Note 12—Share-Based Compensation

In 2011, the Company adopted its 2011 Incentive Plan, pursuant to which up to an aggregate of 7.75 million shares of the Company’s common stock may be issued. Awards may be granted as incentive and non-statutory stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards, performance-based stock option and restricted stock awards, and other forms of equity-based and cash incentive compensation. Under this plan, 2,838,764 shares remain available for the issuance of future grants at September 30, 2012.

Total compensation cost charged against operations for the three-month periods ended September 30, 2012 and 2011 was $1.2 million and $2.1 million, respectively. Total compensation cost charged against operations for the nine-month periods ended September 30, 2012 and 2011 was $5.2 million and $5.7 million, respectively. The following table summarizes the components of share-based compensation expense in the consolidated statements of operations for the three and nine-month periods ended September 30, 2012 and 2011:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(In thousands)
Research and development	$	249	$	402	$	1,011	$	1,128
Selling, general and administrative		936		1,704		4,154		4,523


Total non-cash compensation expense related to share-based compensation included in operating expense	$	1,185	$	2,106	$	5,165	$	5,651

Stock Options

The weighted-average key assumptions used in determining the fair value of stock options granted for the three and nine-month periods ended September 30, 2012 and 2011 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Weighted-average volatility		100	%		95	%		96	%		88	%
Weighted-average risk-free interest rate		0.9	%		1.4	%		0.9	%		2.1	%
Weighted-average expected term in years		5.6			5.4			5.5			4.4
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Weighted-average grant date fair value per share	$	1.38		$	3.59		$	1.30		$	5.16

Historical information is the primary basis for the selection of the expected volatility of options granted. The risk-free interest rate is selected based upon yields of United States Treasury issues with a term equal to the expected term of the option being valued. The expected term of options granted is derived from the output of a lattice option valuation model and represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise behavior and employee termination within the valuation model.

The Company did not issue any shares of common stock upon the exercise of stock options for the three-month periods ended September 30, 2012 and 2011. The Company did not issue any shares of common stock upon the exercise of stock options for the nine-month period ended September 30, 2012. For the nine-month period ended September 30, 2011, the Company issued 33,000 shares of common stock upon the exercise of outstanding stock options and received proceeds of $0.2 million. For the three-month periods ended September 30, 2012 and 2011, approximately $0.3 million and $0.7 million, respectively, of stock option compensation expense was charged against operations. For the nine month-periods ended September 30, 2012 and 2011, approximately $3.5 million and $2.3 million, respectively, of stock option compensation expense was charged against operations. As of September 30, 2012, there was $3.6 million of unrecognized compensation cost, adjusted for estimated forfeitures, that is expected to be recognized over a weighted-average period of approximately 2.3 years.

The following table summarizes the activity related to the Company’s stock options for the nine-month period ended September 30, 2012:


	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in yrs)		Aggregate Intrinsic Value of In-the- Money Options
	(In thousands, except weighted-average data)
Outstanding at December 31, 2011		3,648		$	7.98		7.81	$	—
Granted		1,702			1.75		—		—
Exercised		—			—		—		—
Cancelled		(1,699	)		7.15		—		—


Outstanding at September 30, 2012		3,651		$	5.52		7.84	$	1,318


Exercisable at September 30, 2012		1,465		$	7.59		5.88	$	211

The aggregate intrinsic value in the previous table reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option-holders had all option holders exercised their options on September 30, 2012. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s common stock.

Stock Options that Contain Performance or Market-Based Conditions

For the three-month periods ended September 30, 2012 and 2011 approximately $1,000 and $0.2 million, respectively, of stock option compensation related to stock options that contain performance or market based conditions (“performance options”) was charged against operations. For the nine month-period ended September 30, 2012 the company recognized approximately $0.5 million of income as a result of reversal of previous recorded compensation expense. For the nine-month period ended September 30, 2011 approximately $0.4 million of compensation expense related to performance options was charged against operations.

