Stockholders’ Equity and Stock-Based Compensation

Stock Option Plans

The Company has adopted stock option plans for eligible employees, directors, and consultants, which provide for the granting of options to purchase shares of common stock. As of December 31, 2012, there were 7,928,350 outstanding options under the Company’s stock option plans, and 2,938,928 shares available for future grant and issuance.

The options under these plans generally vest in equal annual installments over a four-year period and have a term of ten years. These options are typically granted with an exercise price per share equal to or greater than the current market price and, upon exercise, are issued from the Company’s unissued common shares. In August 2006, the Compensation Committee of the Board of Directors of the Company approved fixed pre-established quarterly grant dates for all future grants of options.

Transactions under the stock option plans are summarized as follows:



	Option Price per Share	Outstanding		Vested		Available for Grant
January 1, 2010	$1.07-$16.39	7,766,188		5,042,682		410,873
Increase in shares authorized	—	—		—		2,500,000
Granted	3.42-7.19	1,249,900		—		(1,249,900	)
Vested	—	—		1,370,897		—
Exercised	1.07-7.31	(323,610	)	(323,610	)	—
Cancelled/forfeited	1.07-16.12	(970,686	)	(700,561	)	674,363
Restricted stock granted out of option plans	—	—		—		(762,680	)
Restricted stock forfeited or cancelled for employee minimum income taxes and returned to the plans	—	—		—		76,044
December 31, 2010	2.49-16.39	7,721,792		5,389,408		1,648,700
Increase in shares authorized	—	—		—		5,000,000
Granted	5.81-10.09	1,559,400		—		(1,559,400	)
Vested	—	—		851,222		—
Exercised	2.49-11.51	(2,145,792	)	(2,145,792	)	—
Cancelled/forfeited	3.00-15.43	(344,100	)	(250,300	)	262,513
Restricted stock granted out of option plans	—	—		—		(651,661	)
Restricted stock forfeited or cancelled for employee minimum income taxes and returned to the plans	—	—		—		93,488
December 31, 2011	2.49-16.39	6,791,300		3,844,538		4,793,640
Granted	5.96-7.16	1,544,000		—		(1,544,000	)
Vested	—	—		1,060,275		—
Exercised	2.49-7.76	(194,410	)	(194,410	)	—
Cancelled/forfeited	2.49-15.43	(212,540	)	(119,165	)	127,125
Restricted stock granted out of option plans	—	—		—		(667,000	)
Restricted stock forfeited or cancelled for employee minimum income taxes and returned to the plans	—	—		—		229,163
December 31, 2012	$2.80-$16.39	7,928,350		4,591,238		2,938,928

Stock options outstanding at December 31, 2012 are summarized as follows:



Option Price per Share	Outstanding	Weighted Average Exercise Price of Outstanding Options		Weighted Average Remaining Contract Life	Vested	Weighted Average Exercise Price of Vested Options
$2.80 - $4.58	1,400,175	$	3.36	6.1	1,258,425	$	3.36
4.90 - 7.45	4,783,225	$	6.30	8.1	1,606,613	$	6.31
7.76 - 13.29	824,500	$	9.96	3.6	805,750	$	9.96
14.03 - 16.39	920,450	$	15.22	5.0	920,450	$	15.22
Totals	7,928,350	$	7.19	6.9	4,591,238	$	7.98

Additional information related to the Company’s stock options is as follows:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value (000’s)
Total outstanding at January 1, 2012	6,791,300		$	7.42			7.1
Options granted	1,544,000		$	6.05	$	3.54
Options exercised	(194,410	)	$	4.15
Options cancelled	(93,375	)	$	5.98
Options forfeited	(119,165	)	$	10.29
Total outstanding at December 31, 2012	7,928,350		$	7.19			6.9	$	6,510
Options exercisable and vested at December 31, 2012	4,591,238		$	7.98			5.4	$	4,664

The total intrinsic value of options exercised during 2012, 2011, and 2010 was $0.6 million, $13.3 million and $0.9 million, respectively. Cash received from option exercises under all share-based payment arrangements for 2012, 2011, and 2010 was $0.8 million, $13.1 million and $1.1 million, respectively. The weighted average grant date fair value for stock option awards granted during 2012, 2011, and 2010 was $3.54, $4.00, and $3.81 per share, respectively.

Restricted Stock and Restricted Stock Unit Plans

The Company has issued restricted stock and restricted stock units under the Company’s 2004 Long-Term Incentive Plan and other applicable plans. Restricted stock units are awards that obligate the Company to issue a specific number of shares of common stock in the future if continued service vesting requirements are met. Non-forfeitable ownership of the common stock will vest over a period as determined by the Company in its sole discretion, generally in equal annual installments over a three-year period. Shares of restricted stock awarded may not be sold, assigned, transferred, pledged or otherwise encumbered by the grantee during the vesting period.

