Note 11—Share-Based Compensation

In 2011, the Company adopted its 2011 Incentive Plan, pursuant to which up to an aggregate of 7.75 million shares of the Company’s common stock may be issued. Awards may be granted as incentive and non-statutory stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards, performance-based stock option and restricted stock awards, and other forms of equity-based and cash incentive compensation. Under this plan, 1,607,221 shares remain available for issuance pursuant to future grants at September 30, 2013.

Total compensation cost charged against operations was $1.2 million for each of the three-month periods ended September 30, 2013 and 2012. Total compensation cost charged against operations for the nine-month periods ended September 30, 2013 and 2012 was $3.3 million and $5.2 million, respectively. The following table summarizes the components of share-based compensation expense in the consolidated statements of operations for the three and nine-month periods ended September 30, 2013 and 2012:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(In thousands)
Research and development	$	337	$	249	$	876	$	1,011
Selling, general and administrative		903		936		2,380		4,154

Total non-cash compensation expense related to share-based compensation included in operating expense	$	1,240	$	1,185	$	3,256	$	5,165

Stock Options

The weighted-average key assumptions used in determining the fair value of stock options granted for the three and nine-month periods ended September 30, 2013 and 2012 were as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013			2012
Weighted-average volatility		—		100	%		106.9	%		96	%
Weighted-average risk-free interest rate		—		0.9	%		0.8	%		0.9	%
Weighted-average expected life in years		—		5.6			4.9			5.5
Dividend yield		—		0.0	%		0.0	%		0.0	%
Weighted-average grant date fair value per share		—	$	1.38		$	0.73		$	1.30

Historical information is the primary basis for the selection of the expected volatility of options granted. The risk-free interest rate is selected based upon yields of United States Treasury issues with a term equal to the expected life of the option being valued. The expected term of options granted is derived from the output of a lattice option valuation model and represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise behavior and employee termination within the valuation model.

The Company did not issue any shares of common stock upon the exercise of stock options for the three and nine-month periods ended September 30, 2013 and 2012. For the three-month periods ended September 30, 2013 and 2012, approximately $0.8 million and $0.3 million, respectively, of stock option compensation expense was charged against operations. For the nine-month periods ended September 30, 2013 and 2012, approximately $1.8 million and $3.5 million, respectively, of stock option compensation expense was charged against operations. As of September 30, 2013, there was $1.9 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unamortized stock option compensation which is expected to be recognized over a weighted-average period of approximately 1.85 years.

The following table summarizes the activity related to the Company’s stock options for the nine-month period ended September 30, 2013:


	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in yrs)		Aggregate Intrinsic Value of In-the-Money Options
	(In thousands, except weighted-average data)
Outstanding at December 31, 2012		4,027		$	5.16		7.76	$	208
Granted		1,289			0.95		—		—
Exercised		—			—		—		—
Cancelled		(953	)		2.99		—		—

Outstanding at September 30, 2013	$	4,363		$	4.38		7.76	$	14

Exercisable at September 30, 2013		2,480		$	5.56		6.78	$	9

The aggregate intrinsic value in the previous table reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on September 30, 2013. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s common stock.

Stock Options that Contain Performance and Market-Based Conditions

For the three-month period ended September 30, 2013 the company did not recognize any compensation expense related to stock options that contain performance or market based conditions, or performance options. For the nine-month period ended September 30, 2013 approximately $26,000 of compensation expense related to performance options was charged against operations. For the three-month period ended September 30, 2012 approximately $1,000 of compensation expense related to performance options was charged against operations. For the nine-month period ended September 30, 2012 the company recognized approximately $0.5 million of income as a result of reversal of previous recorded performance option related compensation expense. As of September 30, 2013, approximately 533,000 performance options remain unvested.

The following table summarizes the activity related to the Company’s performance options for the nine-month period ended September 30, 2013:


	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in yrs)		Aggregate Intrinsic Value of In-the-Money Options
	(In thousands, except weighted-average data)
Outstanding at December 31, 2012		953		$	3.73		9.30	$	74
Granted		—			—		—		—
Exercised		—			—		—		—
Cancelled		(420	)		3.13		—		—

Outstanding at September 30, 2013		533		$	4.20		8.52	$	—

Exercisable at September 30, 2013		358		$	4.21		8.28	$	—

Restricted Stock and Restricted Stock Units

For the three-month periods ended September 30, 2013 the Company did not issue any restricted stock or restricted units. For the three-month period ended September 30, 2012, the Company issued 242,000 shares of restricted stock amounting to approximately $0.4 million in total aggregate fair market value. During the nine-month periods ended September 30, 2013 and 2012, the Company issued 641,933 and 1,839,000 shares of restricted stock amounting to $0.6 million and $3.4 million in total aggregate fair market value. For the three-month periods ended September 30, 2013 and 2012, approximately $0.5 million and $0.7 million, respectively, of deferred restricted stock compensation cost was charged against operations. For the nine-month periods ended September 30, 2013 and 2012, approximately $1.7 million and $2.0 million, respectively, of deferred restricted stock compensation cost was charged against operations. At September 30, 2013, approximately 1,193,120 shares remained unvested and there was approximately $1.9 million of unrecognized compensation cost related to restricted stock and restricted stock units, or RSU’s.

The following table summarizes the activity related to the Company’s restricted stock and RSU’s for the nine-month period ended September 30, 2013:


	Number of Shares			Weighted-Average Grant Date Fair Value Per Share
	(Shares in thousands)
Unvested at December 31, 2012		1,830		$	2.74
Granted		642			0.94
Vested		(1,003	)		2.38
Forfeited		(276	)		1.63

Unvested at September 30, 2013		1,193		$	2.33

The total grant date fair value of restricted shares vested for the nine-month periods ended September 30, 2013 and 2012, was $2.4 million and $2.1 million, respectively.

Employee Stock Purchase Plan

In April 1998, the Company adopted its 1998 Employee Stock Purchase Plan, or the 1998 ESPP. The 1998 ESPP is qualified as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. Under the 1998 ESPP, the Company granted rights to purchase shares of common stock under the 1998 ESPP, or Rights, at prices not less than 85% of the lesser of (i) the fair value of the shares on the date of grant of such Rights or (ii) the fair value of the shares on the date such Rights are exercised. Therefore, the 1998 ESPP was considered compensatory under FASB ASC 718 since, along with other factors, it includes a purchase discount of greater than 5%. On March 27, 2013, the Company terminated the 1998 ESPP. For the three and nine-month periods ended September 30, 2013, the Company recorded minimal expense related to participation in the 1998 ESPP. For the three and nine-month periods ended September 30, 2012, the Company recorded approximately $0.1 million and $0.8 million, respectively, of compensation expense related to participation in the 1998 ESPP.