10. Stock-Based Compensation

Stock Option Plans

In September 1999, the Company approved a stock option plan (the “1999 Plan”) that provides for the issuance of up to 12,384,646 shares of common stock incentives. The 1999 Plan provides for the granting of incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), and stock grants. These incentives may be offered to the Company’s employees, officers, directors, consultants, and advisors, as defined. ISOs may not be granted at less than fair market value on the date of grant, as determined by the Company’s Board of Directors (the “Board”). Each option shall be exercisable at such times and subject to such terms as determined by the Board; grants generally vest over a four year period, and expire no later than ten years after the grant date.

In April 2007, the Board approved the 2007 Stock Option and Incentive Plan (the “2007 Plan”), which was approved by the stockholders and became effective upon the consummation of the Company’s IPO in May 2007. Effective upon the consummation of the IPO, no further awards were made pursuant to the 1999 Plan, but any outstanding awards under the 1999 Plan will remain in effect and will continue to be subject to the terms of the 1999 Plan. The 2007 Plan allows the Company to grant ISOs, NSOs, stock appreciation rights, deferred stock awards, restricted stock and other awards. Under the 2007 Plan, stock options may not be granted at less than fair market value on the date of grant, and grants generally vest over a four year period. Stock options granted under the 2007 Plan expire no later than ten years after the grant date. The Company has reserved for issuance an aggregate of 2,911,667 shares of common stock under the 2007 Plan plus an additional annual increase to be added automatically on January 1 of each year, beginning on January 1, 2008, equal to the lesser of (a) 2% of the outstanding number of shares of common stock (on a fully-diluted basis) on the immediately preceding December 31 and (b) such lower number of shares as may be determined by the Company’s compensation committee. The number of shares available for issuance under the 2007 Plan is subject to adjustment in the event of a stock split, stock dividend or other change in capitalization. Generally, shares that are forfeited or canceled from awards under the 2007 Plan also will be available for future awards. To date, approximately 5.9 million shares have been added to the 2007 Plan in accordance with the automatic annual increase. In addition, shares subject to stock options returned to the 1999 Plan, as a result of their expiration, cancellation or termination, are automatically made available for issuance under the 2007 Plan. As of December 31, 2013 a total of 1,319,233 shares were available for grant under the 2007 Plan.

Accounting for Stock-Based Compensation

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. The Company calculated the fair values of the options granted using the following estimated weighted-average assumptions:


	Years Ended December 31,
	2013	2012	2011
Expected volatility	67%	88%	79%-81.4%
Expected term	5 years	5 years	6.25 years
Risk-free interest rate	0.58%	0.36%	0.9%-2.3%
Expected dividend yield	—%	—%	—%
Weighted-average grant date fair value per share	$3.89	$3.63	$4.72

As there was no public market for the Company’s common stock prior to the Company’s IPO in May 2007 and, until recently, limited historical information on the volatility of its common stock since the date of the Company’s IPO, the Company has historically determined the volatility for options granted based on an analysis of the Company’s stock and reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted in 2013 has been determined using a weighted average of the historical volatility of the Company’s stock for a period equal to the expected life of the option; a combined historical volatility of the Company’s stock and the peer group of companies was used in prior years. The expected life of options has been determined utilizing the “simplified” method. The risk-free interest rate is based on a zero coupon United States treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. The Company applied an estimated annual forfeiture rate based on its historical forfeiture experience of 4.44%, 4.17% and 3.6% in determining the expense recorded in 2013, 2012, and 2011, respectively.

A summary of the stock option activity under the Company’s stock option plan for the year ended December 31, 2013 is presented below:


	Options Outstanding			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term in Years		Aggregate Intrinsic Value
Options outstanding at December 31, 2012		5,486,687		$	6.88
Granted		10,000			7.03
Exercised		(566,838	)		2.75
Forfeited		(33,125	)		6.44
Canceled		(429,476	)		7.98

Options outstanding at December 31, 2013		4,467,248		$	7.30		3.4	$	2,416

Options exercisable at December 31, 2013		4,427,873		$	7.30		3.3	$	2,411

Options vested or expected to vest at December 31, 2013(1)		4,462,875		$	7.30		3.4	$	2,415

(1)	In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.

During the years ended December 31, 2013, 2012 and 2011, the total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) was $1.4 million, $0.2 million and $3.8 million, respectively, and the total amount of cash received by the Company from exercise of these options was $1.6 million, $0.8 million and $2.8 million, respectively. The total grant date fair value of stock options granted after January 1, 2006 that vested during the years ended December 31, 2013, 2012 and 2011 was $0.7 million, $1.5 million and $2.5 million, respectively.

Restricted Stock Awards

Restricted stock awards are valued at the market price of a share of the Company’s common stock on the date of the grant. A summary of the restricted stock award activity under the 2007 Plan for the year ended December 31, 2013 is presented below:


	Shares			Weighted-Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Nonvested outstanding at December 31, 2012		2,992,187		$	5.16
Granted		864,695			5.63
Vested		(949,382	)		5.28
Forfeited		(130,000	)		5.30

Nonvested outstanding at December 31, 2013		2,777,500		$	5.26	$	19,054

The total grant-date fair value of restricted stock awards that vested during the years ended December 31, 2013, 2012 and 2011 was $5.0 million, $4.2 million and $6.0 million, respectively. As of December 31, 2013, there was $12.5 million of total unrecognized compensation expense related to stock options and restricted stock awards which is expected to be recognized over a weighted average period of 2.2 years.