tock-Based Compensation

The Company recorded stock-based compensation in general and administrative expenses in the accompanying Consolidated Statements of Operations, the components of which are further described below for the years ended December 31, 2012, 2011, and 2010 (in thousands):



		2012		2011		2010
Restricted stock	$	11,526		10,659		7,236
Directors' fees paid in common stock		259		269		231
Less: Amount capitalized		(1,979	)	(1,104	)	(852	)
Total	$	9,806		9,824		6,615

The recorded amounts of stock-based compensation expense represent amortization of the grant date fair value of restricted stock awards over the respective vesting periods. Compensation expense specifically identifiable to development and leasing activities is capitalized and included above.

The Company established the Plan under which the Board of Directors may grant stock options and other stock-based awards to officers, directors, and other key employees. The Plan allows the Company to issue up to approximately 4.1 million shares in the form of the Parent Company's common stock or stock options. At December 31, 2012, there were approximately 3.1 million shares available for grant under the Plan either through options or restricted stock.

Stock options are granted under the Plan with an exercise price equal to the Parent Company's stock's price at the date of grant. All stock options granted have ten-year lives, contain vesting terms of one to five years from the date of grant and some have dividend equivalent rights.

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton closed-form (“Black-Scholes”) option valuation model. The Company believes that the use of the Black-Scholes model meets the fair value measurement objectives of FASB ASC Topic 718 and reflects all substantive characteristics of the instruments being valued.

The following table reports stock option activity during the year ended December 31, 2012:



	Number of Options		Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding December 31, 2011	386,149	$	52.12	3.0	$	(5,598	)
Less: Exercised	7,619		34.34
Less: Forfeited	57,952		51.36
Less: Expired	4,654		72.29
Outstanding December 31, 2012	315,924	$	52.39	2.1	$	(1,664	)
Vested and expected to vest - December 31, 2012	315,924	$	52.39	2.1	$	(1,664	)
Exercisable December 31, 2012	315,924	$	52.39	2.1	$	(1,664	)

There were no stock options granted during 2012, 2011, or 2010. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011, and 2010 was approximately $92,000, $130,000, and $1,000, respectively. The Company issues new shares to fulfill option exercises from its authorized shares available.

The Company grants restricted stock under the Plan to its employees as a form of long-term compensation and retention. The terms of each grant vary depending upon the participant's responsibilities and position within the Company. The Company's stock grants can be categorized as either time-based awards, performance-based awards, or market-based awards. All awards were valued at the fair market value, earn dividends throughout the vesting period, and have no voting rights. Fair value is measured using the grant date market price for all time-based or performance-based awards. Market based awards are valued using a Monte Carlo simulation to estimate the fair value based on the probability of satisfying the market conditions and the projected stock price at the time of payout, discounted to the valuation date over the three year performance period. Assumptions include historic volatility over the previous three year period, risk-free interest rates, and Regency's historic daily return as compared to the market index. Because the award payout includes dividend equivalents and the total shareholder return includes the value of dividends, no dividend yield assumption is required for the valuation. Compensation expense is measured at the grant date and recognized over the vesting period.


•	Time-based awards vest 25% per year beginning on the first anniversary following the grant date. These grants are subject only to continued employment and not dependent on future performance measures; and accordingly, if such vesting criteria are not met, compensation cost previously recognized would be reversed. During 2012, the Company granted 112,496 shares of time-based awards.

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Performance-based awards are earned subject to future performance measurements, including individual goals, annual growth in earnings, and compounded three-year growth in earnings. Once the performance criteria are achieved and the actual number of shares earned is determined, shares will vest over a required service period. If such performance criteria are not met, compensation cost previously recognized would be reversed. The Company considers the likelihood of meeting the performance criteria based upon management's estimates from which it determines the amounts recognized as expense on a periodic basis. During 2012, the Company granted 25,435 shares of performance-based awards.

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Market-based awards are earned dependent upon the Company's total shareholder return in relation to the shareholder return of peer indices over a three-year period (“TSR Grant”). Once the market criteria are met and the actual number of shares earned is determined, 100% of the earned shares vest. The probability of meeting the market criteria is considered when calculating the estimated fair market value on the date of grant using a Monte Carlo simulation. These awards were accounted for as awards with market criteria, with compensation cost recognized over the service period, regardless of whether the market criteria are achieved and the awards are ultimately earned and vest. During 2012, the Company granted 128,302 shares of market-based awards. The significant assumptions underlying determination of fair values for market-based awards granted during the years ended December 31, 2012, 2011, and 2010 were



	2012		2011		2010
Volatility	48.80	%	66.50	%	66.40	%
Risk free interest rate	0.32	%	0.98	%	1.41	%

The following table reports non-vested restricted stock activity during the year ended December 31, 2012:



	Number of Shares		Intrinsic Value (in thousands)		Weighted Average Grant Price
Non-vested at December 31, 2011	562,259
Add: Time-based awards granted	112,496			$	40.05
Add: Performance-based awards granted	25,435			$	39.00
Add: Market-based awards granted	128,302			$	39.00
Less: Vested and Distributed	152,019			$	43.13
Less: Forfeited	1,982			$	40.34
Non-vested at December 31, 2012	674,491	$	31,782

The weighted-average grant price for restricted stock granted during the years ended December 31, 2012, 2011, and 2010 was $39.44, $41.81, and $35.65, respectively. The total intrinsic value of restricted stock vested during the years ended December 31, 2012, 2011, and 2010 was $6.6 million, $7.5 million, and $6.1 million, respectively.

As of December 31, 2012, there was $12.8 million of unrecognized compensation cost related to non-vested restricted stock granted under the Parent Company's Long-Term Omnibus Plan. When recognized, this compensation results in additional paid in capital in the accompanying Consolidated Statements of Equity of the Parent Company and in general partner preferred and common units in the accompanying Consolidated Statements of Capital of the Operating Partnership. This unrecognized compensation cost is expected to be recognized over the next three years, through 2015. The Company issues new restricted stock from its authorized shares available at the date of grant.