Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation

Stock-Based Compensation

3. Stock-Based Compensation

Stock-Based Benefit Plans

1994 Stock Incentive Plan

In November 1994, our Board of Directors and stockholders approved the 1994 Stock Incentive Plan, as amended in May 2000 and June 2002 and approved by our Board of Directors and stockholders (the “1994 Plan”), which provides for the grant of equity awards such as stock options, restricted stock or restricted stock units to our employees, officers, directors and consultants. The 1994 Plan has an “evergreen provision” which automatically increases the number of shares of our common stock available for issuance under the 1994 Plan as of January 1 of each year by three percent of our outstanding common stock as of December 31 of the immediately preceding fiscal year. Under the 1994 Plan, we may grant options (“Incentive Stock Options”) within the meaning of Section 422A of the Internal Revenue Code, or options not intended to qualify as Incentive Stock Options (“Nonstatutory Stock Options”).

The 1994 Plan is administered by the Compensation Committee of the Board of Directors. Subject to the provisions of the 1994 Plan, the Compensation Committee has the authority to select the employees, officers, directors and consultants to whom options are granted and determine the terms of each option, including (i) the number of shares of common stock covered by the option, (ii) when the option becomes exercisable, (iii) the option’s exercise price, which must be at least 100% of the fair market value of the common stock as of the date of grant with respect to Incentive Stock Options, and (iv) the duration of the option (which may not exceed ten years). All options generally vest over three to five years, expire ten years from the grant date, are granted at exercise prices equal to the market price of our stock at grant date and are nontransferable other than by will or by the laws of descent and distribution. The Compensation Committee has delegated to our Chief Executive Officer the authority to approve option grants to eligible employees under the 1994 Plan (other than executive officers), subject to certain numerical limits. The Compensation Committee has delegated to our Chief Executive Officer the authority to approve option grants to eligible employees under the 1994 Plan (other than executive officers), subject to certain numerical limits.

At December 31, 2011, a total of 778,200 shares of authorized and unissued shares were available for future grants. All options granted through December 31, 2011 have been Nonstatutory Stock Options. We satisfy stock option exercises with newly issued shares.

Stock-Based Compensation

For the years ended December 31, 2011, 2010 and 2009 and 2008, we recognized stock-based compensation expense of $2.4 million, $2.4 million and $1.7 million in “Selling, general and administrative expenses” in our Consolidated Statements of Operations, and related deferred income tax benefits of $0.9 million, $0.9 million and $0.8 million.

Valuation Assumptions

We estimated the grant date fair value of each stock option grant awarded during the years ended December 31, 2011, 2010 and 2009 pursuant to ASC 718 using the Black-Scholes option pricing model and management assumptions made regarding various factors which require extensive use of accounting judgment and financial estimates. In estimating our assumption regarding the expected term for options granted during the year ended December 31, 2011, 2010 and 2009, we computed the expected term based upon an analysis of historical exercises of stock options by our employees. We computed our expected volatility using historical prices of our common stock for a period equal to the expected term of the options, which we determined to be six years for grants made during each of the years ended December 31, 2011, 2010 and 2009. The risk free interest rate was determined using the implied yield on U.S. Treasury issues with a remaining term within the contractual life of the award. Each year, we estimated an annual forfeiture rate based on our historical forfeiture data, which rate is revised, if necessary, in future periods if actual forfeitures differ from those estimates.

The following table presents the weighted average assumptions we used in each of the following years:

	Years Ended December 31,
	2011		2010
Risk free interest rate	1.84	%	2.51	%
Expected volatility	75	%	78	%
Expected term (in years)	6		6
Expected dividend yield	None		None

Stock-Based Payment Award Activity

Stock Options

The following table summarizes our stock option activity during the year ended December 31, 2011 and stock options outstanding and exercisable at December 31, 2011 for the above plans:

	Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2010	3,339,585		$	5.81
Granted	495,000		7.79
Exercised	(276,428	)	2.76
Forfeited	(78,369	)	6.48
Expired/cancelled	(719	)	0.77
Outstanding at December 31, 2011	3,479,069		6.32		6.35	$	3,371
Exercisable at December 31, 2011	2,256,340		6.38		5.24	2,293

The aggregate intrinsic value is calculated for in-the-money options based on the difference between the exercise price of the underlying awards and the closing price of our common stock on December 31, 2011, which was $6.28.

	Years Ended December 31,
	2011		2010		2009
Weighted average grant-date fair value of options granted during the period	$	5.16	$	3.32	$	4.87
Total intrinsic value of options exercised during the period (in thousands)	1,821		95		805
Total fair value of shares vested during the period (in thousands)	2,387		2,290		1,603

On March 6, 2012, our Compensation Committee approved and granted, under our 1994 Plan, the award of options to purchase 200,000 shares of our common stock to Mark T. McGrath, our new President. These options were issued at an exercise price of $5.54 with a ten-year life, and vest quarterly over a five-year term.

Restricted Stock

On August 21, 2009, our Compensation Committee approved and granted, under our 1994 Plan, the award of 7,500 shares of restricted stock to each of our non-employee members of the board for a total award of 22,500 shares of restricted stock. The restricted stock awards each vested quarterly in equal amounts over a one year period from the date of grant. In accordance with ASC 718 (formerly SFAS 123R), we valued the restricted stock award at fair value as of the grant date and we recognized compensation expense on a straight-line basis over the vesting period. The grant date fair values of restricted stock awards which vested during 2010 and 2009 were $134,831 and $125,224.

As of December 31, 2011, there was $4.3 million of unrecognized compensation cost related to unvested outstanding stock options. We expect to recognize these costs over a weighted average period of 3.08 years.