3.       STOCK-BASED COMPENSATION

Stock options are granted under the Company’s long-term incentive plan and have an exercise price that may not be less than the fair market value of the underlying shares on the date of grant. In general, stock options granted will become exercisable over a period determined by the Compensation Committee which in the past has been a five year life. A portion of the stock options granted in March 2013 and 2012 vested immediately with the remainder vesting over a two year period. In addition, stock options will become exercisable upon a change in control, unless provided otherwise by the Compensation Committee. At September 30, 2013, there were 2,128,046 shares subject to options authorized but not granted.

For the three months and nine months ended September 30, 2013, the Company recognized non-cash compensation expense of $0.4 million and $2.6 million, respectively, related to stock options. For the three months and nine months ended September 30, 2012, the Company recognized non-cash compensation expense of $0.4 million and $2.1 million, respectively, related to stock options. These amounts were recorded as general and administrative expense. Because the Company does not pay significant United States federal income taxes, no amounts were recorded for tax benefits related to excess stock based compensation deductions.

A summary of the stock option activity for the nine months ended September 30, 2013 is provided below:

The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option.

As of September 30, 2013, unrecognized compensation costs totaled $1.4 million. The expense is expected to be recognized over a weighted average period of 1.2 years.