Stock-Based Compensation

3 Months Ended

Mar. 31, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

4. Stock-Based Compensation

Stock Plans

On July 28, 2005, our Shareholders approved the 2005 Stock Option / Stock Issuance Plan (“2005 Plan”). The 2005 Plan, which became effective the same date, replaced the 1995 Stock Option / Stock Issuance Plan (“1995 Plan”), which expired on May 24, 2005. All outstanding options under the 1995 Plan remained outstanding, but no further grants will be made under that Plan.

The 2005 Plan provides for the issuance of non-qualified or incentive stock options and restricted stock to employees, non-employee members of the board and consultants. The exercise price per share is not to be less than the fair market value per share of the Company’s common stock on the date of grant. The Board of Directors has the discretion to determine the vesting schedule. Options may be exercisable immediately or in installments, but generally vest over a four-year period from the date of grant. In the event the holder ceases to be employed by the Company, all unvested options terminate and all vested options may be exercised within a period following termination. In general, options expire ten years from the date of grant. Restricted stock is valued using the closing stock price on the date of the grant. The total value is expensed over the vesting period of 12 to 48 months. The maximum number of shares of the Company’s common stock that were available for issuance over the term of the original 2005 Plan could not exceed 5,000,000 shares, plus that number of additional shares equal to 2.5% of the number of shares of common stock outstanding on the last trading day of the calendar year commencing with calendar year 2006 (but not in excess of 750,000 shares). On October 11, 2007, our shareholders voted to approve an amendment to the 2005 Plan to increase the maximum number of shares of common stock that may be issued under the 2005 Plan from 5,000,000 shares (plus an annual increase) to 7,000,000 shares (plus an annual increase).

Employee Stock Purchase Plan

The Company has a shareholder approved employee stock purchase plan (“ESPP”), under which substantially all employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning and end of six-month offering periods. An employee’s payroll deductions under the ESPP are limited to 10% of the employee’s compensation and employees may not purchase more than the lesser of $25,000 of stock, or 1,000 shares, for any calendar year. Additionally, no more than 1,000,000 shares may be purchased under the plan.

Stock Compensation

The Company accounts for all stock-based payment awards made to employees and directors based on their fair values and recognized as compensation expense over the vesting period using the straight-line method over the requisite service period for each award as required by FASB ASC Topic No. 718, Compensation-Stock Compensation.

Valuation of Stock Option and Restricted Stock Awards

There were no stock options granted during the three months ended March 31, 2012 or March 31, 2011.

Grants of restricted stock are valued using the closing stock price on the date of grant. In the three months ended March 31, 2012, a total of 40,000 shares of restricted stock, with a total value of $0.1 million, were granted to members of the Board of Directors. This cost will be amortized over a period of 12 months. In addition, 1.0 million shares of restricted stock, with a total value of $2.5 million, were granted to key officers and employees of the Company. This cost will be amortized over a period of 48 months.

Valuation of ESPP

The Company’s six-month offering period ended March 31, 2012 resulted in 44,666 shares being purchased/granted at a fair value of $0.69 per share. The Company’s six-month offering period ended March 31, 2011 resulted in 43,335 shares being purchased/granted at a fair value of $3.98 per share. The fair values of the offerings were estimated on the date of grant using a Black-Scholes valuation model that uses the assumptions noted in the following table. The risk-free rate is based on the U.S. treasury yield curve in effect at the time of grant. Expected volatility was based on the historical volatility on the day of grant.

Assumptions	Offering Period Ended March 31, 2012			Offering Period Ended March 31, 2011
Risk-free interest rate (average)		.05	%		.18	%
Expected dividend yield		—			—
Weighted average expected life (years)		.5			.5
Volatility (average)		105.0	%		72.0	%

Compensation Costs

As required by FASB ASC Topic No. 718, Compensation-Stock Compensation, the Company elected to attribute the value of stock-based compensation to expense using the straight-line method over the requisite service period for each award, which was previously used for its pro forma information. Stock-based non-cash compensation expenses related to stock options, restricted stock grants and the employee stock purchase plan were recorded in the financial statements as follows (in thousands):

	Three Months Ended March 31, (unaudited)
	2012		2011
Cost of revenues	$	4	$	17
Selling and marketing		217		584
Research and development		186		505
General and administrative		765		1,001
Restructuring expenses		6		—
Total non-cash stock compensation expense	$	1,178	$	2,107

Total stock-based compensation for each quarter includes cash payment of income taxes related to grants of restricted stock in the amount of $0.1 million in the three months ended March 31, 2012 and $0.9 million in the three months ended March 31, 2011.

Stock Options

A summary of the Company’s stock options outstanding under the 2005 Plan as of March 31, 2012, and the activity during the three months then ended, are as follows:

	Shares			Weighted Ave. Exercise Price		Aggregate Intrinsic Value
	(in thousands except per share amounts)
Outstanding as of December 31, 2011		2,167		$	11.03
Granted (unaudited)		—		$	—
Exercised (unaudited)		(6	)	$	1.62
Cancelled (unaudited)		(447	)	$	11.72
Outstanding as of March 31, 2012 (unaudited)		1,714		$	10.55	$	—
Exercisable as of March 31, 2012 (unaudited)		1,714		$	10.55	$	—

During the three months ended March 31, 2012, options to acquire 6,042 shares were exercised with an intrinsic value of $4,000, resulting in cash proceeds to the Company of $10,000. During the three months ended March 31, 2011, options to acquire 5,688 shares were exercised with an intrinsic value of $46,000, resulting in cash proceeds to the Company of $7,000. At March 31, 2012, there were 2.8 million shares available for future grants under the 2005 Stock Issuance / Stock Option Plan.

Additional information regarding options outstanding as of March 31, 2012 is as follows:

			Options outstanding			Options exercisable
Range of exercise prices	Number outstanding (in thousands)		Weighted average remaining contractual life (years)	Weighted average exercise price		Number exercisable (in thousands)		Weighted average exercise price
$0.24 - $4.00		148	1.9	$	1.62		148	$	1.62
$4.01 - $6.00		378	3.5	$	4.93		378	$	4.93
$6.01 - $12.00		149	5.1	$	8.57		149	$	8.57
$12.01 - $14.00		559	4.9	$	12.66		559	$	12.66
$14.01 - $16.00		380	5.0	$	15.18		380	$	15.18
$16.01 - $19.00		100	5.1	$	18.51		100	$	18.51
		1,714	4.4	$	10.55		1,714	$	10.55

Restricted Stock Awards

A summary of the Company’s restricted stock awards outstanding under the 2005 Plan as of March 31, 2012, and the activity during the three months then ended, are as follows (in thousands):

	Shares
Unvested at December 31, 2011		1,355
Granted (unaudited)		995
Cancelled/forfeited (unaudited)		(404	)
Vested (unaudited)		(176	)
Unvested at March 31, 2012 (unaudited)		1,770