Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 14 — Stockholders’ Equity

Stock Award Plans

The Company’s 1995 Equity Incentive Plan has reserved 6,100,000 shares of common stock for issuance and permits the grant of incentive stock options, nonstatutory stock options and other forms of equity compensation. Although the 1995 Plan has expired, the outstanding stock options relating to it are fully valid.

The Company’s 2005 Equity Incentive Plan (the “2005 Plan”) has reserved 13,600,000 shares of common stock for issuance. The 2005 Plan permits the grant of incentive stock options, nonstatutory stock options, restricted stock units, performance shares and other forms of equity compensation. As of December 31, 2012, approximately 4,167,000 shares of common stock were available for future issuance under the 2005 Plan.

Under the 1995 and 2005 Plans, options are exercisable upon conditions determined by the board of directors and expire ten years from the date of grant. Options are generally granted at fair market value on the date of grant and vest over time, generally four years, or upon achievement of certain market and service conditions. See Stock-Based Compensation.  

The Company’s 1995 Nonemployee Director Stock Option Plan (the “1995 Director Plan”) had reserved 750,000 shares of common stock for issuance. The 1995 Director Plan permits the grant of nonqualified stock options to nonemployee directors. Although the 1995 Directors Plan has expired, the outstanding stock options relating to it are fully valid.

The Company’s 2004 Outside Directors Stock Option Plan (the “2004 Director Plan”) has reserved 1,765,000 shares of common stock for issuance. The 2004 Director Plan automatically grants nonqualified stock options to nonemployee directors upon their appointment or first election to the Company’s board of directors (“Initial Grant”) and annually upon their reelection to the board of directors at the Company’s Annual Meeting of Stockholders (“Annual Grant”). As of December 31, 2012, approximately 184,000 shares of common stock were available for future issuance under the 2004 Director Plan.

Under the 1995 and 2004 Director Plans, options are granted at fair market value on the date of grant and expire ten years from the date of grant. Initial Grants become exercisable in three equal annual installments beginning on the first anniversary of the date of grant, and Annual Grants become exercisable in twelve equal monthly installments from the date of grant, subject in each case to the director’s continuous service on the Company’s board of directors.

Certain stock option awards are subject to accelerated vesting if there is a change in control.

Stock-Based Compensation

The following table summarizes the stock-based compensation expenses included in our consolidated statements of income (in thousands):

	For the Year Ended
	December 31,
	2012		2011		2010
Sales and marketing	$	1,169	$	779	$	873
Research and development		212		424		257
General and administrative		2,516		1,905		1,094
	$	3,897	$	3,108	$	2,224

Compensation cost capitalized in inventory was $0.1 million, $0.1 million, and $44,000, respectively, for the years ended December 31, 2012, 2011, and 2010. There has been no income tax benefit recognized in the income statement for share-based compensation arrangements.

Valuation Assumptions

The fair value granted under the Company’s stock option and ESPP plans is estimated on the date of grant using the Black-Scholes option valuation model and the single option approach with the following weighted-average assumptions for the years ended December 31:

	2012		2011		2010
Risk-free interest rate:
Time-based stock options	0.92	%	2.34	%	2.39	%
Performance-based stock options	0.96		1.96		2.43
ESPP	0.09		0.06		0.15
Volatility factor of the market price of our common stock:
Time-based stock options	63.79	%	65.16	%	72.50	%
Performance-based stock options	63.66		65.14		72.66
ESPP	56.79		50.67		68.92
Weighted-average expected life (years):
Time-based stock options	5.21		5.28		5.03
Performance-based stock options	5.22		5.28		5.02
ESPP	0.25		0.25		0.25
Dividend yield	0.00	%	0.00	%	0.00	%

The risk-free interest rate is based on the US Treasury yield curve in effect at the time of grant. The expected dividend yield is based on the Company’s history and expectations of no dividend payouts. Expected volatility is based on the historical volatility of the Company’s stock. The expected term of options granted is derived from historical data on employee exercises and terminations.

