| 10. | STOCK OPTION PLAN |
The Company established a stock option plan in 1993 (the “1993 Plan”) for the purpose of attracting and retaining executive officers and other key personnel. The 1993 Plan provides for grants of options to purchase up to 400,000 shares of common stock. The 1993 Plan authorizes the Compensation Committee of the Board of Directors to grant options at an exercise price which may not be less than the market value of the common stock on the date the option is granted. On May 23, 2003, the Compensation Committee granted options to purchase a total of 220,000 shares (80,000 shares from incentive stock options and 140,000 shares from nonqualified stock options) to six Company officers (the “2003 Options”). Following the grant of the 2003 Options, no additional shares remained for issuance under the 1993 Plan. The 2003 Options vested 25% per year over four years and have a term of ten years, subject to earlier expiration upon termination of employment. The exercise price of $24.91 per share was the closing market price of the Company’s common stock on the date of the award.
At the annual meeting of the Company’s stockholders in 2004, the stockholders approved the adoption of the 2004 stock plan for the purpose of attracting and retaining executive officers, directors and other key personnel. The 2004 stock plan was subsequently amended by the Company’s stockholders at the 2008 Annual Meeting (the “Amended 2004 Plan”). The Amended 2004 Plan, which terminates in April 2018, provides for grants of options to purchase up to 1,000,000 shares of common stock as well as grants of up to 200,000 shares of common stock to directors. The Amended 2004 Plan authorizes the Compensation Committee of the Board of Directors to grant options at an exercise price which may not be less than the market value of the common stock on the date the option is granted.
Effective April 26, 2004, the Compensation Committee granted options to purchase a total of 152,500 shares (27,500 shares from incentive stock options and 125,000 shares from nonqualified stock options) to eleven Company officers and to the twelve Company directors (the “2004 Options”), which expire on April 25, 2014. The officers’ 2004 Options vested 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ options were immediately exercisable. The exercise price of $25.78 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2004 Options to be $360,000, of which $293,000 and $67,000 were the values assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $67,000 was expensed as of the date of grant. The expense of the officers’ options was recognized as compensation expense monthly during the four years the options vested.
Effective May 6, 2005, the Compensation Committee granted options to purchase a total of 162,500 shares (35,500 shares from incentive stock options and 127,000 shares from nonqualified stock options) to twelve Company officers and to twelve Company directors (the “2005 Options”), which expire on May 5, 2015. The officers’ 2005 Options vested 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ options were immediately exercisable. The exercise price of $33.22 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2005 Options to be $484,500, of which $413,400 and $71,100 were the values assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $71,100 was expensed as of the date of grant. The expense of the officers’ options was recognized as compensation expense monthly during the four years the options vested.
Effective May 1, 2006, the Compensation Committee granted options to purchase a total of 30,000 shares (all nonqualified stock options) to twelve Company directors (the “2006 Options”), which were immediately exercisable and expire on April 30, 2016. The exercise price of $40.35 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2006 Options to be $143,400. Because the directors’ options vested immediately, the entire $143,400 was expensed as of the date of grant. No options were granted to the Company’s officers in 2006.
Effective April 27, 2007, the Compensation Committee granted options to purchase a total of 165,000 shares (27,560 shares from incentive stock options and 137,440 shares from nonqualified stock options) to thirteen Company officers and twelve Company Directors (the “2007 options”), which expire on April 26, 2017. The officers’ 2007 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ options were immediately exercisable. The exercise price of $54.17 per share was the closing market price of the Company’s common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2007 Options to be $1.5 million, of which $1.3 million and $285,300 were the values assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $285,300 was expensed as of the date of grant. The expense for the officers’ options was recognized as compensation expense monthly during the four years the options vested.
Effective April 25, 2008, the Compensation Committee granted options to purchase a total of 30,000 shares (all nonqualified stock options) to twelve Company directors (the “2008 Options”), which were immediately exercisable and expire on April 24, 2018. The exercise price of $50.15 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2008 Options to be $254,700. Because the directors’ options vest immediately, the entire $254,700 was expensed as of the date of grant. No options were granted to the Company’s officers in 2008.
