11.

Stock-Based Compensation Arrangements

The Company provides stock-based compensation under the Company’s 1997 Plan, 2003 Plan and 2006 Plan to employees, non-employee directors, consultants and advisors. These plans have contributed significantly to the success of the Company by providing for the grant of stock-based and other incentive awards to enhance the Company’s ability to attract and retain employees, directors, consultants, advisors and others who are in a position to make contributions to the success of the Company and any entity in which the Company owns, directly or indirectly, 50% or more of the outstanding capital stock as determined by aggregate voting rights or other voting interests and encourage such persons to take into account the long-term interests of the Company and its stockholders through ownership of the Company’s common stock or securities with value tied to the Company’s common stock. The Company, upon stockholder approval of the 2006 Plan in 2006, replaced the 1997 Plan and 2003 Plan with the 2006 Plan. While all awards outstanding under the 1997 Plan and 2003 Plan remain in effect in accordance with their terms, no additional grants or awards will be made under either plan.

To achieve the purposes of the Company’s stock-based compensation program described above, the 2006 Plan allows the flexibility to grant or award stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units including restricted stock units and performance awards to eligible persons.

Stock option awards granted under the 1997 Plan, 2003 Plan and 2006 Plan were generally ten year options granted at fair market value on the date of grant with time based vesting over a period determined at the time the options were granted, ranging from one to four years (which is equal to the requisite service period) prior to the acceleration of vesting noted below. The Company does not intend to pay dividends on unexercised options. New shares of the Company’s common stock are issued when the options are exercised.

The following table summarizes the activity under the 1997 Plan, 2003 Plan and 2006 Plan as of December 31, 2012:


	Number of shares of the Company’s common stock authorized for issuance			Number of shares of the Company’s common stock remaining available for future grants		Number of shares of the Company’s common stock subject to
						Options		Stock Grants
1997 Plan		428,572			0		0		0
2003 Plan		1,400,000			0		626,170		0
2006 Plan		4,400,000	(1)		1,649,485		1,098,251		225,744

Total		6,228,572			1,649,485		1,724,421		225,744

(1)	On August 16, 2012, the Company’s stockholders approved an amendment to the 2006 Plan to increase the number of shares of the Company’s common stock authorized for issuance under the 2006 Plan by 1,500,000 shares from 2,900,000 shares to 4,400,000 shares.

The Company chose to follow the short-cut method prescribed by ASC 718 to calculate its pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of ASC 718 (“APIC pool”). There was no effect on the Company’s financial results for 2010, 2011 or 2012 related to the application of the short-cut method to determine its APIC pool balance.

The Company calculates the fair value of stock options using the Black-Scholes-Merton option-pricing formula. Stock-based compensation expense for stock options granted prior to December 31, 2005 is not reflected in the Company’s consolidated statements of income for the years ended December 31, 2010, 2011 and 2012 as all of the outstanding stock options granted prior to December 31, 2005 were vested at December 31, 2005.

Stock-based compensation expense charged against income for stock options and stock grants awarded during the years ended December 31, 2010, 2011 and 2012 was based on the grant-date fair value adjusted for estimated forfeitures based on awards expected to vest in accordance with the provisions of ASC 718 and totaled approximately $1.5 million (net of tax of approximately $156,000), $2.9 million (net of tax of approximately $774,000) and $2.9 million (net of tax of approximately $960,000), respectively. ASC 718 requires forfeitures to be estimated at the time of grant and revised as necessary in subsequent periods if the actual forfeitures differ from those estimates.

For the years ended December 31, 2010, 2011 and 2012, the amount of excess tax benefits resulting from the exercise of stock options was approximately $66,000, $17,000 and $91,000, respectively. For the years ended December 31, 2010, 2011 and 2012, the Company had tax shortfalls resulting from the exercise of stock options of approximately $242,000, $117,000 and $306,000, respectively. The excess tax benefits resulting from the exercise of stock options are reflected as cash flows from financing activities for the years ended December 31, 2010, 2011 and 2012 in the accompanying consolidated statements of cash flows.

For stock-based compensation awards granted during 2010, 2011 and 2012, the associated expense is amortized over the vesting period of three years with approximately 16%, 18% and 20% recorded as client services expense, 38%, 29% and 35% as cost of non-emergency transportation services and 46%, 53% and 45% as general and administrative expense in the Company’s consolidated statements of income for the years ended December 31, 2010, 2011 and 2012, respectively.

The following table summarizes the stock option activity for the year ended December 31, 2012:


	Year ended December 31, 2012
	Number of Shares Under Option			Weighted- average Exercise Price		Weighted- average Remaining Contractual Term		Aggregate Intrinsic Value
Balance at beginning of period		1,910,143		$	19.30
Granted		82,500			12.59
Exercised		(90,915	)		10.44
Forfeited or expired		(177,307	)		18.91

Outstanding at end of period		1,724,421		$	19.48		4.9	$	2,568,645

Vested or expected to vest at end of period		1,714,509		$	19.52		4.9	$	2,534,401

Exercisable at end of period		1,426,674		$	20.53		4.5	$	1,802,889

The weighted-average grant-date fair value for options granted, total intrinsic value and cash received by the Company related to options exercised during the years ended December 31, 2010, 2011 and 2012 were as follows:


	Year ended December 31,
	2010		2011		2012
Weighted-average grant date fair value	$	12.23	$	10.40	$	6.92
Options exercised:
Total intrinsic value	$	454,088	$	46,756	$	351,050
Cash received	$	470,887	$	56,232	$	948,850

The following table summarizes the activity of the shares and weighted-average grant date fair value of the Company’s non-vested common stock during the year ended December 31, 2012:


	Shares			Weighted-average grant date fair value
Non-vested at December 31, 2011		141,841		$	15.28
Granted		232,927		$	15.25
Vested		(73,081	)	$	15.40
Forfeited		(75,943	)	$	15.16

Non-vested at December 31, 2012		225,744		$	15.25

Stock grants were not made prior to the approval of the 2006 Plan on May 25, 2006. The fair value of a non-vested stock grant is determined based on the closing market price of the Company’s common stock on the date of grant.

As of December 31, 2012, there was approximately $4.0 million of unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the 2006 Plan. The cost is expected to be recognized over a weighted-average period of 1.12 years. The total fair value of shares vested was $428,000, $2.8 million and $4.1 million for the years ended December 31, 2010, 2011 and 2012, respectively.

The fair value of each stock option awarded during the years ended December 31, 2010, 2011 and 2012 was estimated on the date of grant using the Black-Scholes-Merton option-pricing formula and amortized over the option’s vesting periods with the following assumptions:


	Year ended December 31,
	2010	2011	2012
Expected dividend yield	0.0%	0.0%	0.0%
Expected stock price volatility	90.9%-91.2%	86.8%-88.1%	82.1%
Risk-free interest rate	2.4%	1.9%-2.6%	0.4%-0.5%
Expected life of options (in years)	6	5.2-7.5	3.3-3.6

The risk-free interest rate was based on the U.S. Treasury security rate in effect as of the date of grant. The expected lives of options and the expected stock price volatility were based on the Company’s historical data. Implied volatility was not considered due to the low volume of traded options on the Company’s common stock.