NOTE 9. SHARE-BASED COMPENSATION

We recognize share-based compensation for all stock options granted over the requisite service period using the fair value for these grants as estimated at the date of grant using the Black-Scholes pricing model.

The 1997 and 2005 Share-Based Compensation Plans

The Compensation Committee of the Board of Directors ("the Committee") has the authority to select the participants to be granted options; to designate whether the option granted is an incentive stock option ("ISO"), a non-qualified option, or a stock appreciation right; to establish the number of shares of common stock that may be issued upon exercise of the option; to establish the vesting provision for any award; and to establish the term any award may be outstanding. The exercise price of any ISO's granted will not be less than 100% of the fair market value of the shares of common stock on the date granted and the term of an ISO may not be more than ten years. The exercise price of any non-qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.

In May 2005, our stockholders approved the 2005 Plan pursuant to which 1,500,000 shares of our common stock were available to grant as share-based payments to employees, officers, directors or consultants. As of September 30, 2011, 347,301 shares were available for future grants under the 2005 plan. The individual restricted stock and option grant awards vest over periods up to ten years. The term of the options outstanding under the 2005 Plan is up to ten years from the date of grant.

The NHI 1997 Stock Option Plan ("the 1997 Plan") provides for the granting of options to key employees and directors of NHI to purchase shares of common stock at a price no less than the market value of the stock on the date the option is granted. As of September 30, 2011, no shares were available for future grants under this plan. The term of the options outstanding under the 1997 Plan is five years from the date of the grant.

Compensation expense is recognized only for the awards that ultimately vest. Accordingly, forfeitures that were not expected may result in the reversal of previously recorded compensation expense. The compensation expense reported for share-based compensation related to the 2005 Plan and the 1997 Plan totaled $2,912,000 for the nine months ended September 30, 2011, consisting of $2,904,000 for stock options and $8,000 for restricted stock, as compared to $2,204,000 for the nine months ended September 30, 2010, consisting of $2,184,000 for stock options and $20,000 for restricted stock. At September 30, 2011, we had $743,000 of unrecognized compensation cost related to unvested restricted shares issued and unvested stock options, net of expected forfeitures, which is expected to be recognized over the following periods: 2011 - $264,000; 2012 - $429,000, and 2013 - $50,000. Stock-based compensation is included in general and administrative expense in the Condensed Consolidated Statements of Income.


The following table summarizes our outstanding stock options for the nine months ended September 30, 2011 and 2010:

		2011	2010
	Options outstanding, January 1,	384,507	253,836
	Options granted under 2005 Plan	340,000	395,000
	Options forfeited under 2005 Plan	(3,334)	-
	Options exercised under 1997 Plan	(15,000)	(48,717)
	Options exercised under 2005 Plan	(140,917)	(215,612)
	Options outstanding, September 30,	565,256	384,507

	Exercisable September 30,	401,664	202,332


The following table summarizes our restricted stock activity for the nine months ended September 30, 2011 and 2010:

		2011	2010
	Non-vested at January 1,	3,175	5,100
	Vested during the period	(1,925)	(1,925)
	Non-vested at September 30,	1,250	3,175