STOCK COMPENSATION

6 Months Ended

Jun. 30, 2011

OPTIONS

STOCK COMPENSATION

NOTE H - STOCK COMPENSATION - OPTIONS

The Company’s 1998 Stock Incentive Plan, or the 1998 Plan, provides for the making of awards to employees, consultants, and advisors of the Company with respect to 2,350,000 shares of the Company’s common stock. Since the adoption of the 1998 Plan through June 30, 2011, the Company has granted options under the plan to purchase 1,129,292 shares at a price equal to the fair market value at date of grant, of which 1,071,792 have been exercised or forfeited, leaving 57,500 granted options outstanding at June 30, 2011. Options granted under the 1998 Plan vest over a five-year period and have ten-year contractual terms. All options granted under the 1998 Plan to date are currently vested.

The Non-Employee Director Stock Incentive Plan, or NDSI Plan, is intended to enable the Company to attract, retain, and motivate non-employee directors by providing for or increasing the proprietary interest of such persons in the Company. The NDSI Plan provides for the grant of awards to non-employee directors with respect to an aggregate of 200,000 shares of the Company’s common stock. Since the adoption of the NDSI Plan through June 30, 2011, the Company has granted options under the plan to purchase 83,518 shares at a price equal to the fair market value at date of grant, of which 68,325 options have been exercised or forfeited, leaving 15,193 granted options outstanding at June 30, 2011. Options granted under the NDSI Plan vest one year from the date of grant and have ten year contractual terms. All outstanding options granted under the NDSI plan are currently vested.

There were no options granted in 2011 or 2010 under either the 1998 Plan or the NDSI Plan.

The value of the options was estimated using the Black-Scholes option-pricing formula and the expense was amortized over the options’ vesting periods. The following weighted-average assumptions were used in estimating the fair value of the options: risk-free interest rate of 5.00%, dividend rate of 0.0%, volatility factor of the expected market price of our common stock of 0.34, and a weighted-average expected life of the options of five years from the option grant date.

Exercise prices for options outstanding under the 1998 Plan and NDSI Plan as of June 30, 2011 ranged from $20.32 to $27.90. The weighted-average remaining contractual life of those options is approximately 1.5 years. None of the options granted under the 1998 Plan or NDSI Plan contain conversion features.

The following is a summary of the Company’s stock option activity and related information for the six month period ended June 30, 2011:

	2011
	Options			Weighted-Average Exercise Prices Per Share
Outstanding beginning of period		271,858		$	25.18
Granted		—			—
Exercised		(199,165	)		(25.49	)
Forfeited/Cancelled		—			—
Outstanding end of period		72,693		$	27.35
Options exercisable end of period		72,693		$	27.35

As of June 30, 2011, there was no unrecognized compensation cost related to stock options. No shares vested during the six months ended June 30, 2011, therefore, the fair value of shares vesting was zero. The total intrinsic value of options exercised during the six months ended June 30, 2011 and 2010 were $1,585,000 and $618,000, respectively. As of June 30, 2011, there were 72,693 options vested and exercisable with a weighted-average exercise price of $27.35, aggregate intrinsic value of $491,000, and weighted-average remaining contractual life of approximately 1.5 years. At June 30, 2011, there was a $2,766,000 receivable from employees recorded in stockholders’ equity for the receipt of proceeds from stock options exercised at the end June 2011 and subsequently settled in early July 2011.

RESTRICTED STOCK AND PERFORMANCE SHARE GRANTS

STOCK COMPENSATION

NOTE I – STOCK COMPENSATION - RESTRICTED STOCK AND PERFORMANCE SHARE GRANTS

The Company’s stock incentive plans provide for the making of awards to employees based upon time-based criteria or through the achievement of performance-related objectives. The Company has issued three types of stock grant awards under these plans: restricted stock with time-based vesting, performance share grants that only vest upon the achievement of specified performance conditions, and performance share grants that include threshold, target, and maximum achievement levels based on the achievement of specific performance conditions. The Company has issued 129, 864 shares of restricted stock that vest over three and four-year periods of time and of this amount 99,061 shares have vested. The Company also has granted performance units with stock awards ranging from zero shares if below threshold performance conditions to 98,814 for threshold performance, 680,146 shares for target performance, and 1,004,105 for maximum performance. These awards are tied to corporate cash flow goals and the achievement of specified milestone development activities. Total grants, including both time based and performance based grants, of 710,949 were outstanding at June 30, 2011. During the six months ending June 30, 2011, 49,043 shares vested.

The fair value of restricted stock with time-based vesting features is based upon the Company’s share price on the date of grant and is expensed over the service period. Fair value of performance grants that cliff vest based on the achievement of performance conditions is based on the share price of the Company’s stock on the day of grant once the Company determines that it is probable that the award will vest. This fair value is expensed over the service period applicable to these grants. For performance grants that contain a range of shares from zero to maximum we determine, based on historic and projected results, the probability of (1) achieving the performance objective, and (2) the level of achievement. Based on this information, we determine the fair value of the award and measure the expense over the service period related to these grants. Because the ultimate vesting of all performance grants is tied to the achievement of a performance condition, we adjust compensation cost according to the actual outcome of the performance condition.

For the six months ending June 30, 2011 and 2010, there was total expense of $2,313,000 and $1,752,000, respectively.

Under the NDSI Plan, each non-employee director receives his or her annual compensation in stock. Under this plan, 54,858 shares of stock have been granted since the plan was adopted in 2004. Total expenses relating to non-employee director stock compensation during the six months ended June 30, 2011 and 2010 was $162,000.