The following table summarizes the activity related to the Company’s performance options for the nine-month period ended September 30, 2012:


	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in yrs)		Aggregate Intrinsic Value of In-the-Money Options
	(In thousands, except weighted-average data)
Outstanding at December 31, 2011		440		$	9.75		9.07	$	—
Granted		830			2.07		—		—
Exercised		—			—		—		—
Cancelled		(317	)		7.75		—		—


Outstanding at September 30, 2012		953		$	3.73		9.55	$	402


Exercisable at September 30, 2012		40		$	13.81		7.16	$	—

Restricted Stock and Restricted Stock units

During the three-month periods ended September 30, 2012 and 2011, the Company issued 242,000 and 105,000 shares of restricted stock amounting to $0.4 million and $0.6 million in total aggregate fair market value, respectively. During the nine-month periods ended September 30, 2012 and 2011, the Company issued 1,839,000 and 865,000 shares of restricted stock amounting to $3.4 million and $7.1 million in total aggregate fair market value, respectively. For the three-month periods ended September 30, 2012 and 2011, approximately $0.7 million and $0.8 million, respectively, of deferred restricted stock compensation cost was charged against operations. For the nine-month periods ended September 30, 2012 and 2011, approximately $2.0 million of deferred restricted stock compensation cost was charged against operations in each respective period. At September 30, 2012, approximately 1,991,000 shares remained unvested and there was approximately $4.3 million of unrecognized compensation cost related to restricted stock and restricted stock units (“RSU’s”).

The following table summarizes the activity related to the Company’s restricted stock and RSU’s for the nine-month period ended September 30, 2012:


	Number of Shares			Weighted-Average Grant Date Fair Value Per Share
	(Shares in thousands)
Unvested at December 31, 2011		811		$	8.75
Granted		1,839			1.83
Vested		(279	)		7.43
Forfeited		(380	)		7.08


Unvested at September 30, 2012		1,991		$	2.87

The total grant date fair value of restricted shares vested for the nine-month periods ended September 30, 2012 and 2011, was $2.1 million and $1.7 million, respectively.

Restricted Stock Awards that Contain Performance or Market Conditions

For the three-month period ended September 30, 2012 the Company did not recognize any expense related to restricted stock awards that contain performance or market conditions (“performance awards”). For the nine-month period ended September 30, 2012, the Company recognized approximately $0.7 million of income as a result of the reversal of previously recorded compensation. For the three-month period ended September 30, 2011 approximately $0.3 million of compensation expense related to performance awards was charged against operations. For the nine-month period ended September 30, 2011, approximately $0.4 million of compensation expense related to performance awards was charged against operations.

The following table summarizes the activity related to the Company’s performance awards for the nine-month period ended September 30, 2012:


	Number of Shares			Weighted- Average Grant Date Fair Value Per Share
	(Shares in thousands)
Unvested at December 31, 2011		306		$	9.44
Granted		—			—
Vested		—			—
Forfeited		(300	)		9.23


Unvested at September 30, 2012		6		$	20.59

Employee Stock Purchase Plan

In 1998, the Company adopted its 1998 Employee Stock Purchase Plan (the “1998 ESPP”). The 1998 ESPP is qualified as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. Under the 1998 ESPP, the Company grants rights to purchase shares of common stock (“Rights”) at prices not less than 85% of the lesser of (i) the fair market value of the shares on the date of grant of such Rights or (ii) the fair market value of the shares on the date such Rights are exercised. Therefore, the 1998 ESPP is considered compensatory since, along with other factors, it includes a purchase discount of greater than 5%. For the three-month periods ended September 30, 2012 and 2011, approximately $0.1 million and $0.2 million, respectively, of compensation expense was charged against income related to participation in the 1998 ESPP. For the nine-month periods ended September 30, 2012 and 2011, approximately $0.8 million and $0.5 million, respectively, of compensation expense was charged against income related to participation in the 1998 ESPP.