Stockholders' Equity and Stock Options

Common Stock-We have 150,000,000 shares of authorized Class A common stock, par value $0.01 per share. We have 50,000,000 shares of authorized Class B common stock, par value $0.01 per share. On December 31, 2011, there were 23,638,218 shares of Class A common stock outstanding, 244,113 shares of Class A common stock recorded as treasury stock and 13,192,845 shares of Class B common stock outstanding.

Holders of Class A common stock are entitled to one vote for each share held of record and holders of Class B common stock are entitled to ten votes for each share held of record, except with respect to any “going private transaction” (generally, a transaction in which George J. Pedersen (our Chairman of the Board and CEO), his affiliates, his direct and indirect permitted transferees or a group, generally including Mr. Pedersen, such affiliates and permitted transferees, seek to buy all outstanding shares), as to which each share of Class A common stock and Class B common stock are entitled to one vote per share. The Class A common stock and the Class B common stock vote together as a single class on all matters submitted to a vote of stockholders, including the election of directors, except as required by law. Holders of common stock do not have cumulative voting rights in the election of directors.

Stockholders are entitled to receive, when and if declared by the Board of Directors from time-to-time, such dividends and other distributions in cash, stock or property from our assets or funds legally and contractually available for such purposes subject to any dividend preferences that may be attributable to preferred stock that may be authorized. Each share of Class A common stock and Class B common stock is equal in respect of dividends and other distributions in cash, stock or property, except that in the case of stock dividends, only shares of Class A common stock will be distributed with respect to the Class A common stock and only shares of Class B common stock will be distributed with respect to Class B common stock. In no event will either Class A common stock or Class B common stock be split, divided or combined unless the other class is proportionately split, divided or combined.

The shares of Class A common stock are not convertible into any other series or class of securities. Each share of Class B common stock, however, is freely convertible into one share of Class A common stock at the option of the Class B stockholder. Upon the death or permanent mental incapacity of Mr. Pedersen, all outstanding shares of Class B common stock automatically convert to Class A common stock.

Preferred Stock-We are authorized to issue an aggregate of 20,000,000 shares of preferred stock, $0.01 par value per share, the terms and conditions of which are determined by our Board of Directors upon issuance. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of holders of any shares of preferred stock that we may designate and issue in the future. At December 31, 2011 and 2010, no shares of preferred stock were outstanding and the Board of Directors currently has no plans to issue a series of preferred stock.

Accounting for Stock-Based Compensation:

In May 2011, the Company's stockholders approved our 2011 Management Incentive Plan (the Plan), which was designed to attract, retain and motivate key employees. Awards granted under the Plan are settled in shares of Class A common stock. The 2011 restatement of the Plan increased the base number of shares of our Class A common stock reserved for issuance by 1,500,000 shares. At the beginning of each year, the Plan provides that the number of shares available for issuance automatically increases by an amount equal to one and one-half percent of the total number of shares of Class A and Class B common stock outstanding on December 31st of the previous year. On January 3, 2012, 552,466 additional shares were made available for issuance under the Plan. Through December 31, 2011, the remaining aggregate number of shares of our common stock authorized for issuance under the Plan was 3,093,371. Through December 31, 2011, 4,399,273 shares of our Class A common stock have been issued as a result of the exercise of the options granted under the Plan. The Plan expires in May 2021.

The Plan is administered by the compensation committee of our Board of Directors, along with its delegates. Subject to the express provisions of the Plan, the committee has the Board of Directors' authority to administer and interpret the Plan, including the discretion to determine the exercise price, vesting schedule, contractual life and the number of shares to be issued.

Stock Compensation Expense-For the years ended December 31, 2011, 2010 and 2009, we recorded $9.2 million, $7.4 million and $8.3 million of stock-based compensation cost, respectively. No compensation expense for employees with stock options, including stock-based compensation expense, was capitalized during the periods. For the years ended December 31, 2011, 2010 and 2009, the total recognized tax (deficiency) benefits from the exercise of stock options were $(0.2) million, $(0.4) million and $1.1 million, respectively.

Stock Options-We typically issue options that vest in three equal installments, beginning on the first anniversary of the date of grant. Under the terms of the Plan, the contractual life of the option grants may not exceed eight years. During the years ended December 31, 2011 and 2010, we issued options that expire five years from the date of grant.

Fair Value Determination-We have used the Black-Scholes-Merton option pricing model to determine fair value of our awards on date of grant. We will reconsider the use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model.

The following weighted-average assumptions were used for option grants during the years ended December 31, 2011, 2010 and 2009:

Volatility-The expected volatility of the options granted was estimated based upon historical volatility of the Company's share price through weekly observations of the Company's trading history.

