Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

8. STOCK-BASED COMPENSATION

Stock-based compensation expense was recognized in the Consolidated Statements of Operations as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(In thousands)				(In thousands)
	(unaudited)				(unaudited)
General and administrative expense	$	844	$	775	$	2,845	$	2,592
	$	844	$	775	$	2,845	$	2,592

The fair value of the Company’s stock-based awards to employees was estimated at the date of grant using the Black-Scholes option-pricing model. The risk-free rate was based on the U.S. Treasury yield curve in effect at the end of the quarter in which the grant occurred. The expected term of stock options granted was estimated using the historical exercise behavior of employees. Expected volatility was based on historical volatility measured using weekly price observations of the Company’s common stock for a period equal to the stock option’s expected term.

At September 30, 2011, the Company had outstanding options that vest based on three different types of vesting schedules:

1)	Market-based;
2)	performance-based; and
3)	service-based.

Market-based awards entitle participants to vest in a number of options determined by achievement by the Company of certain target market capitalization increases (measured by reference to stock price increases on a specified number of outstanding shares) over an eight-year period. The requisite service periods for the market-based awards are based on the Company’s estimate of the dates on which the market conditions will be met as determined using a Monte Carlo simulation model. Compensation expense is recognized over the requisite service periods using the straight-line method but is accelerated if market capitalization targets are achieved earlier than estimated. During the nine months ended September 30, 2011 and 2010, respectively, the Company did not issue any market-based options to employees. During the nine months ended September 30, 2011 and 2010, respectively, 110 thousand and 11 thousand options vested based on achievement of market capitalization targets. The Company recorded compensation expense related to market-based options of $0.3 million and $0.4 million for the three months ended September 30, 2011 and 2010, respectively and $1.2 million for both the nine months ended September 30, 2011 and 2010. Depending on the Company’s stock performance, the maximum number of unvested shares at September 30, 2011 attainable under these option grants was 1.1 million shares.

Performance-based awards entitle participants to vest in a number of awards determined by achievement by the Company of target capital returns based on net cash proceeds received by the Company on the sale, merger or other exit transaction of certain identified partner companies. Vesting may occur, if at all, once per year. The requisite service periods for the performance-based awards are based on the Company’s estimate of when the performance conditions will be met. During the nine months ended September 30, 2011 and 2010, respectively, the Company issued 193 thousand and zero performance-based options to employees. During the nine months ended September 30, 2011 and 2010 respectively, 56 thousand and zero performance-based options vested. Compensation expense is recognized for performance-based awards for which the performance condition is considered probable of achievement. Compensation expense is recognized over the requisite service periods using the straight-line method but is accelerated if capital return targets are achieved earlier than estimated. The Company recorded compensation expense related to performance-based options of $0.1 million and $0.0 million for the three months ended September 30, 2011 and 2010, respectively and $0.3 million and $0.1 million for the nine months ended September 30, 2011 and 2010, respectively. The maximum number of unvested shares at September 30, 2011 attainable under these option grants was 756 thousand shares.

All other outstanding options are service-based awards that generally vest over four years after the date of grant and expire eight years after the date of grant. Compensation expense is recognized over the requisite service period using the straight-line method. The requisite service period for service-based awards is the period over which the award vests. During the nine months ended September 30, 2011 and 2010, respectively, the Company issued 121 thousand and 45 thousand service-based options to employees. The Company recorded compensation expense related to service-based options of $0.2 million for both the three months ended September 30, 2011 and 2010, and $0.7 million and $0.8 million for the nine months ended September 30, 2011 and 2010, respectively.

During the nine months ended September 30, 2011 and 2010, respectively, the Company issued 61 thousand and zero performance-based stock units to employees which vest based on achievement by the Company of target capital returns based on net cash proceeds received by the Company on the sale, merger or other exit transaction of certain identified partner companies, as described above related to performance-based option awards. Performance-based stock units represent the right to receive shares of the Company’s common stock, on a one-for-one basis. During the nine months ended September 30, 2011 and 2010, respectively, the Company issued 20 thousand and zero restricted shares to employees. The restricted shares issued vest 25% on the first anniversary of grant and the remaining 75% thereafter in equal monthly installments over the next two or three years, as applicable.

During the nine months ended September 30, 2011 and 2010, respectively, the Company issued 25 thousand and 29 thousand deferred stock units to non-employee directors for annual service grants or fees earned during the preceding quarter. Deferred stock units issued in lieu of directors fees are 100% vested at the grant date; matching deferred stock units equal to 25% of directors’ fees deferred vest one year following the grant date or, if earlier, upon reaching age 65. Deferred stock units are payable in stock on a one-for-one basis. Payments related to the deferred stock units are generally distributable following termination of employment or service, death or permanent disability.

Total compensation expense for deferred stock units, performance-based stock units and restricted stock was approximately $0.2 million and $0.1 million for the three months ended September 30, 2011 and 2010, respectively, and $0.6 million and $0.5 million for the nine months ended September 30, 2011 and 2010, respectively.