Effective April 24, 2009, the Compensation Committee granted options to purchase a total of 32,500 shares (all nonqualified stock options) to thirteen Company directors (the “2009 Options”), which were immediately exercisable and expire on April 23, 2019. The exercise price of $32.68 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2009 Options to be $222,950. Because the directors’ options vested immediately, the entire $222,950 was expensed as of the date of grant. No options were granted to the Company’s officers in 2009.
Effective May 7, 2010, the Compensation Committee granted options to purchase a total of 32,500 shares (all nonqualified stock options) to thirteen Company directors (the “2010 Options”), which were immediately exercisable and expire on May 6, 2020. The exercise price of $38.76 per share was the closing market price of the Company’s common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2010 Options to be $287,950. Because the directors’ options vested immediately, the entire $287,950 was expensed as of the date of grant. No options were granted to the Company’s officers in 2010.
Effective May 13, 2011, the Compensation Committee granted options to purchase a total of 195,000 shares (65,300 shares from incentive stock options and 129,700 shares from nonqualified stock options) to 15 Company officers and 13 Company Directors (the “2011 options”), which expire on May 12, 2021. The officers’ 2011 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ 2011 options were immediately exercisable. The exercise price of $41.82 per share was the closing market price of the Company’s common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2011 Options to be $1.6 million, of which $1.3 million and $297,000 were assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $297,000 was expensed as of the date of grant. The expense for the officers’ options is being recognized as compensation expense monthly during the four years the options vest.
Effective May 4, 2012, the Compensation Committee granted options to purchase a total of 277,500 shares (26,157 shares from incentive stock options and 251,343 shares from nonqualified stock options) to 15 Company officers and 14 Company Directors (the “2012 options”), which expire on May 3, 2022. The officers’ 2012 Options vest 25% per year over four years and are subject to early expiration upon termination of employment. The directors’ 2012 options were immediately exercisable. The exercise price of $39.29 per share was the closing market price of the Company’s common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2012 Options to be $1.7 million, of which $1.44 million and $244,000 were assigned to the officer options and director options, respectively. Because the directors’ options vested immediately, the entire $244,000 was expensed as of the date of grant. The expense for the officers’ options is being recognized as compensation expense monthly during the four years the options vest.
The following table summarizes the amount and activity of each grant, the total value and variables used in the computation and the amount expensed and included in general and administrative expense in the Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010:
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Stock options issued |
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| Directors | ||||||||||||||||||||||||||||||||||||||||
| Grant date | 04/26/2004 | 05/06/2005 | 05/01/2006 | 04/27/2007 | 04/25/2008 | 04/24/2009 | 05/07/2010 | 05/13/2011 | 05/04/2012 | Subtotals | ||||||||||||||||||||||||||||||
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Total grant |
30,000 | 30,000 | 30,000 | 30,000 | 30,000 | 32,500 | 32,500 | 32,500 | 35,000 | 282,500 | ||||||||||||||||||||||||||||||
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Vested |
30,000 | 30,000 | 30,000 | 30,000 | 30,000 | 32,500 | 32,500 | 32,500 | 35,000 | 282,500 | ||||||||||||||||||||||||||||||
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Exercised |
21,200 | 17,500 | 2,500 | — | — | 10,000 | 2,500 | 2,500 | 2,500 | 58,700 | ||||||||||||||||||||||||||||||
