Stock Option Plans

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Stock Option Plans

11.  Stock Option Plans

The Company has two stock option plans: (1) the 2002 Employee Stock Option Plan, as amended (the “Employee Plan”) and (2) the 2005 Non-Salaried Director Stock Option Plan (the “Director Plan”).

The Employee Plan, which became effective February 26, 2002, provides for the issuance of incentive and nonqualified stock options at an exercise price equal to the fair market value of the Common Stock on the date the option is granted.  The terms of the options granted are subject to the provisions of the Employee Plan. Options granted under the Employee Plan after July 1, 2006 vest 25% one day after the first anniversary of the grant date and 25% one day after each of the next three anniversaries. Options granted prior to July 1, 2006 vest 25% one day after the date of grant and 25% one day after each of the next three anniversaries.  As of December 31, 2011, the number of shares available for grant under the Employee Plan was 66,938.  Under the terms of the Employee Plan, no option may be granted under that plan after the tenth anniversary of the adoption of the plan.

The Director Plan, as amended, provides for the issuance of stock options for up to 140,000 shares of the Company's common stock to non-salaried directors.  Under the Director Plan, Directors elected on April 25, 2005 and at subsequent Annual Meetings who have not received any prior grant under this or previous plans receive an initial grant of an option to purchase 5,000 shares of Common Stock (the “Initial Option”). Each year, each elected Director not receiving an Initial Option will receive a 4,500 share option (the “Annual Option”).  The Initial Option vests 25% on the date of grant and 25% on the anniversary of the grant date in each of the following 3 years. Each Annual Option becomes fully exercisable one day after the date of grant. The exercise price of all options granted equals the fair market value of the Common Stock on the date the option is granted and expires ten (10) years from the date of grant. As of December 31, 2011, the number of shares available for grant under the Director Plan was 40,500.

A summary of changes in options issued under the Company’s stock option plans follows:

	2011			2010
Options outstanding  at the
beginning of the year		838,950			722,500
Options granted		185,500			203,000
Options forfeited		(2,000	)		(25,000	)
Options exercised		(79,450	)		(61,550	)
Options outstanding at
the end of the year		943,000			838,950
Options exercisable at the
end of the year		554,500			499,387
Common stock available for future
grants at the end of the year		107,438			70,938
Weighted average exercise price per share:
Granted	$	9.67		$	10.13
Forfeited		10.10			14.77
Exercised		3.31			2.71
Outstanding		10.84			10.38
Exercisable		11.69			10.67

A summary of options outstanding at December 31, 2011 is as follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted-Average Remaining Contractual Life (Years)		Weighted-Average Exercise Price		Number Exercisable		Weighted-Average Exercise Price
$1.70 to $5.11		58,750	< 1		$	3.73		58,750	$	3.73
$5.12 to $8.51		156,000		7		7.71		90,000		7.57
$8.52 to $10.21		367,500		9		9.82		63,500		9.77
$10.22 to $13.62		121,000		7		12.98		103,500		12.95
$13.63 to $17.02		239,750		4		15.16		238,750		15.16
		943,000						554,500

The weighted average remaining contractual life of all outstanding stock options is 6 years.

Stock Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of employee and non-employee director stock options. The determination of the fair value of stock-based payment awards on the date of grant, using an option-pricing model, is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected term”), the estimated volatility of the Company’s Common Stock price over the expected term (“volatility”) and the number of options that will not fully vest in accordance with applicable vesting requirements (“forfeitures”).

The Company estimates the expected term of options granted by evaluating various factors, including the vesting period, historical employee information, as well as current and historical stock prices and market conditions. The Company estimates the volatility of its common stock by calculating historical volatility based on the closing stock price on the last day of each of the 60 months leading up to the month the option was granted. The risk-free interest rate that the Company uses in the option valuation model is the interest rate on U.S. Treasury zero-coupon bond issues with remaining terms similar to the expected term of the options granted. Historical information was the basis for calculating the dividend yield. The Company is required to estimate forfeitures at the time of grant and to revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company used a mix of historical data and future assumptions to estimate pre-vesting option forfeitures and to record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized over the requisite service periods of the awards, which are generally the vesting periods.

The assumptions used to value option grants for the twelve months ended December 31, 2011 and December 31, 2010 were as follows:

	2011		2010
Expected life in years		5		5
Interest rate		0.91 – 2.10%		1.55 – 2.54%
Volatility		.327-.330		.336-.359
Dividend yield		2.37% - 2.70%		1.80% - 2.30%

Total stock-based compensation recognized in the Company’s consolidated statements of operations for the years ended December 31, 2011 and 2010 was $428,439 and $385,732, respectively.  At December 31, 2011, there was approximately $685,386 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted to the Company’s employees. As of December 31, 2011, the remaining unamortized expense is expected to be recognized over a weighted average period of 3 years.

The weighted average fair value at the date of grant for options granted during 2011 and 2010 was $2.26 and $2.71 per option, respectively.  The aggregate intrinsic value of outstanding options was $622,710 at December 31, 2011. The aggregate intrinsic value of exercisable options was $517,010 at December 31, 2011.  The aggregate intrinsic value of options exercised during 2011 was $482,233.