Stock Incentive Plans and Warrants

12 Months Ended

Dec. 31, 2011

Stock Incentive Plans and Warrants [Abstract]

Stock Incentive Plans and Warrants

Note 8 – Stock Incentive Plans and Warrants

Stock Options

We have several stock option plans and incentive stock plans (the “Plans”) providing for the issuance of a maximum of 9,778,571 shares of common stock, which may be issued as incentive stock options (“ISOs”), nonqualified stock options, stock-settled stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), or restricted stock units (“RSUs”). Under the terms of the Plans, ISOs may not be granted at less than the fair market value on the date of grant (and in no event less than par value); in addition, ISO grants to holders of 10% of the combined voting power of all classes of Palomar stock must be granted at an exercise price of not less than 110% of the fair market value at the date of grant. Pursuant to the Plans, options are exercisable at varying dates, as determined by our board of directors, and have terms not to exceed 10 years (five years for 10% or greater stockholders). Our board of directors, in its discretion, may convert the optionee’s ISOs into nonqualified stock options at any time prior to the expiration of such ISOs.

The following table summarizes all stock option activity for the year ended December 31, 2011:

	Number of Shares			Exercise Price		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2010		2,745,940		$	0.90 - $24.63	$	13.55		5.51	$	4,357,420
Granted		-			-		-
Exercised		(80,178	)	$	1.00 - $9.15	$	2.14
Cancelled		(200	)	$	1.00	$	1.00
Outstanding, December 31, 2011		2,665,562		$	0.90 - $24.63	$	13.90
Exercisable, December 31, 2011		2,665,562		$	0.90 - $24.63	$	13.90		4.63	$	596,136
Vested and expected to vest at December 31, 2011		2,665,562				$	13.90		4.63	$	596,136
Available for future issuances under the plans as of December 31, 2011		71,191

The total intrinsic value for options exercised during the years ended December 31, 2011, 2010, and 2009 was $1,100,408, $263,413, and $416,485, respectively.

The following table summarizes information about stock options outstanding as of December 31, 2011:

Options Outstanding				Options Exercisable
Range of Exercise Prices	Options Outstanding	Weighted Average Remaining Contractual Life	Weighted   Average Exercise Price	Options Exercisable	Weighted Average Exercise Price
$0.90 - $10.72	332,404	5.89	$              7.51	332,404	$              7.51
$13.31 - $13.31	1,282,500	6.16	13.31	1,282,500	13.31
$13.66 - $24.63	1,050,658	2.38	16.64	1,050,658	16.64
$0.90 - $24.63	2,665,562	4.63	$            13.90	2,665,562	$            13.90

As of December 31, 2011, we had no unamortized stock-based compensation expense related to these options.

Stock-Settled Stock Appreciation Rights

SARs are awards that allow the recipient to receive an amount of our common stock equal to the appreciation (if any) in the fair market value of our common stock on the date of exercise over the initial SAR valuation set on the date of grant per share of common stock for the number of shares vested. We have awarded stock-settled SARs since 2007. The conversion price was set at 50 percent of the fair market value of our common stock on the date of grant, and the holder’s right to receive shares of common stock under these grants occurs automatically on the vesting date. The SARs become exercisable over a four-year period with one-third vesting on the second, third, and fourth anniversaries of the date of grant. The related compensation expense is being recognized over the four-year period on a straight-line basis. Total unamortized stock-based compensation expense related to these awards as December 31, 2011 is $0.7 million which will be recognized over a weighted average period of 1.2 years.

We did not grant any SARs in the year ended December 31, 2011.

The following table summarizes the SARs activity for the year ended December 31, 2011:

	Number of Shares			Weighted Average Conversion Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2010		564,162		$	8.53		1.48	$	3,233,361
Granted		-			-
Converted		(68,377	)		5.14
Cancelled/Expired		(247,546	)		11.65
Outstanding, December 31, 2011		248,239		$	6.34		1.17	$	734,728
Vested, December 31, 2011		-			-		-	$	-

SARs Outstanding
Range of Conversion Prices	SARs Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Conversion Price
$5.03 - $5.13	139,657	1.37	$               5.12
$5.44 - $7.97	108,582	0.63	7.90
$5.03 - $7.97	248,239	1.17	$               6.34

Restricted Stock Awards

The following table summarizes the RSAs activity for the year ended December 31, 2011:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested, December 31, 2010		307,000		$	12.76
Granted		470,250			7.94
Vested		(76,751	)		12.76
Cancelled		-			-
Nonvested, December 31, 2011		700,499		$	9.70

During 2011, we awarded 470,250 shares of restricted common stock which vest over a four year period with one-quarter vesting on each of the next four anniversaries of the date of grant.  The related compensation expense is being recognized over the four-year period on a straight-line basis. Total unamortized stock-based compensation expense related to these awards as December 31, 2011 is $3.4 million which will be recognized over a weighted average period of 2.3 years.

During 2010, we awarded 307,000 shares of restricted common stock which vest over a four year period with one-quarter vesting on each of the next four anniversaries of the date of grant.  The related compensation expense is being recognized over the four-year period on a straight-line basis. Total unamortized stock-based compensation expense related to these awards as December 31, 2011 is $2.6 million which will be recognized over a weighted average period of 2.0 years.

Restricted Stock Units

The following table summarizes the RSUs activity for the year ended December 31, 2011:

	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested, December 31, 2010		-	$	-
Granted		45,000		10.05
Vested		-		-
Cancelled		-		-
Nonvested, December 31, 2011		45,000	$	10.05

During 2011, we awarded 45,000 restricted stock units which vest over a four year period with one-quarter vesting on each of the next four anniversaries of the date of grant.  The related compensation expense is being recognized over the four-year period on a straight-line basis. Total unamortized stock-based compensation expense related to these awards as December 31, 2011 is $0.4 million which will be recognized over a weighted average period of 2.2 years.

Warrants

As of December 31, 2011, we had warrants outstanding. The total intrinsic value for warrants exercised during the years ended December 31, 2011, 2010, and 2009 was $0, $81,275, and $0, respectively.

Reserved Shares

At December 31, 2011, we have reserved shares of our common stock for the following:

Stock incentive plans	2,958,801
Employee 401(k) plan	24,383
Total	2,983,184