Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity

Stockholders' Equity

6. Stockholders’ Equity

Preferred Stock

We are authorized to issue up to 15,000,000 shares of “blank check” Preferred Stock. As of December 31, 2011, there were no shares of our Series A Convertible Exchangeable five percent Preferred Stock or Series B Convertible Exchangeable five percent Preferred Stock outstanding.  We have designated Series C Junior Participating Preferred Stock but have no issued or outstanding shares as of December 31, 2011.

In December 2010, our Preferred Share Purchase Rights Plan expired.

Common Stock

At December 31, 2011 and 2010, we had 200,000,000 shares of common stock authorized, of which 100,042,976 and 99,393,780 were issued and outstanding, respectively. As of December 31, 2011, total common shares reserved for future issuance were approximately 21,833,053.

We issued 646,000 and 475,000 shares of common stock for stock option exercises and the Employee Stock Purchase Plan (“ESPP”) purchases for the years ending December 31, 2011 and 2010, respectively. We received net proceeds from these transactions of $3.6 million and $4.4 million in 2011 and 2010, respectively.

Stock Option Plans

1989 Stock Option Plan

In June 1989, our Board of Directors adopted, and the stockholders subsequently approved, a stock option plan that, as amended, provides for the issuance of non-qualified and incentive stock options for the purchase of up to 20,000,000 shares of common stock to our employees, directors, and consultants.  The plan expires in January 2014. The 1989 Plan does not allow us to grant stock bonuses or restricted stock awards and prohibits us from repricing any options outstanding under the plan unless our stockholders approve the repricing. Options vest over a four-year period, with 25 percent exercisable at the end of one year from the date of the grant and the balance vesting ratably thereafter. Options we granted after May 26, 2004 have a term of seven years while options we granted before May 26, 2004 have a term of ten years. At December 31, 2011, a total of 7,520,400 options were outstanding, of which options to purchase 4,442,537 shares were exercisable, and 3,277,145 shares were available for future grant under the 1989 plan.

2000 Broad Based Equity Incentive Plan

In January 2000, we adopted the 2000 Broad-Based Equity Incentive Plan (the “2000 Plan”), which, as amended, provided for the issuance of non-qualified stock options for the purchase of up to 5,990,000 shares of common stock to our employees, directors, and consultants. Typically options expire seven or ten years from the date of grant. Options granted under this plan generally vest over a four-year period, with 25 percent exercisable at the end of one year from the date of the grant and the balance vesting ratably thereafter.  At December 31, 2011, a total of 2,556,537 options were outstanding, of which 2,258,342 shares were exercisable, and no shares were available for future grant under the 2000 Plan.  The 2000 Plan expired on January 5, 2010, so we may no longer grant new options under the 2000 Plan.

Change of Control Under 1989 Plan and 2000 Plan

With respect to both the 1989 Plan and 2000 Plan, in the event of:

·a sale, lease or other disposition of all or substantially all of our assets;

·a merger or consolidation in which we are not the surviving corporation; or

·reverse merger in which we are the surviving corporation but the shares of common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise,

then any surviving corporation or acquiring corporation will assume any stock awards outstanding under the 2000 Plan and the 1989 Plan or will substitute similar stock awards (including an award to acquire the same consideration paid to the shareholders in the transaction for those outstanding under the 2000 Plan and the 1989 Plan). In the event any surviving corporation or acquiring corporation refuses to assume such stock awards or to substitute similar stock awards for those outstanding under the 2000 Plan and the 1989 Plan, then with respect to stock awards held by participants whose continuous service has not terminated, such stock awards automatically vest in full and the stock awards will terminate if not exercised (if applicable) at or prior to such event.

2011 Equity Incentive Plan

In March 2011, our Board of Directors adopted, and the stockholders subsequently approved, a stock option plan that provides for the issuance of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and performance cash awards.  The plan provides for the purchase of up to 2,000,000 shares of common stock for issuance to our employees, directors, and consultants.  The plan expires in June 2021. The 2011 Plan does not allow us to reduce the exercise price of any outstanding stock options or stock appreciation rights or cancel any outstanding stock options or stock appreciation rights that have an exercise price or strike price greater than the current fair market value of the common stock in exchange for cash or other stock awards unless our stockholders approve such action.  Currently we anticipate awarding only options and restricted stock units awards to our employees, directors and consultants.  Under the 2011 Plan, stock options cannot vest in a period of less than two years and restricted stock unit awards cannot vest in a period of less than three years.  In January 2012, we granted restricted stock unit awards to our employees under the 2011 Plan which vest annually over a four year period.  At December 31, 2011, no options or restricted stock units awards were outstanding or exercisable, and 2,000,000 shares were available for future grant under the 2011 Plan.

