STOCK COMPENSATION

The Company grants equity compensation under its Amended and Restated 1999 Long-Term Incentive Plan (the “1999 Plan”). As of December 31, 2012, there were approximately 3,703,283 shares available for issuance under the 1999 Plan.

Stock Options. The Company accounts for stock compensation by valuing unvested stock options granted prior to January 1, 2006 under the fair value method of accounting and expensing this amount in the statement of operations over the stock options’ remaining vesting period.

The Company recognized compensation expense of $1,755, $1,715 and $1,218 related to stock options in the years ended December 31, 2012, 2011 and 2010, respectively.

The terms of certain stock options awarded under the 1999 Plan in December 2009 and January 2001 provide for common stock dividend equivalents (at the same rate as paid on the common stock) with respect to the shares underlying the unexercised portion of the options. The Company recognizes payments of the dividend equivalent rights on these options as reductions in additional paid-in capital on the Company’s consolidated balance sheet ($2,709, $2,580 and $2,480 net of income taxes, for the years ended December 31, 2012, 2011 and 2010, respectively), which is included as “Distributions on common stock” in the Company’s consolidated statement of changes in stockholders’ equity.

The fair value of option grants is estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price characteristics which are significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of stock-based compensation awards.

The assumptions used under the Black-Scholes option pricing model in computing fair value of options are based on the expected option life considering both the contractual term of the option and expected employee exercise behavior, the interest rate associated with U.S. Treasury issues with a remaining term equal to the expected option life and the expected volatility of the Company’s common stock over the expected term of the option. There were no new grants in the year ended December 31, 2012. The assumptions used for grants in the years ended December 31, 2011 and 2010 were as follows:



	2011	2010
Risk-free interest rate	1.4% – 1.9%	2.59		%
Expected volatility	24.78% – 25.02%	24.43		%
Dividend yield	0.0% - 10.08%	9.8		%
Expected holding period	4.00 – 4.75 years	4.74 years
Weighted-average grant date fair value	$0.90 – $3.81	$	1.03

A summary of employee stock option transactions follows:



	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value(1)
Outstanding on January 1, 2010	2,550,048		$	12.53	6.6	$	1,947
Granted	115,763		$	14.18
Exercised	(128,189	)	$	9.87
Cancelled	(21	)	$	—
Outstanding on December 31, 2010	2,537,601		$	12.74	6.0	$	11,208
Granted	503,843		$	15.58
Exercised	(531,321	)	$	10.85
Cancelled	(202,119	)	$	—
Outstanding on December 31, 2011	2,308,004		$	13.10	7.6	$	11,187
Granted	—		$	—
Exercised	(16,079	)	$	8.66
Cancelled	(6,285	)	$	15.07
Outstanding on December 31, 2012	2,285,640		$	13.12	6.6	$	4,371
Options exercisable at:
December 31, 2010	1,118,264
December 31, 2011	391,859
December 31, 2012	398,437

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(1)	The aggregate intrinsic value represents the amount by which the fair value of the underlying common stock ($14.87, $16.91 and $15.71 at December 31, 2012, 2011 and 2010, respectively) exceeds the option exercise price.

Additional information relating to options outstanding at December 31, 2012 follows:



			Options Outstanding				Options Exercisable
Range of Exercise Prices			Outstanding as of	Weighted-Average Remaining Contractual Life (Years)	Weighted-Average Exercise Price		Exercisable as of	Weighted-Average Exercise Price
Range of Exercise Prices			12/31/2012	Weighted-Average Remaining Contractual Life (Years)	Weighted-Average Exercise Price		12/31/2012	Weighted-Average Exercise Price
$0.00	-	$12.73	1,602,731	6.3	$	12.22	306,191	$	12.41
$12.73	-	$15.28	206,629	6.0	$	14.33	92,246	$	14.44
$15.28	-	$17.82	476,280	8.0	$	15.65	—	$	—
			2,285,640	6.6	$	13.12	398,437	$	12.88

As of December 31, 2012, there was $2,103 of total unrecognized compensation cost related to unvested stock options. The cost is expected to be recognized over a weighted-average period of approximately 1.42 years at December 31, 2012.

The Company reflects the tax savings resulting from tax deductions in excess of expense reflected in its financial statements as a component of “Cash Flows from Financing Activities.”

No non-qualified options for shares of common stock were issued during 2012.

