STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE

3 Months Ended

Mar. 31, 2012

STOCKHOLDERS EQUITY AND SHARE BASED COMPENSATION EXPENSE [Abstract]

STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE

NOTE 4-STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE

Share-based Compensation Plans

The Company has a share-based compensation program, most recently, the 2000 Amended and Restated Equity Incentive Plan (the "Plan"), that provides the Board of Directors broad discretion in creating equity incentives for employees, officers, directors and consultants. This program includes incentive and non-qualified stock options and non-vested stock awards (also known as restricted stock) granted under various stock plans. As of March 31, 2012, the Company had approximately 5.1 million shares of common stock reserved for future issuance under its share-based compensation plans. New shares are issued as a result of stock option exercises, restricted stock units vesting and restricted stock award grants.

The Company recognized share-based compensation expense as follows (in thousands):

	Three Months Ended March 31,
	2012		2011
Costs of sales	$	372	$	291
Research and development		367		527
Selling, general and administrative		1,653		1,757
Total share-based compensation expense	$	2,392	$	2,575

As of March 31, 2012, $13.0 million of total unrecognized share-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award through 2016. The weighted-average term of the unrecognized share-based compensation expense is 2.6 years.

Stock Options

The fair value of options was estimated at the date of grant using the Black Scholes Merton option pricing model with the following weighted-average assumptions:

	Three Months Ended March 31,
	2012			2011
Risk free interest rate		1.0	%		2.2	%
Expected dividend yield		0.0	%		0.0	%
Expected volatility		67	%		67	%
Expected option term (in years)		4.6			4.5

The risk free interest rate for periods within the contractual life of the Company's stock options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term is derived from an analysis of the Company's historical exercise trends over ten years. The expected volatility for the three months ended March 31, 2012 and 2011 is based on a blend of historical and market-based implied volatility. Using the assumptions above, the weighted-average grant date fair value of options granted during the three months ended March 31, 2012 and 2011, was $2.38 and $2.86, respectively.

Performance-Based Awards

In 2011, the Compensation Committee approved a grant of performance-based restricted stock units ("PRSUs") under the Plan to an executive officer that is earned annually in four equal tranches (the "Performance Period"). The PRSUs entitle the executive to receive a certain number of shares of the Company's common stock based on the Company's satisfaction of certain financial and strategic performance goals as set and approved by the Board of Directors annually during the first quarter of the specific performance period. Based on the achievement of the performance conditions during each Performance Period, the final settlement of the PRSU award will vest twelve months following the end of each Performance Period. The PRSU award will be forfeited if the performance goals are not met or if the executive officer is no longer employed at the vest date.

The number of shares underlying the PRSUs that were granted to the executive officer during 2011 totaled 240,000 shares. As of March 31, 2012, performance conditions pertaining to 60,000 shares of the PRSUs, with a grant date fair value of $6.71, were achieved and the fair value of the vested shares is being amortized on a straight-line basis over the remaining service period. The Company expects that an additional 30,000 shares of the PRSUs, with a grant date fair value of $4.63, will vest and the fair value of such shares is being amortized on a straight-line basis over the related service period. The total compensation cost related to PRSUs granted but not yet recognized was approximately $0.3 million as of March 31, 2012.

There were no PRSUs grants during the three months ended March 31, 2012.

Employee Stock Purchase Plan

In August 2011, the Company's Board of Directors adopted the 2011 Employee Stock Purchase Plan ("ESPP") that is subject to approval by the stockholders at the next annual meeting. The ESPP reserved a total of 7.0 million shares of the Company's common stock for issuance under the plan and permits eligible employees to purchase common stock at a discount through payroll deductions.

The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or the last day of the purchase period, whichever is lower. The offering periods are twelve months and include two six month purchase periods that result in a look-back for determining the purchase price of up to 12 months. Employees can invest up to 15% of their gross compensation through payroll deductions. In no event would an employee be permitted to purchase more than 750 shares of common stock during any six-month purchase period. The initial offering period commenced in November 2011. As of the three months ended March 31, 2012, there were 228 participants in the plan and no shares were issued under the ESPP during the period. Included in total share-based compensation cost for the three months ended March 31, 2012 was $0.3 million related to the ESPP.