Under the 2011 Plan, we may issue a stock award with additional acceleration of vesting and exercisability upon or after a change in control.  In the absence of such provisions, no such acceleration will occur. The stock options and restricted stock unit awards we issue to our chief executive officer and chief operating officer will accelerate upon a change of control, as defined in the 2011 Plan.

Corporate Transactions and Change in Control under 2011 Plan

In the event of certain significant corporate transactions, our Board of Directors has the discretion to take one or more of the following actions with respect to outstanding stock awards under the 2011 Plan:

·      arrange for assumption, continuation, or substitution of a stock award by a surviving or acquiring entity (or its parent company);

·      arrange for the assignment of any reacquisition or repurchase rights applicable to any shares of our common stock issued pursuant to a stock award to the surviving or acquiring corporation (or its parent company);

·      accelerate the vesting and exercisability of a stock award followed by the termination of the stock award;

·      arrange for the lapse of any reacquisition or repurchase rights applicable to any shares of our common stock issued pursuant to a stock award;

·      cancel or arrange for the cancellation of a stock award, to the extent not vested or not exercised prior to the effective date of the corporate transaction, in exchange for cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and

·      arrange for the surrender of a stock award in exchange for a payment equal to the excess of (a) the value of the property the holder of the stock award would have received upon the exercise of the stock award, over (b) any exercise price payable by such holder in connection with such exercise.

2002 Non-Employee Directors’ Stock Option Plan

In September 2001, our Board of Directors adopted, and the stockholders subsequently approved, an amendment and restatement of the 1992 Non-Employee Directors’ Stock Option Plan, which provides for the issuance of non-qualified stock options to our non-employee directors. The name of the resulting plan is the 2002 Non-Employee Directors’ Stock Option Plan (the “2002 Plan”).  The 2002 Plan provides for the issuance of stock options to our non-employee directors for the purchase of up to 1,000,000 shares of our common stock.  Options under this plan expire ten years from the date of grant. Options granted become exercisable in four equal annual installments beginning one year after the date of grant. At December 31, 2011, a total of 645,000 options were outstanding, 457,500 of the shares issued were exercisable and 199,500 shares were available for future grant under the 2002 Plan.

Employee Stock Purchase Plan

In June 2009, our Board of Directors adopted, and the stockholders subsequently approved, the amendment and restatement of the 2000 ESPP and we reserved an additional 150,000 shares of common stock for issuance thereunder.  In each of the subsequent years, we reserved an additional 150,000 shares of common stock for the ESPP resulting in a total of 2,124,596 million shares authorized in the plan as of December 31, 2011.  The ESPP permits full-time employees to purchase common stock through payroll deductions (which cannot exceed 10 percent of each employee’s compensation) at the lower of 85 percent of fair market value at the beginning of the purchase period or the end of each six-month purchase period.  Under the amended and restated ESPP, employees must hold the stock they purchase for a minimum of six months from the date of purchase beginning with the offering ending in January 1, 2010.  During 2011, employees purchased and we issued to employees 98,218 shares under the ESPP at prices ranging from $7.79 to $7.91 per share. At December 31, 2011, 191,088 shares were available for purchase under the ESPP.

Stock Option Activity and Stock-Based Compensation Expense

The following table summarizes the stock option activity for the year ended December 31, 2011 (in thousands, except per share and contractual life data):

	Number of Shares		Weighted Average Exercise Price Per Share		Average Remaining Contractual Term	Aggregate Intrinsic Value
					(Years)
Outstanding at December 31, 2010	9,811		$	11.54
Granted	2,029		$	9.92
Exercised	(479	)	$	5.84
Cancelled/forfeited/expired	(639	)	$	13.18
Outstanding at December 31, 2011	10,722		$	11.39	3.81	$	2,259
Exercisable at December 31, 2011	7,158		$	11.57	2.90	$	2,245

