13.

Stock-Based Compensation

Stock-based compensation arrangements

On March 17, 2011, the board of directors of the Company adopted the 2011 EIP that became effective upon stockholder approval on June 2, 2011, and replaced the 2002 EIP in advance of its expiration as the sole plan for providing stock-based incentive compensation to eligible employees and consultants.

All outstanding stock awards granted under the 2002 EIP continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the 2002 EIP. On the effective date of the 2011 EIP, a total of six million newly approved shares of Class A common stock became available for grant under the 2011 EIP and any shares remaining available for new grants under the 2002 EIP on the effective date of the 2011 EIP became available for issuance under the 2011 EIP. In addition, any shares subject to outstanding stock awards granted under the 2002 EIP that expire or terminate for any reason prior to exercise or settlement or are forfeited because of the failure to meet a contingency or condition required to vest such shares or are reacquired or withheld by the Company to satisfy a tax withholding obligation or as consideration for the exercise of a stock option shall become available for issuance pursuant to awards granted under the 2011 EIP.

The Company’s 2002 Non-Employee Plan, as amended and restated to date, was unaffected by the adoption of the 2011 EIP and remains the primary plan pursuant to which stock-based incentive compensation is granted to the Company’s non-employee directors.

The Company currently has outstanding two types of stock-based compensation awards to its employees, directors and certain consultants: stock options and RSUs. Both stock options and RSUs can be used to acquire shares of the Company's Class A common stock, are exercisable or convertible, as applicable, over a period not to exceed ten years, and are most commonly assigned four-year vesting periods. The Company does not currently have any outstanding RSAs. The Company also has an employee stock purchase plan (“ESPP”).

On August 26, 2009, the stockholders of the Company approved a stock option exchange program, as described in the Company’s definitive proxy statement filed with the Securities and Exchange Commission (“SEC”) on July 15, 2009. Under the option exchange program (the “Offer”), the Company offered to exchange, for new lower-priced options, certain outstanding options previously granted under either its 2002 Equity Incentive Plan or 2002 Non-Employee Plan or under two non-plan options held by its CEO. Option holders eligible to participate in the Offer to exchange tendered, and the Company accepted for cancellation, options to purchase an aggregate of 6,372 shares of the Company’s Class A common stock from 214 participants, representing 96.5% of the total shares of Class A common stock underlying options eligible for exchange in the Offer.

In accordance with the Offer, except as described below for the Company’s CEO and members of the board of directors, the number of shares subject to each new option grant was determined using an exchange ratio designed to maintain approximately the same fair value, for accounting purposes, of the new option grant (at the time of grant) as the fair value of the corresponding eligible option grants surrendered for exchange (at the time immediately prior to cancellation). Accordingly, the Company granted new options to purchase an aggregate of 3,595 shares of Class A common stock in exchange for the cancellation of the tendered eligible options.

The exchange ratios were calculated using a Monte-Carlo simulation based on the closing price of the Class A common stock as reported on the NYSE for the business day prior to the expiration date of the Offer on August 26, 2009, which was $3.79 (the “Market Price”), as well as other valuation assumptions such as expected term, volatility, risk-free interest rate, and probabilities of exercise and forfeiture. The exercise price per share of the new options other than those granted to the CEO and directors was the Market Price. In the case of any new option grants issued to the Company’s CEO and directors, while the exercise price of such options was $6.25, the exchange ratio was determined using the Market Price to calculate the value of the new option grants, with the result that these individuals received grants covering fewer shares than they would have received had the value of the new option grants been calculated using $6.25. The exchange was designed to result in no additional compensation expense.

During the second quarter of 2009, the Company granted options to certain executives and board members to purchase an aggregate of 2,705 shares of its Class A common stock that vest based upon a service condition and a market condition. Based on the existence of the market condition requirement for vesting, the fair value of these stock options was estimated on the date of the grant using a Monte-Carlo simulation. The simulation generates a defined number of stock price paths to develop a reasonable estimate of future expected stock price ranges based on vesting requirements and the assumed exercise behavior of the grants. The model assumes options will be exercised uniformly over the remaining life if and when the vesting and market conditions are met. All other assumptions are consistent with option grants that vest solely upon a service condition.

There were no stock options grants valued using a Monte-Carlo simulation during the fiscal years ended December 31, 2011 and 2010.