Stock Options

The following table summarizes stock option activity as of December 31, 2012, and changes during the year then ended is presented below (in thousands, except per share and term amounts):  

	Options Outstanding
				Weighted-
		Weighted-		Average
	Number	Average		Remaining	Aggregate
	of	Exercise Price		Contractual	Intrinsic
	Shares	Per Share		Term (Years)	Value
Balance at December 31, 2009	7,939	$	2.93	6.34	$	3,181
Options forfeited	(1,223)		5.35
Options granted	1,475		3.46
Options exercised	(730)		1.87
Balance at December 31, 2010	7,461	$	2.74	6.22	$	12,034
Options forfeited	(762)		3.84
Options granted	2,504		5.06
Options exercised	(2,288)		2.71
Balance at December 31, 2011	6,915	$	3.46	6.98	$	8,130
Options forfeited	(1,536)		5.13
Options granted	1,889		6.14
Options exercised	(1,270)		2.66
Balance at December 31, 2012	5,998	$	4.05	6.06	$	5,575
Vested and expected to vest after
December 31, 2012	5,673	$	3.96	5.92	$	5,552
Exercisable at December 31, 2012	3,648	$	3.25	4.66	$	5,055

In 2008, the Company granted to its chief executive officer target-stock-price-based options to purchase 600,000 and 300,000 shares of the Company’s common stock at an exercise price per share of $2.49 and $1.81, respectively. The options have a term of 10 years and shares of such option were to vest upon the Company’s common stock trading for at least 30 consecutive calendar days at or greater than a target closing stock price as reported on The NASDAQ Stock Market, of (a) $4.50 on or before June 2, 2009 for 150,000 shares, (b) $6.00 on or before June 2, 2010 for 150,000 shares, (c) $8.00 on or before June 2, 2011 for 150,000 shares, (d) $10.00 on or before June 2, 2012 for 150,000 shares, (e) $12.00 on or before June 2, 2013 for 150,000 shares, and (f) $14.00 on or before June 2, 2014 for 150,000 shares, each price as adjusted for stock dividends, stock splits or similar changes in the Company’s capital structure. These grants were considered awards with market and service conditions and compensation expense was recognized for these options as long as the service requirements were met, even if the market conditions were not reached. Because of the market conditions of the grants, the Monte Carlo simulation option pricing model was used to calculate the grant date fair value per share of $1.70 and $0.88, respectively, related to each of the six vesting portions of these awards with the assumptions of a risk-free interest rate of 5.10% and 3.88%, respectively, a volatility factor of 94% and 89.14%, respectively, dividend yield of 0%, and an expected life of 10 years. The related compensation costs were beingexpensed over the service periods for each of the six vesting portions of the awards.

In May 2010, the Company amended the target-stock-price-based options to purchase an aggregate of 750,000 shares of the Company’s common stock that were still subject to vesting that had been granted to its chief executive officer. The amendment modified the vesting provisions of the options such that 1/36^th of the unvested stock options vest monthly over a three-year period, with initial vesting occurring on June 1, 2010. The fair value of the modified award was estimated using the Black-Scholes option valuation model with the assumptions of a risk-free rate of 2.28%, a volatility factor of 71.83%, a dividend yield of 0%, and an expected life of 5.07 years. The incremental compensation cost resulting from the modification and the remaining unrecognized compensation expense from the original award are being recognized ratably over the three-year vesting period. The Company recorded expense of $0.4 million, $0.4 million, and $0.3 million for the years ended December 31, 2012, 2011, and 2010, respectively, related to these options.

The Company has granted certain performance-based options to purchase shares of the Company’s common stock at an exercise price equal to the closing price of a share of the Company’s common stock as of the grant date. The options will fully vest upon meeting a performance goal within an established time frame. If the performance goal is met for the option within the established time frame, the option generally has a ten-year term measured from the date of grant. If the performance goal is not met within the established time frame, the option expires in its entirety. The Company recognizes expense related to a performance-based option over the period of time the Company determines that it is probable that the performance goal will be achieved. If it is subsequently determined that the performance goal is not probable of achievement, the expense related to the performance-based option is reversed. For years ended December 31, 2012, 2011, and 2010, the Company recognized approximately $36,000, $0.2 million and $0.4 million, respectively, of expense related to performance-based options.

The weighted-average fair value of stock options granted for the years ended December 31, 2012, 2011, and 2010 was $3.36, $2.79, and $2.10, respectively. The intrinsic value of options at time of exercise was $4.5 million, $5.8 million, and $1.3 million, for the years ended December 31, 2012, 2011, and 2010, respectively. The estimated fair value of shares vested for the years ended December 31, 2012, 2011, and 2010 was $4.1 million, $3.3 million, and $1.9 million, respectively. As of December 31, 2012, unamortized compensation expense related to unvested options was approximately $5.0 million, net of forfeitures. The weighted average period over which compensation expense related to these options will be recognized is approximately 2.47 years. Cash received from stock option exercises was $3.4 million, $6.2 million, and $1.4 million for the years ended December 31, 2012, 2011, and 2010, respectively.

