Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

(12) Stock-Based Compensation

We offer stock-based compensation through the use of stock options and restricted stock units (“RSUs”). We grant stock options to employees and directors under our equity-based compensation plans with exercise prices that are not less than the fair market value of our common stock at the date of grant. The terms of the stock option and RSU awards, including the vesting schedule of such awards, are determined at our discretion subject to the terms of the applicable equity-based compensation plan. Options granted over the last several years have generally been exercisable in four or five equal installments beginning on the first anniversary of the date of grant with a maximum term of ten years. RSUs typically vest in four or five equal installments beginning on the first anniversary of the date of grant or when certain performance targets are met. There are 13,500 shares of common stock authorized for awards under our 2003 Incentive Compensation Plan (the “Plan”) plus available shares from a preexisting equity-based compensation plan, which plans were approved by our stockholders. We also have outstanding stock options granted as part of inducement stock option awards that were not approved by stockholders as permitted by applicable stock exchange rules. We record compensation cost for all stock options and RSUs based on the fair value at the grant date.

The Company may grant certain awards the vesting of which is contingent upon the Company achieving certain performance targets. Upon determining that the performance target is probable, the fair value of the award is recognized over the service period, subject to potential adjustment.

In connection with A. Lorne Weil becoming Chief Executive Officer, the Company entered into an amendment to his employment agreement effective December 2, 2010. Pursuant to the amendment, the Company awarded to Mr. Weil sign-on equity awards consisting of 1,000 stock options with an exercise price of $9.00 per share (representing an approximately 12% premium to the market value of our common stock on the date of grant) and a ten-year term and 1,000 RSUs, which awards have a four-year vesting schedule, with 25% scheduled to vest on December 31, 2011 and on each of the next three anniversaries of such date (such options and RSUs, the “time-vesting equity awards”).  Mr. Weil was also awarded additional performance-conditioned awards consisting of 1,000 stock options with an exercise price of $8.06 per share (representing the market value of our common stock on the date of grant) and 1,000 RSUs, which awards have a five-year vesting schedule, with 20% of such options and RSUs scheduled to vest each year if specified performance targets are met (subject to certain “carryover” vesting provisions as described in the employment agreement amendment) (such performance-conditioned stock options and RSUs, the “performance-conditioned equity awards”). Delivery of shares in respect of any vested performance-vesting RSUs will occur on March 15, 2016. The performance-conditioned stock options will expire, and the performance-conditioned RSUs will be forfeited, on March 15, 2016 to the extent that such awards remain unvested on such date. Any performance-conditioned stock options that have vested by March 15, 2016 will expire ten years from the date of grant.

In light of the shares that have been returned to the pool of available shares under the Plan as a result of the completion of the stock option exchange offer described below, on August 18, 2011, the Company entered into an amendment to its employment agreement with Mr. Weil to eliminate (1) the Company’s cash settlement obligation in respect of 200 time-vesting stock options and 500 time-vesting RSUs granted to Mr. Weil on December 2, 2010 that would have been triggered by the unavailability of shares under the Plan and (2) the non-exercisability and forfeiture provisions in respect of the 1,000 performance-conditioned stock options and the 1,000 performance-conditioned RSUs granted to Mr. Weil on December 2, 2010 that would have been triggered by the unavailability of shares under the Plan.  All other terms of Mr. Weil’s employment agreement relating to such equity awards (including the service and performance-based conditions to vesting, exercise and settlement thereof), as set forth in Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 3, 2010, are unchanged and remain in full force and effect.

The elimination of the cash settlement obligation in respect of certain of Mr. Weil’s awards as described above resulted in the re-classification of such awards from liability awards (i.e., where the award’s fair value, which determines the measurement of the liability on the balance sheet, is re-measured at each reporting period until the award is settled, with fluctuations in the fair value recorded as increases or decreases in compensation expense) to equity awards (i.e., where the compensation expense related to the award is fixed at the grant date based on the award’s grant-date fair value).  The Company began recognizing compensation expense associated with Mr. Weil’s performance-conditioned equity awards during the third quarter.  Neither the performance targets associated with such awards nor the expensing of such awards is necessarily indicative of the Company’s future results generally or for any period.

In January 2011, the Company awarded an aggregate of 475 equity awards to certain officers consisting of approximately 113 performance-conditioned stock options, approximately 113 time-vesting stock options (with an exercise price of $10.02 per share and a ten-year term) and 250 time-vesting stock options (with an exercise price of $9.98 per share and a ten-year term). In light of the shares that have been returned to the pool of available shares under the Plan as a result of the completion of the stock option exchange offer described below, on August 18, 2011, the Company entered into amendments to its employment agreements with such officers to eliminate the non-exercisability and forfeiture provisions of such awards that would have been triggered by the unavailability of shares under the Plan.  As a result of the elimination of such non-exercisability and forfeiture provisions, the Company began recognizing the compensation expense of the approximately 363 time-vesting stock options, which was not material to our Consolidated Statements of Operations.