Expected Term-The expected term of options granted to employees during fiscal years 2011, 2010 and 2009 was determined from historical exercises of the grantee population. Due to a lack of historical exercise data, the expected term for option grants to our Board of Directors during 2009 was determined under the SEC's Staff Accounting Bulletin No. 110 ((vesting term + original contractual term)/2). There were no grants to our Board of Directors in fiscal years 2011 and 2010. For all grants valued during fiscal years 2011, 2010 and 2009, the options have graded vesting over 3 years (33.3% of the options in each grant vest annually) and a contractual term of 5 years.

Risk-free Interest Rate-The yield on zero-coupon U.S. Treasury strips was used to extrapolate a forward-yield curve. This “term structure” of future interest rates was then input into a numeric model to provide the equivalent risk-free rate to be used in the Black-Scholes-Merton model based on expected term of the underlying grants.

Dividend Yield-The Black-Scholes-Merton valuation model requires an expected dividend yield as an input. During fiscal year 2011, we initiated a cash dividend program. For option grants made subsequent to May 2011, we used an expected yield of 2% based on expected semi-annual cash dividend of $0.42 per share.

The following table summarizes weighted-average assumptions used in our calculations of fair value for the years ended December 31, 2011, 2010 and 2009:



	Year Ended December 31,
	2011		2010		2009
Volatility	35.08	%	39.02	%	40.13	%
Expected life of options (in years)	2.98		2.95		2.92
Risk-free interest rate	0.81	%	1.25	%	1.48	%
Dividend yield	0.70	%	—	%	—	%

Stock Option Activity-During the year ended December 31, 2011, we granted stock options to purchase 986,000 shares of class A common stock at a weighted-average exercise price of $38.56 per share, which reflects the fair market value of the shares on the date of grant. The weighted-average fair value of options granted during the years ended December 31, 2011, 2010 and 2009 as determined under the Black-Scholes-Merton valuation model, was $9.14, $12.87 and $13.58, respectively. These options vest in three equal installments over three years and have a contractual term of five years. Option grants that vested during the years ended December 31, 2011, 2010 and 2009 had a combined fair value of $7.8 million, $7.7 million and $6.9 million, respectively.

The following table includes information with respect to stock option activity and stock options outstanding for the years ended December 31, 2011, 2010 and 2009, was as follows:



	Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
	Number of Shares		Weighted Average Exercise Price		(in thousands)
Shares under option, December 31, 2008	1,961,149		$	35.75
Options granted	1,359,500		$	47.65
Options exercised	(394,949	)	$	31.81	$	6,529
Options cancelled and expired	(207,517	)	$	42.34
Shares under option, December 31, 2009	2,718,183		$	41.85	$	17,643
Options granted	944,500		$	46.50
Options exercised	(391,176	)	$	35.30	$	4,224
Options cancelled and expired	(798,250	)	$	49.42
Shares under option, December 31, 2010	2,473,257		$	42.22	$	7,731
Options granted	986,000		$	38.56
Options exercised	(271,165	)	$	27.94	$	3,087
Options cancelled and expired	(301,982	)	$	45.07
Shares under option, December 31, 2011	2,886,110		$	41.14	$	1,096

The following table summarizes non-vested stock options for the year ended December 31, 2011:



	Number of Shares		Weighted Average Fair Value
Non-vested stock options at December 31, 2010	1,459,008		$	12.77
Options granted	986,000		$	9.14
Vested during period	(609,419	)	$	12.75
Options cancelled	(216,334	)	$	12.32
Non-vested shares under option, December 31, 2011	1,619,255		$	10.47

The following table includes information concerning stock options exercisable and stock options expected to vest at December 31, 2011:



	Options Exercisable	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price		Aggregate Intrinsic Value
	Options Exercisable	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price		(in thousands)
Stock options exercisable	1,266,855	2.1	$	41.49	$	1,096
Stock options expected to vest	1,444,696	3.8	$	41.78	$	—
Options exercisable and expected to vest	2,711,551

Unrecognized compensation expense related to outstanding stock options expected to vest as of December 31, 2011 was $10.7 million. The expense is expected to be recognized over a weighted-average period of 1.8 years and will be adjusted for any future changes in estimated forfeitures.

Restricted Stock-Under the Plan, we have issued restricted stock. A restricted stock award is an issuance of shares that cannot be sold or transferred by the recipient until the vesting period lapses. Restricted shares issued to employees vest over three years in one-third increments on the first, second and third anniversaries of the grant date, contingent upon employment with the Company on the vesting dates. Restricted shares issued to our Board of Directors vest in one year. The related compensation expense is recognized over the service period and is based on the grant date fair value of the stock and the number of shares expected to vest.

Restricted Stock Activity-The following table summarizes the restricted stock activity during the years ended December 31, 2010 and 2011:



	Number of Shares		Grant Date Fair Value
	Number of Shares		(in thousands)
Non-vested, December 31, 2009	—
Granted	51,000		$	2,447
Vested	—
Forfeited	(25,000	)	$	1,196
Non-vested, December 31, 2010	26,000
Granted	24,000		$	1,070
Vested	(19,333	)	$	862
Forfeited	—
Non-vested, December 31, 2011	30,667