Stock Option Plans

9 Months Ended

Sep. 30, 2011

Stock Option Plans

Stock Option Plans

Note M. Stock Option Plans

Stock Option Plans

Under the Company’s 2002 and 2005 Stock Option Plans (collectively, the “Plans”), both qualified and non-qualified stock options may be granted to certain officers, employees, directors and consultants to purchase shares of the Company’s common stock. At September 30, 2011, 3,963,922 shares were available for future grants under the Plans.

The Plans are subject to the following provisions:

· The aggregate fair market value (determined as of the date the option is granted) of the Company’s common stock that any employee may purchase in any calendar year pursuant to the exercise of qualified options may not exceed $100,000. No person who owns, directly or indirectly, at the time of grant of a qualified option to him or her, more than 10% of the total combined voting power of all classes of stock of the Company shall be eligible to receive any qualified options under the Plans unless the exercise price is at least 110% of the fair market value of the Company’s common stock subject to the option, determined on the date of grant.  Non-qualified options are not subject to this limitation.

· Qualified options are issued only to employees of the Company, while non-qualified options may be issued to non-employee directors, consultants and others, as well as to employees of the Company. Options granted under the Plans cannot exceed 500,000 shares in any year and may not be granted with an exercise price less than 100% of the fair value of the Company’s common stock, as determined by the Board of Directors on the grant date.

· Options under the Plans must be granted within 10 years from the effective date of the Plan. Qualified options granted under the Plans cannot be exercised more than 10 years from the date of grant, except that qualified options issued to 10% or greater stockholders are limited to five-year terms.

· Generally, the options vest and become exercisable ratably over a four year period.

· The Plans contain antidilutive provisions authorizing appropriate adjustments in certain circumstances.

· Shares of the Company’s common stock subject to options that expire without being exercised or that are canceled as a result of the cessation of employment are available for future grants.

The following table summarizes the Company’s stock option activity (both under the Plans and outside of the Plans) since December 31, 2010:

	Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at December 31, 2010	13,426,968		$	2.33	7.74	$	29,712,186
Grants	453,500		$	4.40
Exercises	(152,873	)	$	1.93
Cancellations	(14,875	)	$	2.70
Outstanding at March 31, 2011	13,712,720		$	2.40	7.60	$	21,491,780
Grants	2,225,000		$	2.98
Exercises	(165,375	)	$	1.61
Cancellations	(1,031,123	)	$	3.18
Outstanding at June 30, 2011	14,741,222		$	2.44	7.56	$	4,492,398
Grants	326,500		$	1.57
Exercises	—		—
Cancellations	(223,939	)	$	3.03
Outstanding at September 30, 2011	14,843,783		$	2.41	7.19	$	14,984
Vested or expected to vest at September 30, 2011	14,352,623		$	2.39	7.13	$	14,984
Exercisable at September 30, 2011	7,900,264		$	2.01	6.21	$	14,984
Exercisable at December 31, 2010	6,000,134		$	2.06	6.59	$	15,147,062

Information relating to stock options vested and expected to vest (both under the Plans and outside of the Plans) as of September 30, 2011 is as follows:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price		Exercisable Number of Shares	Exercisable Weighted Average Exercise Price
$0.62 to $1.89	2,059,763	6.56	$	1.35	1,369,390	$	1.31
$1.90 to $1.90	4,802,770	6.58	$	1.90	3,901,329	$	1.90
$1.91 to $2.35	2,284,125	7.10	$	2.28	1,184,882	$	2.25
$2.39 to $2.99	3,638,125	7.77	$	2.78	1,314,475	$	2.57
$3.08 to $4.98	1,974,000	8.61	$	4.12	50,188	$	3.44
$5.13 to $5.13	5,000	9.30	$	5.13	0	$	0.00
$5.26 to $5.26	80,000	0.30	$	5.26	80,000	$	5.26
$0.62 to $5.26	14,843,783	7.19	$	2.41	7,900,264	$	2.01

Options to purchase 318,248 shares were exercised during the nine month period ended September 30, 2011, and these options had an intrinsic value of approximately $0.6 million on the date of exercise.  Options to purchase 238,377 and 946,786 shares were exercised during the three and nine month period ended September 30, 2010, respectively, and these options had an intrinsic value of approximately $0.8 million and $2.7 million on the date of exercise, respectively.

During 2010, as an inducement to his joining the Company, the Company granted its then Chief Financial Officer options to acquire 1,000,000 shares of common stock at a price per share equal to $2.33, the closing price of the common stock on March 15, 2010, the date his employment commenced. The option vests over four years, with the first 25% vesting on March 15, 2011 and the balance vesting in equal quarterly installments over the following three years. Of these options, one option to purchase 500,000 shares was issued under the Company’s 2005 Plan and one option to purchase 500,000 shares was issued outside of the 2005 Plan.  In May 2011 the Company terminated the employment of its then Chief Financial Officer, at which time options to purchase 250,000 shares of common stock had vested.  Pursuant to the terms of the former Chief Financial Officers employment agreement, these vested options will remain exercisable for one year from the date of his termination.