The status of the Company’s restricted stock and restricted stock unit awards for 2012 is as follows:



	Number of Shares/Units
Total nonvested at January 1, 2012	1,154,795
Granted	667,000
Vested	(764,704	)
Forfeited	(23,644	)
Total nonvested at December 31, 2012	1,033,447

At December 31, 2012, the intrinsic value of restricted stock and restricted stock unit awards was approximately $6.7 million. The weighted average grant date fair value for restricted stock and restricted stock unit awards granted during 2012, 2011, and 2010 was $6.05, $6.34, and $6.30 per share, respectively. The total fair value of shares vested during 2012, 2011, and 2010 was $4.6 million, $3.3 million, and $3.3 million, respectively.

Employee Stock Purchase Plan

In June 2010, the Company adopted an Employee Stock Purchase Plan (“ESPP”) to replace the prior ESPP, which terminated on December 31, 2008. The ESPP allows all eligible employees to authorize payroll deductions at a rate of 1% to 10% of base compensation (or a fixed amount per pay period) for the purchase of the Company’s common stock. Each participant is limited to purchase no more than 500 shares per offering period or 1,000 shares annually. Additionally, no participant may purchase shares in any calendar year that exceeds $10,000 in fair market value based on the fair market value of the stock on the offering commencement date. The purchase price of the common stock is the lesser of 85% of the closing price on the first day of the applicable offering period (or most recently preceding trading day) or 85% of the closing price on the last day of the offering period (or most recently preceding trading day). Each offering period is six months and commences on February 1 and August 1 of each year. The ESPP is considered a compensatory plan under ASC 718, and the Company recorded compensation expense of approximately $0.3 million and $0.3 million and $0.0 million during 2012, 2011 and 2010, respectively. The expense represents the estimated fair value of the look-back purchase option. The fair value was determined using the Black-Scholes option pricing model and was recognized over the purchase period. The total number of shares of common stock authorized and available for issuance under ESPP is 1,265,311. The maximum number of shares of common stock that may be purchased for each offering period is 100,000 (200,000 annually).

Stock Appreciation Rights Plan

The Company has adopted a stock appreciation rights plan which provides for the award of stock appreciation rights (“SARs”) to directors and selected key employees and consultants. The awards under this plan are subject to the terms and conditions set forth in agreements between the Company and the holders. The exercise price per SAR is not to be less than one hundred percent of the fair market value of a share of common stock on the date of grant of the SAR. The term of each SAR shall not exceed ten years from the grant date. Upon exercise of a SAR, the holder shall receive a cash payment in an amount equal to the spread specified in the SAR agreement for which the SAR is being exercised. In no event will any shares of common stock be issued, transferred or otherwise distributed under the plan.

As of December 31, 2012, the Company had outstanding 140,000 SAR awards to one individual with an exercise price of $3.00. The Company recorded less than $0.1 million, $0.3 million and less than $0.1 million, respectively, of share-based compensation expense during 2012, 2011 and 2010 related to employee stock appreciation rights. Pursuant to ASC 718, the stock appreciation rights are considered liability awards and as such, these amounts are accrued in the liability section of the balance sheet.

Valuation Assumptions

The Company calculated the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for each respective period:



	Years Ended December 31,
	2012		2011		2010
Risk-free interest rates	0.7% – 1.0%		1.1% – 1.9%		1.5% – 2.5%
Expected lives (in years)	5.5		5.5		5.5
Expected dividend yield	—	%	—	%	—	%
Expected volatility	67.8% – 72.2%		65.9% – 80.2%		67.4% – 71.6%

The computation of expected volatility during 2012, 2011 and 2010 was based on an equally weighted combination of historical volatility and market-based implied volatility. Historical volatility was calculated from historical data for a period of time approximately equal to the expected term of the option award, starting from the date of grant. Market-based implied volatility was derived from traded options on the Company’s common stock having a term of six months. The Company’s computation of expected life in 2012, 2011 and 2010 was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and expectations of future employee behavior. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for the years ended December 31, 2012, 2011 and 2010 as follows (in thousands):



	Years Ended December 31,
	2012			2011			2010
Stock-based compensation expense	$	6,598		$	6,344		$	8,147
Tax benefit related thereto	(2,056		)	(1,976		)	(2,633		)
Stock-based compensation expense, net of tax	$	4,542		$	4,368		$	5,514