Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

12. Share-Based Compensation

Stock Options

We have three stock incentive plans: the 1997 Stock Incentive Plan, or the 1997 Plan, the 2003 Amended and Restated Incentive Award Plan, or the 2003 Plan and the 2009 Incentive Award Plan, or the 2009 Plan which was approved by our stockholders in June 2009 (collectively, the “Plans”). The 2003 Plan authorizes the grant of incentive awards, including stock options, for the purchase of up to a total of 10,000,000 shares. Subsequent to the adoption of the 2009 Plan, no new options have been granted pursuant the 2003 Plan or 1997 Plan. The Board and the stockholders approved 10,000,000 shares of common stock available for issuance under the 2009 Plan. Beginning on January 1, 2010, and each January 1st thereafter, the number of shares of common stock available for issuance under the 2009 Plan shall increase by the greater of (i) 2,500,000 and (ii) a number of shares such that the total number of shares of common stock available for issuance under the Plan shall equal 30% of the then number of shares of common stock issued and outstanding. As of December 31, 2011, approximately 6.8 million incentive awards were available for grant under the 2009 Plan.

During each of the three years in the period ended December 31, 2011, we granted stock options at exercise prices equal to or greater than the quoted market price of our common stock on the grant date. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	September 30,	September 30,	September 30,
	Year Ended December 31,
	2011	2010	2009
Expected life (years)	4.93	4.93	5.0
Risk-free interest rate	0.82% - 2.4%	1.04 - 2.75%	2.27%
Volatility	55.8%	70.7%	72.4%
Dividend yield	0%	0%	0%

The expected option life assumption is estimated based on actual historical exercise activity and assumptions regarding future exercise activity of unexercised, outstanding options. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options. The expected volatility is based on the historical volatility of our stock commensurate with the expected life of the stock-based award. We have not paid any dividends on common stock since its inception and we do not anticipate paying dividends on our common stock in the foreseeable future.

We recognize shared-based compensation cost over the vesting period using the straight-line single option method. Share-based compensation expense is recognized only for those awards that are ultimately expected to vest. An estimated forfeiture rate has been applied to unvested awards for the purpose of calculating compensation cost. Forfeitures were estimated based on historical experience. These estimates are revised, if necessary, in future periods if actual forfeitures differ from the estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.

A summary of stock option activity is as follows:

		September 30,			September 30,		September 30,		September 30,
	Number of Shares			Weighted- Average Exercise Price/Share		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Outstanding — December 31, 2008		7,115,772			4.80
Granted (weighted-average fair value of $2.87 per share)		4,141,000			4.70
Exercised		(488,750	)		2.58
Forfeited		(551,130	)		5.35
Cancelled		(2,165,372	)		7.75
Expired		(106,275	)		4.62
Outstanding — December 31, 2009		7,945,245			4.04
Granted (weighted-average fair value of $2.65 per share)		3,350,070			4.26
Exercised		(1,135,340	)		3.21
Forfeited		(1,347,786	)		4.04
Expired		(415,095	)		5.45
Outstanding — December 31, 2010		8,397,094			4.17
Granted (weighted-average fair value of $4.69 per share)		3,622,150			7.92
Exercised		(1,126,257	)		4.07
Forfeited		(547,479	)		4.81
Expired		(159,987	)		5.17
Outstanding — December 31, 2011		10,185,521		$	5.46		7.6	$	93,394,945
Vested (exercisable) — December 31, 2011		5,911,400		$	4.65		6.6	$	59,016,707
Unvested (unexercisable) — December 31, 2011		4,274,121		$	6.59		8.7	$	34,378,238

(1) Aggregate intrinsic value represents the difference between the exercise price of the option and the closing market price of the common stock on December 30, 2011, which was $14.63 per share.

The following table summarizes information with respect to stock options outstanding and exercisable at December 31, 2011:

Exercise Price	Number Outstanding		Weighted- Average Remaining Contractual Life (Years)		Weighted- Average Exercise Price			Number Exercisable		Weighted- Average Exercise Price
$0.92 – 3.15		1,872,053		5.8		$	2.05		1,716,681		$	2.09
$3.55 – 4.95		2,746,406		7.5		$	4.26		1,605,831		$	4.30
$5.05 – 6.90		3,355,820		7.4		$	6.28		1,987,531		$	6.03
$7.00 – 8.99		1,983,117		9.4		$	8.27		574,232		$	8.25
$9.00 – 14.63		228,125		9.7		$	11.47		27,125		$	9.16
		10,185,521							5,911,400

Due to our rapid growth over the past few years and personnel turnover rate, in early 2009, we had a limited number of shares available for future grant under the 2003 Plan. Primarily in order to increase the pool of shares available for future grant under such plan, we conducted a tender offer to eligible employees to acquire options granted to certain of our employees pursuant to the 1997 Plan and 2003 Plan, and which were outstanding at March 23, 2009. Eligible employees were employees of Spectrum or its subsidiaries who held options with exercise prices in excess of $5.00. The cash amount offered to those employees was $0.01 for options with an exercise price over $10.00 and $1.15 for the options with an exercise price between $5.00 and $9.99.

