5,000	5.3 years	$	28.30
$	30.01 - $40.00		24,500	2.6 years	$	32.87		24,500	2.6 years	$	32.87
			277,500	8.3 years	$	16.01		62,836	6.0 years	$	21.92

The Company accounts for stock-based compensation on a modified prospective basis with the fair value of grants of employee stock options recognized in the financial statements. Compensation expense related to stock-based compensation amounted to $367 thousand and $304 thousand for the nine months ended September 30, 2013 and 2012, respectively. The remaining unrecognized compensation cost of approximately $1.0 million at September 30, 2013 will be expensed over the remaining weighted average vesting period of approximately 2.6 years.