NOTE 12 — STOCK-BASED COMPENSATION:

We record stock compensation expense under U.S. GAAP for stock options and other equity-based compensation awards based on the fair value on the date of grant. Compensation expense for equity-based compensation awards is recognized in our financial statements over the vesting period of the award.

For the year ended December 31, 2012, we incurred $13,399 of stock based compensation, of which $13,308 related to restricted stock issuances, $91 related to stock option grants and of which a total of approximately $4,288 was capitalized into oil and gas properties. For the year ended December 31, 2011, we incurred $8,914 of stock based compensation, of which $8,796 related to restricted stock issuances, $118 related to stock option grants and of which a total of approximately $3,010 was capitalized into oil and gas properties. For the year ended December 31, 2010, we incurred $8,462 of stock based compensation, of which $8,263 related to restricted stock issuances, $199 related to stock option grants and of which a total of approximately $2,775 was capitalized into oil and gas properties. Because of the non-cash nature of stock based compensation, the expensed portion of stock based compensation is added back to net income in arriving at net cash provided by operating activities in our statement of cash flows. The capitalized portion is not included in net cash used in investing activities.

Under the Stone Energy Corporation 2009 Amended and Restated Stock Incentive Plan (the “2009 Plan”), we may grant both incentive stock options qualifying under Section 422 of the Internal Revenue Code and options that are not qualified as incentive stock options to all employees and directors. All such options must have an exercise price of not less than the fair market value of the common stock on the date of grant and may not be re-priced without stockholder approval. Stock options to all employees vest ratably over a five-year service-vesting period and expire 10 years subsequent to award. Stock options issued to non-employee directors vest ratably over a three-year service-vesting period and expire 10 years subsequent to award. In addition, the 2009 Plan provides that shares available under the 2009 Plan may be granted as restricted stock. Restricted stock typically vests over a one- to three-year period.

Stock Options. There were no stock option grants during the years ended December 31, 2012, 2011 or 2010.

A summary of stock option activity under the 2009 Plan during the year ended December 31, 2012 is as follows (amounts in table represent actual values except where indicated otherwise):


	Number of Options			Wgtd. Avg. Exercise Price		Wgtd. Avg. Term	Aggregate Intrinsic Value (in thousands)

Options outstanding, beginning of period		438,394		$	38.76
Granted		—			—
Exercised		—			—
Forfeited		(4,200	)		35.54
Expired		(22,400	)		34.25

Options outstanding, end of period		411,794			39.04	2.8 years	$	766

Options exercisable, end of period		378,004			41.00	2.5 years		459

Options unvested, end of period		33,790			17.17	5.4 years		307

Exercise prices for stock options outstanding at December 31, 2012 range from $6.97 to $53.20.

A summary of stock option activity under the 2009 Plan during the year ended December 31, 2011 is as follows (amounts in table represent actual values except where indicated otherwise):


	Number of Options			Wgtd. Avg. Exercise Price		Wgtd. Avg. Term	Aggregate Intrinsic Value (in thousands)

Options outstanding, beginning of period		484,694		$	39.43
Granted		—			—
Exercised		—			—
Forfeited		(13,300	)		37.98
Expired		(33,000	)		48.85

Options outstanding, end of period		438,394			38.76	3.6 years	$	1,143

Options exercisable, end of period		378,710			41.66	3.1 years		457

Options unvested, end of period		59,684			20.36	6.1 years		686

A summary of stock option activity under the 2009 Plan during the year ended December 31, 2010 is as follows (amounts in table represent actual values except where indicated otherwise):


	Number of Options			Wgtd. Avg. Exercise Price		Wgtd. Avg. Term	Aggregate Intrinsic Value (in thousands)

Options outstanding, beginning of period		495,283		$	39.61
Granted		—			—
Exercised		—			—
Forfeited		(6,190	)		40.85
Expired		(4,399	)		57.76

Options outstanding, end of period		484,694			39.43	3.8 years	$	880

Options exercisable, end of period		396,115			43.21	3.4 years		176

Options unvested, end of period		88,579			22.50	6.9 years		704

Restricted Stock. The fair value of restricted shares is typically determined based on the average of our high and low stock prices on the grant date. During the year ended December 31, 2012, we issued 670,818 shares of restricted stock valued at $21,085. During the year ended December 31, 2011, we issued 597,062 shares of restricted stock valued at $14,100. During the year ended December 31, 2010, we issued 395,869 shares of restricted stock valued at $6,251.

A summary of the restricted stock activity under the 2009 Plan for the years ended December 31, 2012, 2011 and 2010 is as follows (amounts in table represent actual values):


	2012					2011					2010
	Number of Restricted Shares			Wgtd. Avg. Fair Value Per Share		Number of Restricted Shares			Wgtd. Avg. Fair Value Per Share		Number of Restricted Shares			Wgtd. Avg. Fair Value Per Share
Restricted stock outstanding, beginning of period		923,740		$	20.08		783,606		$	17.24		751,437		$	20.68
Issuances		670,818			31.43		597,062			23.62		395,869			15.79
Lapse of restrictions		(462,141	)		18.29		(419,543	)		19.91		(343,657	)		23.09
Forfeitures		(23,543	)		26.10		(37,385	)		18.92		(20,043	)		18.07

Restricted stock outstanding, end of period		1,108,874		$	27.56		923,740		$	20.08		783,606		$	17.24

As of December 31, 2012, there was $18,547 of unrecognized compensation cost related to all non-vested share-based compensation arrangements under the 2009 Plan. That cost is being amortized on a straight-line basis over the vesting period and is expected to be recognized over a weighted-average period of 1.8 years.

Under U.S. GAAP, if tax deductions exceed book compensation expense, then excess tax benefits are credited to additional paid-in capital to the extent realized. If book compensation expense exceeds tax deductions, the tax deficit results in either a reduction in additional paid-in capital or an increase in income tax expense depending on the pool of available excess tax benefits to offset such deficit. Adjustments to additional paid-in capital related to the net tax effect of stock option exercises and restricted stock vesting were $814, $735 and ($2) in 2012, 2011 and 2010, respectively.