On April 23, 2009, a total of 2,165,372 shares underlying eligible options were tendered by eligible employees and were accepted by us, representing 73% of the shares underlying eligible options that were eligible to be tendered in the offer. We made a cash payment in the aggregate of approximately $2.5 million to the eligible employees participating in the offer.

As of December 31, 2011, there was unrecognized compensation expense of $14.1 million related to unvested stock options, which we expect to recognize over a weighted average period of 2.3 years. The aggregate intrinsic value of the options outstanding and options exercisable as of December 31, 2011 was $93.4 million and $59.0 million, respectively. The weighted average grant date fair value of stock options granted during the year ended December 31, 2011 was $4.69.

Restricted Stock

A summary of restricted stock activity is as follows:

		September 30,			September 30,
	Number of Restricted Shares			Weighted Average Grant Date Fair Value
Non-vested — December 31, 2008		377,500		$	3.04
Granted		262,500			1.86
Vested		(284,375	)		2.82
Forfeited		(2,500	)		5.45
Non-vested — December 31, 2009		353,125			2.32
Granted		390,000			4.48
Vested		(261,500	)		3.58
Forfeited		(122,125	)		1.87
Non-vested — December 31, 2010		359,500			3.96
Granted		1,781,000			12.48
Vested		(1,104,025	)		12.33
Forfeited		(83,950	)		4.78
Non-vested — December 31, 2011		952,525		$	10.11

The fair value of restricted stock awards is the quoted market price of our stock on the grant date, and is charged to expense over the period of vesting. These awards are subject to forfeiture to the extent that the recipient’s service is terminated prior to the shares becoming vested.

During the years ended December 31, 2011, 2010 and 2009, the stock-based charge in connection with the expensing of restricted stock awards was approximately $4.1 million, $974,000 and $665,000, respectively. As of December 31, 2011, there was approximately $8.6 million of unrecognized stock-based compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a weighted average period of 2.75 years.

401(k) Plan Matching Contribution

During the years ended December 31, 2011, 2010 and 2009 we issued 65,889, 136,121 and 139,795 shares of common stock as our match of approximately $593,000, $598,000 and $448,000, respectively, on the 401(k) contributions of our employees during those periods.

Employee Stock Purchase Plan

Effective July 2009, we adopted the 2009 Employee Stock Purchase Plan, or Purchase Plan. The Purchase Plan provides our eligible employees with an incentive by providing a method whereby they may voluntarily purchase shares of our common stock upon terms described in the Purchase Plan. The Purchase Plan is designed to be operated on the basis of six consecutive month offering periods commencing January 1 and July 1 of each year. The Purchase Plan provides that eligible employees may authorize payroll deductions to purchase shares of our common stock at 85% of the fair market value of common stock on the first or last day of the applicable purchase period. A participant may purchase a maximum of 50,000 shares of common stock during a 6-month offering period, not to exceed $25,000 worth of stock on the offering date during each plan year. The Purchase Plan terminates in 2019.

A total of 5,000,000 shares of common stock are authorized for issuance under the Purchase Plan, and as of December 31, 2011, 334,384 shares have been issued under the Purchase Plan. Beginning on January 1, 2010, and each January 1st thereafter, the number of shares of common stock available for issuance under the Purchase Plan shall increase by an amount equal to the lesser of (i) 1,000,000 shares or (ii) an amount determined by the Purchase Plan Administrator. However, in no event shall the number of shares of common stock available for future sale under the Purchase Plan exceed 10,000,000 shares, subject to capitalization adjustments occurring due to dividends, splits, dissolution, liquidation, mergers, or changes in control.

The Purchase Plan replaces our 2001 Employee Stock Purchase Program, which was terminated by the Board effective June 26, 2009. Total Purchase Plan stock based compensation expense for the years ended December 31, 2011, 2010 and 2009 was $249,000, $230,000 and $44,000, respectively.