RSUs

The following table summarizes RSU activity as of December 31, 2012, and changes during the year then ended is presented below (in thousands):

	Restricted Stock Units Outstanding
	Number	Aggregate
	of	Intrinsic
	Shares	Value
Balance at December 31, 2010	—
Awarded	192
Vested/Released	—
Forfeited	(15)
Balance at December 31, 2011	177	$	758
Awarded	190
Vested/Released	(47)
Forfeited	(60)
Balance at December 31, 2012	260	$	1,121
Vested and expected to vest after
December 31, 2012	223	$	961
Ending Exercisable at December 31, 2012
(Vested and deferred)	—		—

The RSUs generally vest 25% approximately one year after grant date with the remaining shares vesting either approximately annually or quarterly in equal installments over a three year period, depending on the terms of the grant. The weighted average fair value at grant date of the RSUs was $6.49 and $5.81 for the years ended December 31, 2012 and 2011, respectively. There were no RSUs granted by the Company in any period prior to 2011. As of December 31, 2012, there was approximately $0.9 million of unrecognized compensation cost, net of forfeitures, related to non-vested RSUs, which is expected to be recognized over a weighted average remaining period of approximately 1.42 years.

Employee Stock Purchase Plan

As of December 31, 2012, 1,300,000 shares of our common stock are reserved for issuance under the Company’s Employee Stock Purchase Plan (“ESPP”). Under the terms of the ESPP, eligible employees may choose to have up to 15% of their salary withheld to purchase the Company's common stock and may purchase up to 1,000 shares per offering period. Each offering under the ESPP is for a three-month period. Commencing with the offering period beginning June 1, 2010, the purchase price of the stock issued under the ESPP will be equal to 85% of the lower of the fair market value of a share of common stock on the first day of the offering or on the final day of the offering period. As of December 31, 2012, approximately 505,821 shares of common stock were available for issuance under the ESPP.

Repurchase of Common Stock

In May and November 2012, the Company’s Board of Directors approved an increase of approximately $10.5 million and $10.0 million, respectively, to the existing $20 million share repurchase program initiated in October 2011, bringing the total authorized under the program since inception to approximately $40.5 million. The Company repurchased and retired approximately 781,000 and 4,709,000 shares at a cost of $3.5 million and $24.8 million, respectively, during the years ended December 31, 2011 and 2012. As of December 31, 2012, $12.4 million of the $40.5 million share repurchase program authorized by the Board was available for future share repurchases. Repurchased shares have been retired and constitute authorized but unissued shares.

Stockholder Rights Agreement

On December 18, 2006, the Company’s Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right (collectively, the “Rights”) for each outstanding share of the Company’s Common Stock, each Right which entitles the registered holder to purchase from the Company one one-thousandth of a share of the Company’s Series D Preferred Stock, $0.001 par value, at a price of $25.00 pursuant to a Rights Agreement dated as of December 19, 2006, between the Company and Mellon Investor Services LLC (the “Rights Agreement”). The Rights, which will initially trade with the Common Stock, become exercisable when a person or group acquires 15% or more of the Company’s Common Stock without prior board approval. In that event, the Rights permit the Company’s stockholders, other than the acquirer, to purchase the Company’s Common Stock having a market value of twice the exercise price of the Rights, in lieu of the Preferred Stock. Alternatively, when the Rights become exercisable, the Company’s Board of Directors may authorize the issuance of one share of the Company’s Common Stock in exchange for each Right that is then exercisable. In addition, in the event of certain business combinations, the Rights permit the purchase of the Common Stock of an acquirer at a 50% discount. Rights held by the acquirer will become null and void in each case. Prior to a person or group acquiring 15%, the Rights can be redeemed for $0.001 each by action of the Board. The Rights Agreement contains an exception to the 15% ownership threshold for shares currently beneficially owned by Sigma-Tau Finanziaria S.p.A. The Rights expire on December 19, 2016. The Rights Agreement includes a requirement that a committee of independent directors evaluate the Rights Agreement at least every three years.