Non-qualified options for 503,843 shares of common stock were issued during 2011. The exercise price of the options granted ranged between $14.41 and $15.65 in 2011. The exercise prices of the options granted in 2011 were at the fair value on the dates of the grants.

Non-qualified options for 115,763 shares of common stock were issued during 2010. The exercise price of the options granted was $14.18 in 2010. The exercise prices of the options granted in 2010 were at the fair value on the dates of the grants.

The Company has elected to use the long-form method under which each award grant is tracked on an employee-by-employee basis and grant-by-grant basis to determine if there is a tax benefit or tax deficiency for such award. The Company then compares the fair value expense to the tax deduction received for each grant and aggregates the benefits and deficiencies to establish its hypothetical APIC Pool.

The Company recognizes windfall tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. A windfall tax benefit occurs when the actual tax benefit realized by the Company upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that the Company had recorded.

The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $129, $2,051 and $673, respectively. Tax benefits related to option exercises of $52, $821 and $269 were recorded as increases to stockholders’ deficiency for the years ended December 31, 2012, 2011 and 2010, respectively.

Restricted Stock Awards. In June 2007, the Company granted 13,401 restricted shares of the Company’s common stock pursuant to the 1999 Plan to each of its four outside directors. The shares vested over three years. The Company recognized $792 of expense over the vesting period. The Company recognized expense of $264 for the year ended December 31, 2010, in connection with this restricted stock award.

In June 2010, the Company granted 11,576 restricted shares of the Company’s common stock (the "June 2010 Grant") pursuant to the 1999 Plan to each of its five outside directors. In November 2011, one of the outside directors resigned from the board and 7,718 of the restricted shares granted in June 2010 were forfeited and canceled. The remaining shares vest over three years and the Company will recognize $749 of expense over the vesting period of the June 2010 Grant. In November 2011, the Company also granted 7,000 restricted shares of the Company's stock (the "November 2011 grant") pursuant to the 1999 Plan to the replacement director. The shares granted to the replacement director vest over approximately 19 months. The Company will recognize $120 of expense over the vesting period for the November 2011 Grant. The Company recognized expense of $300 and $280 of expense for the years ended December 31, 2012 and 2011, respectively.

In April 2009, the President of the Company was awarded a restricted stock grant ("Award Agreement") of 607,754 shares of Vector’s common stock pursuant to the 1999 Plan ("Award Shares") . Under the terms of the Award Agreement, one-fifth of the shares vest on September 15, 2010, with an additional one-fifth vesting on each of the four succeeding one-year anniversaries of the first vesting date through September 15, 2014. In the event that his employment with the Company is terminated for any reason other than his death, his disability or a change of control (as defined in this Restricted Share Agreement) of the Company, any remaining balance of the shares not previously vested will be forfeited by him. The fair market value of the restricted shares on the date of grant was $6,467 and was being amortized over the vesting period as a charge to compensation expense.

On December 11, 2012, the Compensation Committee of the Board of Directors of the Company approved an acceleration of the vesting to December 11, 2012 of an aggregate 243,101 shares of restricted stock that were previously scheduled to vest in equal parts on September 15, 2013 and September 15, 2014.

In connection with, and as a condition to, the acceleration of the vesting schedule, the President of the Company entered into an Amendment to the Award Agreement and an Agreement (the “Agreement”) with the Company, effective as of December 11, 2012. Pursuant to the Agreement, he agreed, in the event his employment with the Company terminates prior to September 15, 2014, to repay to the Company, in either shares of the Company's common stock or cash, the fair market value on the termination date of that portion of the Award Shares that he would have otherwise had to forfeit under the Award Agreement had the vesting of the Award Shares not been accelerated, plus cash in the amount of any Accrued Dividends and any additional dividends declared on such shares.

The Company recognized expense of $2,381 for the year ended December 31, 2012 that included additional compensation expense of $288 related to the modified requisite service period of the accelerated vesting and the recognition of the unamortized compensation costs related to the accelerated vesting of $2,093. The Company recorded an expense of $1,188 and $872 for the years ended December 31, 2011 and 2010, respectively.

As of December 31, 2012, there was $134 of total unrecognized compensation costs related to unvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of approximately 0.44 years at December 31, 2012.

As of December 31, 2011, there was $3,653 of total unrecognized compensation costs related to unvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of approximately 2.59 years at December 31, 2011.

The Company’s accounting policy is to treat dividends paid on unvested restricted stock as a reduction to additional paid-in capital on the Company’s consolidated balance sheet.