The equity awards that otherwise would have been forfeited or not exercisable and the equity awards that otherwise would have been settled in cash, as the case may be, to the extent that sufficient shares were not available under the Plan at the time of delivery of the underlying shares, were not deemed to be granted for accounting purposes as stock-based equity awards until the elimination of such forfeiture, non-exercisability and cash settlement provisions effective on August 18, 2011 (and were not reflected in the tables below as granted or outstanding prior to such date). We had approximately 1,334 and 2,119 shares available for grants of equity awards under our equity-based compensation plans (excluding 480 and 514 shares available under our employee stock purchase plan) as of September 30, 2011 and December 31, 2010, respectively.

Stock Option Exchange Program

On August 16, 2011, pursuant to its stockholder-approved stock option exchange offer, the Company accepted for exchange (and cancelled) options to purchase an aggregate of 4,918 shares of the Company’s common stock (representing 97% of the total number of options eligible for exchange in the exchange offer) and, in exchange therefor, granted a total of 663 RSUs under the Plan.  Under the terms of the exchange offer, eligible employees (including executive officers) and directors could exchange all (but not less than all) of their outstanding stock options with an exercise price greater than $11.99 that were granted before July 19, 2010, whether vested or unvested, for a lesser number of new RSUs based on the exchange ratios that were established in order to comply with the terms of the option exchange approved by our stockholders. The RSUs granted in connection with the exchange offer are scheduled to vest on the later of August 16, 2012 or the date on which the corresponding option would have vested.  The option exchange offer did not result in significant incremental stock-based compensation expense.  For additional information regarding the stock option exchange offer, see the Tender Offer Statement on Schedule TO filed by the Company with the SEC on July 19, 2011, as amended on August 5, 2011 and August 16, 2011, and the Current Report on Form 8-K filed by the Company with the SEC on August 18, 2011.

Stock Options

A summary of the changes in stock options outstanding under our equity-based compensation plans during the nine months ended September 30, 2011 is presented below:

	Number of Options		Weighted Average Remaining Contract Term (Years)	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Options outstanding as of December 31, 2010	6,751		6.0	$	20.72	$	1,814
Granted	754
Exercised	(2	)				15
Cancelled	(307	)
Options outstanding as of March 31, 2011	7,196		6.4	19.42		654
Granted	20
Exercised	(2	)				11
Cancelled	(51	)
Options outstanding as of June 30, 2011	7,163		6.1	19.41		3,288
Granted	1,720
Exercised	—					—
Cancelled	(4,967	)
Options outstanding as of September 30, 2011	3,916		8.2	9.72		150
Options exercisable as of September 30, 2011	551		1.7	$	14.26	$	150

The weighted-average grant date fair value of options granted during the three months ended September 30, 2011, June 30, 2011 and March 31, 2011 was $3.90, $4.61 and $4.62, respectively. For the three and nine months ended September 30, 2011, we recognized stock-based compensation expense of approximately $1,500 and $4,900, respectively, related to the vesting of stock options and the related tax benefit of approximately $600 and $1,800, respectively. For the three and nine months ended September 30, 2010, we recognized stock-based compensation expense of approximately $1,800 and $5,800, respectively, related to the vesting of stock options and the related tax benefit of approximately $700 and $2,300, respectively.

As of September 30, 2011, we had unrecognized compensation expense of approximately $12,000 relating to stock option awards that will be amortized over a weighted-average period of approximately two years.

Restricted Stock Units

A summary of the changes in RSUs outstanding under our equity-based compensation plans during the nine months ended September 30, 2011 is presented below:

	Number of Restricted Shares		Weighted Average Grant Date Fair Value Per Share
Non-vested units as of December 31, 2010	2,440		$	15.13
Granted	917		8.92
Vested	(482	)	18.43
Cancelled	(16	)	15.52
Non-vested units as of March 31, 2011	2,859		$	12.58
Granted	32		9.47
Vested	(44	)	25.31
Cancelled	(26	)	13.66
Non-vested units as of June 30, 2011	2,821		$	12.34
Granted	2,305		8.38
Vested	(22	)	18.31
Cancelled	(52	)	13.10
Non-vested units as of September 30, 2011	5,052		$	10.50

For the three and nine months ended September 30, 2011, we recognized stock-based compensation expense of approximately $4,100 and $10,300 related to the vesting of RSUs and the related tax benefit of approximately $1,600 and $3,900,  respectively. For the three and nine months ended September 30, 2010, we recognized equity-based compensation expense of approximately $3,000 and $11,500, respectively, related to the vesting of RSUs and the related tax benefit of approximately $1,200 and $4,500, respectively.

As of September 30, 2011, we had unrecognized compensation expense of approximately $42,000 relating to RSUs that will be amortized over a weighted-average period of approximately two years.