The weighted-average estimated fair values of options granted were $4.85, $5.53 and $7.27 for the years ended December 31, 2011, 2010 and 2009, respectively. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 were $686,000, $905,000 and $9.2 million, respectively, which we determined as of the date of exercise. The amounts of cash received from the exercise of stock options were $2.8 million, $3.3 million and $11.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. For the year ended December 31, 2011, the weighted-average fair value of options exercised was $7.27. As of December 31, 2011, total unrecognized compensation cost related to non-vested stock-based compensation plans was $7.6 million. We will adjust the total unrecognized compensation cost for future changes in estimated forfeitures. We expect to recognize this cost over a weighted average period of 1.3 years.

Stock-based Valuation and Compensation Expense Information

The following table summarizes stock-based compensation expense related to employee and non-employee stock options and the ESPP for the year ended December 31, 2011, 2010 and 2009 (in thousands), which was allocated as follows:

	Year Ended December 31,
	2011		2010		2009
Research and development	$	8,527	$	10,148	$	10,977
General and administrative	1,318		2,011		2,408
Non-cash compensation expense related to stock options included in continuing operations	9,845		12,159		13,385
Non-cash compensation (benefit) expense related to stock options included in discontinued operations	—		—		(1,558		)
Total	$	9,845	$	12,159	$	11,827

Determining Fair Value

Valuation.  We utilize the Black-Scholes model as our method of valuing stock-based awards we have granted. We recognize the value of the portion of the award that we ultimately expect to vest as expense over the requisite service period as stock-based compensation expense in our consolidated statements of operations. We recognize compensation expense for all stock-based payment awards using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), an entity recognizes compensation expense over the requisite service period for each separately vesting tranche of the award as though the award were in substance multiple awards, which results in the expense being front-loaded over the vesting period.

We estimated the fair value of each stock option grant and the ESPP purchase rights on the date of grant using the Black-Scholes model with the following weighted-average assumptions (annualized percentages), which vary based on type of plan, for the years ended December 31, 2011, 2010 and 2009:

Employee Stock Options:

	December 31,
	2011		2010		2009
Risk-free interest rate	2.3	%	2.7	%	1.9	%
Dividend yield	0.0	%	0.0	%	0.0	%
Volatility	52.4	%	55.5	%	56.8	%
Expected life	5.3 years		5.1 years		4.9 years

Board of Director Stock Options:

	December 31,
	2011		2010		2009
Risk-free interest rate	2.9	%	2.7	%	3.4	%
Dividend yield	0.0	%	0.0	%	0.0	%
Volatility	52.8	%	57.7	%	61.5	%
Expected life	7.8 years		7.8 years		7.7 years

ESPP:

	December 31,
	2011		2010		2009
Risk-free interest rate	0.1	%	0.2	%	0.3	%
Dividend yield	0.0	%	0.0	%	0.0	%
Volatility	34.9	%	47.8	%	56.5	%
Expected life	6 months		6 months		6 months

Risk-Free Interest Rate.  We base the risk-free interest rate assumption on observed interest rates appropriate for the term of our stock option plans or ESPP.

Dividend Yield.  We base the dividend yield assumption on our history and expectation of dividend payouts. We have not paid dividends in the past and do not expect to in the future.

Volatility.  We use an average of the historical stock price volatility of our stock for the Black-Scholes model. We computed the historical stock volatility based on the expected term of the awards.

Expected Life.  The expected term of stock options we have granted represents the period of time that we expect them to be outstanding. For the 2002 Plan, we estimated the expected term of options we have granted based on historical exercise patterns. For the 1989 Plan and 2000 Plan, we estimated the expected term of options granted subsequent to January 1, 2008, based on historical exercise patterns.  The expected term for stock options we have granted prior to January 1, 2008 was a derived output of the simplified method.

Forfeitures.  We reduce stock-based compensation expense for estimated forfeitures.  We estimate forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  We estimate forfeitures based on historical experience. Our historical forfeiture estimates have not been materially different from our actual forfeitures.

Warrants

In April 2006, we granted the members of Symphony GenIsis Holdings LLC warrants to purchase 4.25 million shares of common stock at an exercise price of $8.93 per share.  In April 2011, Symphony GenIsis Holdings LLC exercised the remaining warrants.