The Company is authorized to issue up to a total of 24,000 shares of Class A common stock for any of the types of awards authorized under the 2011 EIP, 2002 EIP or 2002 Non-Employee Plan. At December 31, 2011, the remaining availability for future grants was 9,535 for stock-based awards and 1,361 for the ESPP.

Valuation of Stock-based compensation

The Company calculates employee stock-based compensation expense based on those awards ultimately expected to vest and reduces compensation expense as necessary for estimated forfeitures. Stock-based compensation expense is a non-cash charge to employee compensation expense and a credit to additional paid-in capital.

Stock Options

Stock-based compensation expense is calculated based on the fair value of each award on the grant date. In general, the fair value for stock option grants with only a service condition is estimated using the Black-Scholes option pricing model. The fair value for stock option grants with both a service and market condition is estimated using the Monte-Carlo simulation.

The assumptions underlying the calculation of grant date fair value of the stock options using the Black-Sholes option pricing model comprise:

Volatility: Expected stock price volatility is based on the Company’s historical stock prices over the most recent period commensurate with the estimated expected term of the stock options.

Risk-Free Interest Rate: The risk-free interest rate is based on the yield of the treasury security at grant date with a maturity closest to the expected term of the stock option.

Expected Term: The expected life of the options represents the period of time the options are expected to be outstanding.

Expected Dividend: The dividend yield is zero as the Company does not pay dividends.

Annual Forfeiture Rate: When estimating pre-vesting forfeitures, the Company considers voluntary termination behavior as well as potential future workforce reduction programs. Through August 2010, the Company reflected the impact of forfeitures for stock options in expense only when they actually occurred based on analyses showing that the majority of all stock options vested on a monthly basis. Beginning September 2010, based on a shift in granting practice toward more options with longer vesting periods, the Company applied a forfeiture rate of 11% based on historical experience.

The underlying assumptions of a Monte-Carlo simulation are very similar to the Black-Scholes option pricing model in that they are both distributions of future stock price scenarios. However, a Monte-Carlo simulation allows for more customized modeling than the Black-Scholes formula which utilizes a few simplifying assumptions allowing it to be a closed-end formula.

The assumptions used in the Black-Scholes option valuation model and the weighted average grant date fair value per share for the three years ended December, 31, 2011, 2010 and 2009 were as follows:

	Years Ended December 31,
	2011			2010			2009
Estimate of fair value for total awards using Black-Scholes	$	4,075		$	2,169		$	2,497
Expected term (years)		4.86			5.64			6.12
Volatility		58.5	%		56.5	%		51.8	%
Risk-free interest rate		1.7	%		2.3	%		2.5	%
Expected dividend yield		-	%		-	%		-	%

There were no stock option grants valued using a Monte-Carlo simulation during the fiscal year ended December 31, 2011 and 2010. During the second quarter of 2009, fair value for those options granted with vesting based upon a service condition and a market condition, the fair value of which was $12,955, was estimated using the Monte-Carlo simulation with an expected term of 3.25 years, volatility of 55.0%, risk-free interest rate of 1.52% and zero expected dividend yield.

RSUs and RSAs

RSAs and RSUs are payable in shares of the Company’s Class A common stock. The fair value of these stock-based awards is equal to the closing market price of the Company’s stock on the date of grant. The grant date fair value is recognized on a straight-line basis in compensation expense over the vesting period of these stock-based awards, which is generally four years.

With regard to RSUs, a forfeiture assumption of approximately 20% is currently being used, reflecting historical and expected future forfeiture rate.

ESPP

Effective September 1, 2011, the Company increased the discount from the fair market value of the Company’s common stock offered to participants from 5% to 15%, which resulted in stock-based compensation expense due to departure from the IRS safe harbor. The fair value of shares granted under the ESPP was $132 as of December 31, 2011, estimated using the expected term of 0.5 years, volatility of 44.2%, risk-free interest rate of 0.05%, zero forfeiture rate and zero expected dividend yield.

Non-Employee Stock-Based Awards

Stock-based compensation arrangements with non-employees are accounted for using a fair value approach. The compensation costs resulting from these arrangements are subject to re-measurement over the vesting terms.

Impact of Stock-based compensation

The following table summarizes stock-based compensation expense charged to SG&A and research and development (“R&D”) expense for the three years ended December 31, 2011, 2010 and 2009:

	Years Ended December 31,
	2011			2010		2009
SG&A:
Stock options	$	1,912	*	$	2,723	$	7,952
RSUs		2,876			2,164		1,316
ESPP		89			-		-
Total SG&A		4,877			4,887		9,268
R&D:
Stock options		434			741		769
RSUs		251			544		659
Total R&D		685			1,285		1,428
Total expense	$	5,562		$	6,172	$	10,696

Amount includes the reversal of $950 in stock option compensation expense in connection with the departure of certain senior level employees including the former Chief Executive Officer.