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Forfeited |
— | — | 2,500 | 5,000 | 5,000 | — | 2,500 | 2,500 | — | 17,500 | ||||||||||||||||||||||||||||||
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Exercisable at December 31, 2012 |
8,800 | 12,500 | 25,000 | 25,000 | 25,000 | 22,500 | 27,500 | 27,500 | 32,500 | 206,300 | ||||||||||||||||||||||||||||||
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Remaining unexercised |
8,800 | 12,500 | 25,000 | 25,000 | 25,000 | 22,500 | 27,500 | 27,500 | 32,500 | 206,300 | ||||||||||||||||||||||||||||||
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Exercise price |
$ | 25.78 | $ | 33.22 | $ | 40.35 | $ | 54.17 | $ | 50.15 | $ | 32.68 | $ | 38.76 | $ | 41.82 | $ | 39.29 | ||||||||||||||||||||||
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Volatility |
0.183 | 0.198 | 0.206 | 0.225 | 0.237 | 0.344 | 0.369 | 0.358 | 0.348 | |||||||||||||||||||||||||||||||
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Expected life (years) |
5.0 | 10.0 | 9.0 | 8.0 | 7.0 | 6.0 | 5.0 | 5.0 | 5.0 | |||||||||||||||||||||||||||||||
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Assumed yield |
5.75 | % | 6.91 | % | 5.93 | % | 4.39 | % | 4.09 | % | 4.54 | % | 4.23 | % | 4.16 | % | 4.61 | % | ||||||||||||||||||||||
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Risk-free rate |
3.57 | % | 4.28 | % | 5.11 | % | 4.65 | % | 3.49 | % | 2.19 | % | 2.17 | % | 1.86 | % | 0.78 | % | ||||||||||||||||||||||
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Total value at grant date |
$ | 66,600 | $ | 71,100 | $ | 143,400 | $ | 285,300 | $ | 254,700 | $ | 222,950 | $ | 287,950 | $ | 297,375 | $ | 244,388 | $ | 1,873,763 | ||||||||||||||||||||
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Forfeited options |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
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Expensed in previous years |
66,600 | 71,100 | 143,400 | 285,300 | 254,700 | 222,950 | — | — | — | 1,044,050 | ||||||||||||||||||||||||||||||
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Expensed in 2010 |
— | — | — | — | — | — | 287,950 | — | — | 287,950 | ||||||||||||||||||||||||||||||
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Expensed in 2011 |
— | — | — | — | — | — | — | 297,375 | — | 297,375 | ||||||||||||||||||||||||||||||
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Expensed in 2012 |
— | — | — | — | — | — | — | — | 244,388 | 244,388 | ||||||||||||||||||||||||||||||
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Future expense |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Officers | ||||||||||||||||||||||||||||||||||||||||
| Grant date | 05/23/2003 | 04/26/2004 | 05/06/2005 | 04/27/2007 | 05/13/2011 | 05/04/2012 | Subtotals | Grand Totals | ||||||||||||||||||||||||||||||||
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Total grant |
220,000 | 122,500 | 132,500 | 135,000 | 162,500 | 242,500 | 1,015,000 | 1,297,500 | ||||||||||||||||||||||||||||||||
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Vested |
212,500 | 115,000 | 118,750 | 67,500 | 40,625 | — | 554,375 | 836,875 | ||||||||||||||||||||||||||||||||
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Exercised |
211,585 | 91,250 | 66,375 | — | 13,750 | — | 382,960 | 441,660 | ||||||||||||||||||||||||||||||||
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Forfeited |
7,500 | 7,500 | 13,750 | 67,500 | 41,250 | 130,000 | 267,500 | 285,000 | ||||||||||||||||||||||||||||||||
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Exercisable at December 31, 2012 |
915 | 23,750 | 52,375 | 67,500 | 26,875 | — | 171,415 | 377,715 | ||||||||||||||||||||||||||||||||
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Remaining unexercised |
915 | 23,750 | 52,375 | 67,500 | 107,500 | 112,500 | 364,540 | 570,840 | ||||||||||||||||||||||||||||||||
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Exercise price |
$ | 24.91 | $ | 25.78 | $ | 33.22 | $ | 54.17 | $ | 41.82 | $ | 39.29 | ||||||||||||||||||||||||||||
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Volatility |
