Stock-based compensation

6 Months Ended

Jun. 30, 2011

Stock-based compensation

4. Stock-based compensation

The Company issues stock under incentive plans that form part of employees’ and non-executive directors’ remuneration. The Company also grants options to purchase common stock as part of remuneration for certain long-serving employees.

Stock-based compensation totaled $124,891 and $58,756 for the three months ended June 30, 2011 and 2010, respectively, and $201,767 and $142,152 for the six months ended June 30, 2011 and 2010, respectively, and is included in general and administrative expenses in the condensed consolidated statements of income. 

In February 2011, the Company granted options to purchase 143,612 shares of common stock to certain management employees under the 2008 Equity Incentive Plan.  These options vest in three equal tranches of 47,871 in February 2012, 2013 and 2014.  All of these options expire three years from the respective vesting date of each tranche.

On July 15, 2011, the Company granted options to purchase 18,000 shares to a new member of management. These options vest in three equal tranches of 6,000 in July 2012, 2013 and 2014.  All of these options expire three years from the respective vesting date of each tranche.

The Company estimates the fair value of the stock options granted and rights to acquire stock using the Black-Scholes option pricing model which requires the Company to make a number of estimates and assumptions including forfeiture rate, volatility and expected life. The Company does not expect any forfeitures and therefore expects to recognize the full compensation costs for these equity awards. The Company calculated expected volatility based primarily upon the historical volatility of the Company’s common stock.

The expected life of options granted represents the period of time that options granted are expected to be outstanding, which incorporates the contractual terms, grant vesting schedules and terms and expected employee behaviors.  As the Company has so far only awarded what the SEC has defined as “plain vanilla options”, the Company uses the “simplified method” allowed by the SEC for determining the expected life of the options granted.

The significant weighted average assumptions for the 143,612 common stock options issued in February 2011 were as follows: Risk free interest rate of 1.45%; Expected option life of 3.5 years; Expected volatility of 70.3%; Expected dividend yield of 2.81%.

A summary of stock option activity under the Company’s share-based compensation plans for the six months ended June 30, 2011 is presented in the following table:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (1)
Outstanding at beginning of period		213,067	$	18.49
Granted		151,067		10.52
Exercised		-		-
Forfeited		-		-
Outstanding as of June 30, 2011		364,134	$	15.18	3.06  years	$	155,814
Exercisable as of June 30, 2011		176,908	$	20.16	1.73  years	$	306,403

(1) The intrinsic value of a stock option represents the amount by which the fair value of the underlying stock, measured by reference to the closing price of the common stock of $9.29 in the NASDAQ Global Select Market on June 30, 2011, exceeds the exercise price of the option.

As of June 30, 2011, 187,226 non-vested options and 176,908 vested options were outstanding, with weighted average exercise prices of $10.48 and $20.16, respectively, and average remaining contractual lives of 4.32 years and 1.73 years, respectively.  The total remaining unrecognized compensation costs related to unvested stock-based arrangements were $570,301 as of June 30, 2011 and are expected to be recognized over a weighted average period of 4.32 years.

As of June 30, 2011, unrecognized compensation costs relating to convertible preferred stock outstanding were $161,612, and are expected to be recognized over a weighted average period of 1.13 years.