STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2012

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

9. STOCK-BASED COMPENSATION

The Company recognizes in the statements of comprehensive loss the grant-date fair value of stock options and other equity based compensation, such as shares issued under employee stock purchase plans, restricted stock awards and units and stock appreciation rights (SARs), issued to employees and directors.

The grant-date fair value of stock options is determined using the Black-Scholes option pricing model.  The fair value of share-based awards is recognized as compensation expense on a straight-line basis over the requisite service period, net of estimated forfeitures.  The Company relies primarily upon historical experience to estimate expected forfeitures and recognizes compensation expense on a straight-line basis from the date of the grant.  The Company issues new shares upon the respective grant, exercise or vesting of share-based payment awards, as applicable.

Cash-settled SARs awarded in share-based payment transactions are classified as liability awards; accordingly, the Company records these awards as a component of accrued expenses on its consolidated balance sheets.  The fair value of each SAR is estimated using the Black-Scholes option pricing model and is remeasured at each reporting period until the award is settled.  Changes in the fair value of the liability award are recorded as expense or income in the statements of comprehensive loss.

Equity Compensation Plan

In 1995, the Board of Directors of the Company adopted a stock option plan, which was amended and restated in 2003 and is now called the Equity Compensation Plan.  The Equity Compensation Plan provides for the granting of incentive and nonqualified stock options, shares of common stock, stock appreciation rights and performance units to employees, directors and consultants of the Company.  Stock options are exercisable over periods determined by the Compensation Committee, but for no longer than 10 years from the grant date.  Through March 31, 2012, the Company's shareholders have approved increases in the number of shares reserved for issuance under the Equity Compensation Plan to 8,000,000 and have extended the term of the plan through September 1, 2015.

During the three months ended March 31, 2012, the Company granted 160,425 shares of restricted stock awards and restricted stock units to employees, which had a total fair value of $6.4 million on the respective dates of grant, and will vest over three to four years from the date of grant, provided that the grantee is still an employee of the Company on the applicable vesting date.

For the three months ended March 31, 2012 and 2011, the Company recorded general and administrative expense of $573,000 and $728,000 and research and development expense of $171,000 and $270,000, respectively, related to restricted stock awards and restricted stock units.

During the three months ended March 31, 2012, the Company also granted to employees 685 shares of common stock, which shares were issued and fully vested as of the date of grant. The Company recorded research and development expense of $31,000 and $22,000 for the three months ended March 31, 2012 and 2011, respectively, related to fully vested shares issued to employees.

In connection with common stock issued to employees, for the three months ended March 31, 2012, 89,862 shares of common stock with a fair value of $3.5 million were withheld in satisfaction of tax withholding obligations.

During the three months ended March 31, 2011, the Company granted 24,000 cash-settled stock appreciation rights (SARs) to certain executive officers. The SARs represented the right to receive, for each SAR, a cash payment equal to the amount, if any, by which the fair market value of a share of the common stock of the Company on the vesting date exceeded the base price of the SAR award.  The base price of each SAR award was $34.78 per share.  The SARs vested on the first anniversary of the date of grant, provided that the grantee was still an employee of the Company on the applicable vesting date. During the three months ended March 31, 2012, all SARs were settled, resulting in cash payments of $49,000. The Company recorded $1,000 and $36,000 to general and administrative expense, and $3,000 and $87,000 to research and development expense, for the three months ended March 31, 2012 and 2011, respectively, related to the SARs.  No such grants were made in 2012.

During the three months ended March 31, 2012, the Company issued 5,000 shares of common stock to members of its Board of Directors as partial compensation for services performed.  The Company recorded general and administrative expense of $160,000 and $56,000 for the three months ended March 31, 2012 and 2011, respectively, related to shares issued to members of its Board of Directors.

During the three months ended March 31, 2012, the Company granted 5,992 shares of restricted stock to certain members of its Scientific Advisory Board.  These shares of restricted stock will vest and be issued in equal increments annually over three years from the date of grant, provided that the grantee is still engaged as a consultant of the Company on the applicable vesting date.  The Company recorded $53,000 and $474,000 to research and development expense for the three months ended March 31, 2012 and 2011, respectively, related to shares issued to members of its Scientific Advisory Board.

Employee Stock Purchase Plan

On April 7, 2009, the Board of Directors of the Company adopted an Employee Stock Purchase Plan (ESPP).  The ESPP was approved by the Company's shareholders and became effective on June 25, 2009.  The Company has reserved 1,000,000 shares of common stock for issuance under the ESPP.  Unless sooner terminated by the Board of Directors, the ESPP will expire when all reserved shares have been issued.

Eligible employees may elect to contribute to the ESPP through payroll deductions during consecutive three-month purchase periods, the first of which began on July 1, 2009.  Each employee who elects to participate will be deemed to have been granted an option to purchase shares of the Company's common stock on the first day of the purchase period.  Unless the employee opts out during the purchase period, the option will automatically be exercised on the last day of the period, which is the purchase date, based on the employee's accumulated contributions to the ESPP.  The purchase price will equal 85% of the lesser of the price per share of common stock on the first day of the period or the last day of the period.

Employees may allocate up to 10% of their base compensation to purchase shares of common stock under the ESPP; however, each employee may purchase no more than 12,500 shares on a given purchase date, and no employee may purchase more than $25,000 of common stock under the ESPP during a given calendar year.

During the three months ended March 31, 2012 and 2011, the Company issued 2,298 and 2,735 shares of its common stock, respectively, under the ESPP, resulting in proceeds of $71,000 for each period.  In relation to the ESPP, the Company recorded $5,000 and $6,000 to general and administrative expense, and $20,000 and $14,000 to research and development expense, for the three months ended March 31, 2012 and 2011, respectively. The expense recorded equals the amount of the discount and the value of the look-back feature for the shares that were issued under the ESPP.