Stock-based compensation expense related to RSUs is calculated based on the market price of the Company’s common stock on the grant date. The total market value of RSUs and stock awards granted in 2011, 2010 and 2009 as measured on the grant date was $2,750 $7,989 and $147, respectively.

Stock plan activity

Stock Options

The activity in the Company’s stock option plan for the years ended December 31, 2011, 2010 and 2009 was as follows:

	Number of Shares			Weighted Average Exercise Price		Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding at December 31, 2008		8,119		$	10.96		7.55	$	-
Grants		7,805		$	3.82
Retired or forfeited		(7,921	)	$	10.99
Outstanding at December 31, 2009		8,003		$	3.97		8.23	$	258
Grants		763		$	5.36
Exercises		(583	)	$	3.13
Retired or forfeited		(1,929	)	$	3.95
Outstanding at December 31, 2010		6,254		$	4.22		6.11	$	9,870
Grants		1,939	*	$	4.18
Exercises		(944	)	$	3.09
Retired or forfeited		(2,045	)**	$	5.24
Outstanding at December 31, 2011		5,204		$	4.01		7.22	$	8,817

Vested and exercisable at December 31, 2011		2,675		$	3.93		5.64	$	4,991
Vested and exercisable at December 31, 2010		3,870		$	4.42		4.57	$	5,681

Amount includes 850 option shares granted to the Company's current Chief Executive Officer in connection with his hiring as an officer and employee of the Company.

Amount includes 264 option shares forfeited by the former Chief Executive Officer in connection with his resignation as an officer and employee of the Company.

Stock options outstanding that are expected to vest are shown net of estimated future option forfeitures. The price of a share of the Company’s Class A common stock was $5.59 and $5.55 as of December 31, 2011 and 2010, respectively. As of December 31, 2011, options to purchase 2,675 shares of Class A common stock with an intrinsic value of $4,991 were fully vested. As of December 31, 2011, unrecognized compensation cost related to stock options granted under the Plans totaled $4,528. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.58 years.

The table below shows information by range of exercise prices for the Company’s outstanding stock options as of December 31, 2011:

	Options Outstanding						Options Exercisable
	Number of Shares		Weighted Average Exercise Price		Average Remaining Contractual Life in Years		Number of Shares		Weighted Average Exercise Price
$1.41 - $2.99		1,191	$	2.54		6.66		915	$	2.49
$3.00 - $3.92		1,594	$	3.77		6.59		965	$	3.80
$3.93 - $4.99		1,768	$	4.32		8.85		290	$	4.16
$5.00 - $5.96		202	$	5.50		7.17		91	$	5.57
$5.97 - $19.74		449	$	6.89		4.51		414	$	6.91
Total		5,204	$	4.01		7.22		2,675	$	3.93

These options will expire if not exercised by specific dates through December 2021. During the year ended December 31, 2011, 1,184 stock options expired and were cancelled.

RSUs and RSAs

The activity in the Company’s RSUs and RSAs for the years ended December 31, 2011, 2010 and 2009 was as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2008		918		$	8.72
Grants		59		$	2.47
Vested		(314	)	$	9.51
Retired or forfeited		(142	)	$	8.39
Nonvested at December 31, 2009		521		$	8.16
Grants		1,313		$	6.08
Vested		(167	)	$	8.06
Retired or forfeited		(136	)	$	6.21
Nonvested at December 31, 2010		1,531		$	6.54
Grants		672	*	$	4.09
Vested		(505	)	$	6.45
Retired or forfeited		(514	)**	$	6.01
Nonvested at December 31, 2011		1,184		$	5.41

Vested and deferred at December 31, 2011		85		$	10.78
Vested and deferred at December 31, 2010		85		$	10.78

Amount includes 150 RSUs granted to the Company's current Chief Executive Officer in connection with his hiring as an officer and employee of the Company.

Amount includes 78 RSUs forfeited by the former Chief Executive Officer in connection with his resignation as an officer and employee of the Company.

As of December 31, 2011, unrecognized compensation cost related to RSUs and RSAs granted under the Plans totaled $3,514. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.04 years.