2.	SHARE-BASED COMPENSATION

We account for our share-based compensation arrangements under an accounting standard which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The fair values of awards are recognized as additional compensation expense, which is classified as operating expenses, proportionately over the vesting period of the awards.

Our share-based compensation arrangements are designed to advance the long-term interests of the Company, including by attracting and retaining employees and directors and aligning their interests with those of our stockholders. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, government regulations and availability under our equity incentive plans. Depending on the form of the share-based award, new shares of our common stock may be issued upon grant, option exercise or vesting of the award. We maintain three share-based plans, each as discussed below.

The American Pacific Corporation Amended and Restated 2001 Stock Option Plan (the “2001 Plan”) permitted the granting of stock options to employees, officers, directors and consultants.

Options granted under the 2001 Plan generally vested 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire ten years from the date of grant. Under the terms of the 2001 Plan, no options may be granted on or after January 16, 2011, but options previously granted, may extend beyond that date based on the terms of the relevant grant. This plan was approved by our stockholders.

The American Pacific Corporation 2002 Directors Stock Option Plan, as amended and restated (the “2002 Directors Plan”) compensates non-employee directors with stock options granted annually or upon other discretionary events. Options granted under the 2002 Directors Plan prior to September 30, 2007 generally vested 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire ten years from the date of grant. Options granted under the 2002 Directors Plan in November 2007 vested 50% one year from the date of grant and 50% two years from the date of grant, and expire ten years from the date of grant. Under the terms of the 2002 Plan, no options may be granted on or after November 12, 2012, but options previously granted, may extend beyond that date based on the terms of the relevant grant. This plan was approved by our stockholders.

The American Pacific Corporation Amended and Restated 2008 Stock Incentive Plan (the “2008 Plan”) permits the granting of stock options, restricted stock, restricted stock units and stock appreciation rights to employees, directors and consultants. A total of 800,000 shares of common stock are authorized for issuance under the 2008 Plan, provided that no more than 400,000 shares of common stock may be granted pursuant to awards of restricted stock and restricted stock units. Generally, awards granted under the 2008 Plan vest in three equal annual installments beginning on the first anniversary of the grant date, and in the case of option awards, expire ten years from the date of grant. As of December 31, 2012, there were 238,483 shares available for grant under the 2008 Plan. This plan was approved by our stockholders.

Stock Options and Restricted Stock. A summary of our outstanding and non-vested stock option and restricted stock activity for the three months ended December 31, 2012 is as follows:



	Stock Options								Restricted Stock

	Outstanding				Non-Vested				Outstanding and Non-Vested

			Weighted				Weighted				Weighted
			Average				Average				Average
			Exercise				Fair				Fair
			Price				Value				Value
	Shares		Per Share		Shares		Per Share		Shares		Per Share

Balance, September 30, 2012		612,071	$	8.47		138,835	$	3.55		64,497	$	7.52
Granted		47,470		11.93		47,470		5.41		36,060		11.93
Vested		-		-		(77,184)		3.61		(29,505)		7.42
Exercised		(30,681)		8.08		-		-		-		-
Expired / Cancelled		(13,000)		8.32		-		-		-		-

Balance, December 31, 2012		615,860		8.76		109,121		4.31		71,052		9.80

A summary of our exercisable stock options as of December 31, 2012 is as follows:


Number of vested stock options		506,739
Weighted-average exercise price per share	$	8.60
Aggregate intrinsic value	$	3,497
Weighted-average remaining contractual term in years		5.1

We determine the fair value of stock option awards at their grant date, using a Black-Scholes Option-Pricing model applying the assumptions in the following table. We determine the fair value of restricted stock awards based on the fair market value of our common stock on the grant date. Actual compensation, if any, ultimately realized by optionees may differ significantly from the amount estimated using an option valuation model.



	Three Months Ended
	December 31,
	2012		2011

Weighted-average grant date fair value per share of options granted	$	5.41	$	3.46
Significant fair value assumptions:
Expected term in years		5.70		5.70
Expected volatility		49%		49%
Expected dividends		0%		0%
Risk-free interest rates		0.64%		0.85%
Total intrinsic value of options exercised	$	503	$	-
Aggregate cash received for option exercises	$	248	$	-
Compensation cost (included in operating expenses)
Stock options	$	94	$	125
Restricted stock		159		92

Total		253		217
Tax benefit recognized		64		40

Net compensation cost	$	189	$	177

As of period end date:
Total compensation cost for non-vested awards not yet recognized:
Stock options	$	285	$	281
Restricted stock	$	438	$	323
Weighted-average years to be recognized
Stock options		1.8		1.8
Restricted stock		1.8		1.9

Cash-Settled Restricted Stock Units. Cash-settled restricted stock units (“RSU”) are awards that, if vested, entitle the recipient to a cash payment equal to the fair market value of our common stock for each unit granted. The RSU awards cliff-vest on September 30, 2014, subject to the attainment of financial performance criteria that were established for the two-year period ending September 30, 2014 and continued employment by the recipient. RSUs are accounted for as liability awards, and accordingly, compensation cost is re-measured based on our closing stock price at the end of each reporting period. If we estimate that it is probable that the vesting criteria will be met, then we record compensation expense based on the proportionate share of the total estimated fair value of the award to the requisite service period.

A summary of our RSU activity for the three months ended December 31, 2012 is as follows:



			Weighted-
			Average Grant
	Number of		Date Fair Value
	Units		Per Unit

Outstanding, September 30, 2012		-		-
Grants		77,231	$	11.93
Forfeitures		-		-
Vested		-		-

Outstanding, December 31, 2012		77,231	$	11.93

A summary of estimated compensation expense for RSU awards is as follows:



	Three Months Ended
	December 31,
	2012		2011

Compensation cost (included in operating expenses)	$	36	$	-
Tax benefit recognized		14		-

Net compensation cost	$	22	$	-

As of period end date:
Total compensation cost for non-vested awards not yet recognized	$	1,156	$	-
Weighted-average years to be recognized		1.8		-