0.175 | 0.183 | 0.207 | 0.233 | 0.330 | 0.315 | ||||||||||||||||||||||||||||||||||
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Expected life (years) |
7.0 | 7.0 | 8.0 | 6.5 | 8.0 | 8.0 | ||||||||||||||||||||||||||||||||||
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Assumed yield |
7.00 | % | 5.75 | % | 6.37 | % | 4.13 | % | 4.81 | % | 5.28 | % | ||||||||||||||||||||||||||||
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Risk-free rate |
4.00 | % | 4.05 | % | 4.15 | % | 4.61 | % | 2.75 | % | 1.49 | % | ||||||||||||||||||||||||||||
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Total value at grant date |
$ | 332,200 | $ | 292,775 | $ | 413,400 | $ | 1,258,848 | $ | 1,277,794 | $ | 1,442,148 | $ | 5,017,165 | $ | 6,890,928 | ||||||||||||||||||||||||
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Forfeited options |
11,325 | 17,925 | 35,100 | — | 252,300 | 813,800 | 1,130,450 | 1,130,450 | ||||||||||||||||||||||||||||||||
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Expensed in previous years |
320,875 | 274,850 | 378,300 | 839,245 | — | — | 1,813,270 | 2,857,320 | ||||||||||||||||||||||||||||||||
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Expensed in 2010 |
— | — | — | 314,712 | — | — | 314,712 | 602,662 | ||||||||||||||||||||||||||||||||
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Expensed in 2011 |
— | — | — | 104,891 | 186,347 | — | 291,238 | 588,613 | ||||||||||||||||||||||||||||||||
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Expensed in 2012 |
— | — | — | — | 270,391 | 104,724 | 375,115 | 619,503 | ||||||||||||||||||||||||||||||||
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Future expense |
— | — | — | — | 568,756 | 523,624 | 1,092,380 | 1,092,380 | ||||||||||||||||||||||||||||||||
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Weighted average term of remaining future expense |
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2.9 years | ||||||||||||||||||||||||||||||||||||||
The table below summarizes the option activity for the years 2012, 2011, and 2010:
| 2012 | 2011 | 2010 | ||||||||||||||||||||||
| Shares | Weighted Average Exercise Price |
Shares | Weighted Average Exercise Price |
Shares | Weighted Average Exercise Price |
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Outstanding at January 1 |
674,585 | $ | 40.40 | 532,881 | $ | 39.12 | 609,253 | $ | 36.71 | |||||||||||||||
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Granted |
277,500 | 39.29 | 195,000 | 41.82 | 32,500 | 38.76 | ||||||||||||||||||
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Exercised |
(149,995 | ) | 31.03 | (40,796 | ) | 29.03 | (108,872 | ) | 25.52 | |||||||||||||||
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Expired/Forfeited |
(231,250 | ) | 43.56 | (12,500 | ) | 45.05 | — | — | ||||||||||||||||
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Outstanding December 31 |
570,840 | 41.04 | 674,585 | 40.40 | 532,881 | 39.12 | ||||||||||||||||||
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Exercisable at December 31 |
377,715 | 41.41 | 512,085 | 39.96 | 502,256 | 38.21 | ||||||||||||||||||
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The intrinsic value of options exercised in 2012, 2011, and 2010, was $1.6 million, $688,000, and $2.0 million, respectively. The intrinsic value of options outstanding and exercisable at year end 2012 was $2.2 million and $1.7 million, respectively. The intrinsic value measures the difference between the options’ exercise price and the closing share price quoted by the New York Stock Exchange as of the date of measurement. The date of exercise was the measurement date for shares exercised during the period. At December 31, 2012, the final trading day of calendar 2012, the closing price of $42.79 per share was used for the calculation of aggregate intrinsic value of options outstanding and exercisable at that date. Options having an exercise price in excess of the December 31, 2012 closing price have no intrinsic value. The weighted average remaining contractual life of the Company’s exercisable and outstanding options at December 31, 2012 are 5.0 and 6.4 years, respectively.