Note 7. Stockholders' Equity

 

Effective November 1, 2008, the Company's Board of Directors authorized the repurchase of up to 350,000 shares of the Company's common stock through November 1, 2013 for the purpose of funding awards under its 2008 Equity Incentive Plan (the "2008 Plan"). The 2008 Plan was approved by shareholders on February 20, 2009. The stock repurchases began in November 2008 and were made on a quarterly basis through open market transactions at times and in such amounts as the Company's broker determined subject to the provisions of SEC Rule 10b-18. Effective April 1, 2013, the Board of Directors adopted the 2013 Incentive Plan (the "2013 Plan") which supersedes the 2008 Plan. The 2013 Plan was approved by shareholders at the February 22, 2013 shareholders meeting. Under the terms of the 2013 Plan, an additional 350,000 shares of the Company's common stock may be awarded to recipients. Shares issued pursuant to awards under the 2013 Plan, if any, must be outstanding shares which have been repurchased by the Company.

 

Stock-based compensation expense recognized in the Condensed Consolidated Statement of Operations in general and administrative expenses was $468,000 and $783,000 for the three and nine months ended June 30, 2013, respectively, and $306,000 and $552,000 for the three and nine months ended June 30, 2012, respectively. Stock-based compensation is recorded for the Board of Directors fees paid in treasury stock and the Long Term Incentive Program restricted common stock awards.

 

 

Long Term Incentive Program

 

On May 26, 2011, the Company's Board of Directors approved the adoption of the Long-Term Incentive Program (the "Program"), as part of the 2008 Plan. The Compensation Committee and the Board of Directors of the Company approved the contingent award of 152,403 shares of common stock to the Named Executive Officers (the "NEOs") of the Company. On May 26, 2011, 58,610 shares were granted to the NEOs other than the Chief Executive Officer ("CEO") and on April 19, 2012, 93,793 shares were awarded to the CEO under restricted stock award agreements.

 

 

Performance Criteria:

 

Either the "Performance Criteria" or "Partial Performance" must be achieved during the five year period following the award date (the "Performance Period") as well as certain service conditions for the CEO and/or the NEOs to receive the awards. The Performance Criteria will have been achieved if, at any time during the Performance Period, the average of the closing prices of the common stock over the most recent 20 consecutive trading day period exceeds (i) $46.00 for the CEO and $50.40 for the NEOs (representing 200% of the 20 Day Average Closing Price determined as of the Award Date (the "base stock price") at any time during the three year period commencing on the award date, or (ii) $49.22 for the CEO and $53.93 for the other NEOs (representing 214% of the base stock price) at any time during the one year period commencing on the third anniversary of the award date and ending on the fourth anniversary of the award date, or (iii) $52.44 for the CEO and $57.46 for other NEOs (representing 228% of the base stock price) at any time during the one year period commencing on the fourth anniversary of the award date and ending on the fifth anniversary of the award date. If the 20 Day Average Closing Price equals or exceeds 100% of the applicable target average stock price on any day during the Performance Period, the recipients will be awarded, subject to vesting, 100% of the shares. Participants must be employed in an executive position through the following dates to receive their stock awards: (i) Fifty Percent (50%) of the Award Level shall immediately vest upon achievement of the Target Average Stock Price (the "Achievement Date"), (ii) Twenty-Five Percent (25%) of the Award Level shall vest on the first anniversary of the Achievement Date, and (iii) Twenty-Five Percent (25%) of the Award Level shall vest on the second anniversary of the Achievement Date. All Target Average Stock Prices are subject to adjustment based upon dividends paid on the Company's outstanding Common Stock.

 

If the Performance Criteria is not achieved during the Performance Period, but at any time during the Performance Period the 20 Day Average Closing Price exceeds 90% of the applicable target average stock price, then fifty percent (50%) of the common shares will be awarded, subject to vesting, at the end of the Performance Period

("Partial Performance"). Participants must be employed in an executive position through the following dates to receive their stock awards: (i) Twenty-Five Percent (25%) of the Award Level shall vest on the last day of the Performance Period ("Partial Performance Achievement Date" in the case of Partial Performance), (ii) Twelve and One-Half Percent (12.5%) of the Award Level shall vest on the first anniversary of the Partial Performance Achievement Date and (iii) Twelve and One-Half Percent (12.5%) of the Award Level shall vest on the second anniversary of the Partial Performance Achievement Date.

 

No restricted common stock will be awarded under the Program unless the Performance Criteria or Partial Performance Criteria are achieved during the five year period following the Award Date as specified. Each participant signed an award agreement with the Company setting forth the terms of the award.

 

On February 8, 2013, the CEO's restricted common stock award under the Program exceeded 90% of the applicable Target Average Stock Price meeting the Partial Performance Criteria. Additionally, on April 3, 2013, the other NEO's stock awards under the Program exceeded 90% of the applicable Target Average Stock Price.

 

The portion of stock-based compensation expense recorded in general and administrative expenses in the Condensed Consolidated Statement of Operations for the three and nine months ended June 30, 2013 for these market-based awards was $27,000 and $54,000, respectively. The total value of the awards at the grant date was $321,000. The value was determined by application of a valuation model. In addition to the various criteria outlined herein, the model assumed annual volatility of 53.3% and a risk free interest rate of 2.80%.

 

In the event of a change in control, reorganization, liquidation or sale of the Company, all shares awarded but unvested will become fully earned and vested provided the recipient remains employed by the Company through such event.

 

 

Treasury Stock

 

The following table provides information relating to purchases of the Company's common shares on the open market pursuant to its Board of Directors authorization for the nine months ended June 30, 2013:

 

(in thousands, except share amounts)			Shares				Cost
Balance at September 30, 2012			23,235			$	543
Purchased			75,448				2,876
Issued to Directors			(19,516	)			(453	)
Balance at June 30, 2013			79,167			$	2,966

 

Through June 30, 2013, the Company had purchased 165,056 shares and had available to purchase an additional 184,944 in accordance with its Board of Directors repurchase authorization.

 

Dilution

 

The dilutive effect on the weighted average shares outstanding of the company's various equity instruments is detailed below:

(in thousands)		For the Three Months Ended								For the Nine Months Ended
		June 30,								June 30,
		2013				2012				2013				2012
Weighted Average Shares Outstanding - Basic			7,299				7,354				7,316				7,354
Unvested Restricted Stock Awards			76				-				34				-
Weighted Average Shares Outstanding - Diluted			7,375				7,354				7,350				7,354