9. CAPITAL STOCK AND SHARE-BASED COMPENSATION

We are authorized by our Certificate of Incorporation to issue 60,000,000 shares of common stock, $0.001 par value and 5,000,000 shares of preferred stock, $0.001 par value, of which 30,328,549 shares of common stock and no shares of preferred stock were issued and outstanding at December 31, 2011. Our Board of Directors is authorized to fix the dividend rights and terms, conversion and voting rights, redemption rights and other privileges and restrictions applicable to our preferred stock.

Share-Based Awards

Our 2008 Omnibus Incentive Compensation Plan (the "Plan") authorizes the grant of various types of equity-based awards, such as stock awards, restricted stock units, stock appreciation rights and stock options to eligible participants, which include all of our employees and all employees of our 50% or more owned subsidiaries, our non-employee directors and certain consultants. The vesting terms of the awards may be tied to continued employment (or, for our non-employee directors, continued service on the Board of Directors) and/or achievement of certain pre-determined performance goals. We refer to stock awards subject to service-based vesting conditions as "non-vested stock" and restricted stock units subject to service-based and/or performance-based vesting conditions as "non-vested stock units." The Plan is administered by the Compensation Committee of our Board of Directors, which determines, within the provisions of the Plan, those eligible employees to whom, and the times at which, awards shall be granted. The Compensation Committee, in its discretion, may delegate its authority and duties under the Plan to specified officers; however, only the Compensation Committee may approve the terms of awards to our executive officers.

Equity-based awards may be granted for a number of shares not to exceed, in the aggregate, approximately 1.9 million shares of common stock, and we had 915,646 shares available at December 31, 2011. The price per share for stock options shall be of no less than the greater of (a) 100% of the fair value of a share of common stock on the date the option is granted or (b) the aggregate par value of the shares of our common stock on the date the option is granted. If a stock option is granted to any owner of 10% or more of our total combined voting power of us and our subsidiaries, the price is to be at least 110% of the fair value of a share of our common stock on the date the award is granted. Each equity-based award vests ratably over a 12 month-to-five year period, with the exception of those issued under contractual arrangements that specify otherwise, that may be exercised during a period as determined by our Compensation Committee or as otherwise approved by our Compensation Committee. The contractual terms of stock options exercised shall not exceed ten years from the date such option is granted.

Employee Stock Purchase Plan ("ESPP")

We have a plan whereby our eligible employees may purchase our common stock at 85% of the market price at the time of purchase. On June 7, 2007, our stockholders ratified an amendment adopted by our Board of Directors to increase the total number of shares of our common stock authorized for the issuance under our ESPP from 1,333,333 shares to 2,500,000 shares, and as of December 31, 2011, there were 357,777 shares available for future issuance. The following is a detail of the purchases that were made or pending Board of Director approval under the plan:


Employee Stock Purchase Plan Period	Shares Issued		Price
2009 and Prior		1,642,504	$	12.18
January 1, 2010 to March 31, 2010		33,377		46.94
April 1, 2010 to June 30, 2010		44,902		37.38
July 1, 2010 to September 30, 2010		74,836		20.23
October 1, 2010 to December 31, 2010		55,413		28.48
January 1, 2011 to March 31, 2011		38,752		29.75
April 1, 2011 to June 30, 2011		54,323		22.64
July 1, 2011 to September 30, 2011		94,301		12.60
October 1, 2011 to December 31, 2011		103,815		9.27

		2,142,223

ESPP expense included in general and administrative expense in our accompanying consolidated income statements was $0.8 million, $1.1 million and $1.0 million for 2011, 2010 and 2009, respectively.

Stock Options

We use the Black-Scholes option pricing model to estimate the fair value of our stock-based awards; however there have been no stock options granted during 2011, 2010, or 2009.

The following table summarizes our stock option activity for 2011:


	Number of Shares			Weighted average exercise price		Weighted average contractual life (years)
Outstanding options at January 1, 2011		298,679		$	18.10		3.29
Granted		—			—
Exercised		(27,337	)		8.98
Canceled, forfeited or expired		(3,335	)		20.23

Outstanding options at December 31, 2011		268,007		$	19.00		2.49

Exercisable options at December 31, 2011		268,007		$	19.00		2.49

The aggregate intrinsic value of our outstanding options and exercisable options at December 31, 2011 was $0.3 million. Total intrinsic value of options exercised was $0.7 million, $4.3 million and $5.1 million for 2011, 2010 and 2009, respectively.

All of our outstanding options were vested as of October 2008; therefore there was no non-vested stock option activity for 2011.

Non-vested Stock

We issue shares of non-vested stock with vesting terms ranging from one to five years. The compensation expense is determined based on the market price of our common stock at the date of grant applied to the total number of shares that are anticipated to fully vest. Non-vested stock compensation expense included in general and administrative expenses in our accompanying consolidated income statements was $7.2 million, $7.6 million and $4.4 million for 2011, 2010, and 2009, respectively.

The following table presents our non-vested stock award activity for 2011:


	Number of Shares			Weighted average grant date fair value
Non-vested stock at January 1, 2011		408,350		$	45.43
Granted		458,869			27.05
Vested		(160,973	)		42.94
Canceled, forfeited or expired		(137,396	)		39.91

Non-vested stock at December 31, 2011		568,850		$	32.64

At December 31, 2011, there was $7.9 million of unrecognized compensation cost related to non-vested stock award payments that we expect to be recognized over a weighted average period of 1.6 years.

Non-vested Stock Units – Service-based and Performance-based Awards

From time to time, we issue non-vested stock unit awards that are service-based, performance-based or a combination of both with vesting terms ranging from three to four years. Based on the terms and conditions of these awards, we determine if the awards should be recorded as either equity or liability instruments. The compensation expense is determined based on the market price of our common stock at the date of grant, applied to the total number of units that are anticipated to vest, unless the award specifies differently. Non-vested stock units compensation expense included in general and administrative expenses in our accompanying consolidated income statements was $0.3 million, $2.0 million and $2.4 million for 2011, 2010, 2009, respectively. We account for such awards similar to our non-vested stock awards; however, no shares of stock are issued to the recipient until the stock unit awards have vested and after the pre-determined delivery date has occurred.

The following table presents our non-vested stock units activity for 2011:


	Number of Shares			Weighted average grant date fair value
Non-vested stock units at January 1, 2011		46,894		$	37.65
Granted		31,390			27.40
Vested		(49,856	)		37.04
Canceled, forfeited or expired		—			—

Non-vested stock units at December 31, 2011		28,428		$	27.40

During the second quarter of 2011, we awarded performance-based awards to certain employees. The target level established by the award, which is based on the Company's 2011 return on capital, provided for the recipients to receive 61,583 non-vested stock units and if the target objective was surpassed to the point of achieving the projected maximum payout, the recipients would receive 92,376 non-vested stock units. As of December 31, 2011, it was determined that the performance-based objectives established by the award have not been satisfied and as a result, there will be no non-vested stock units awarded. These awards have not been included in the table above.

During the second quarter of 2010, we awarded performance-based awards to certain employees. The target level established by the award, which is based on hospitalization rate reduction for the years ending 2010 and 2011, provided for the recipients to receive 25,754 non-vested stock units and if the target objective was surpassed to the point of achieving the projected maximum payout, the recipients would receive 38,631 non-vested stock units. As of December 31, 2011, it was determined that the performance-based objectives established by the award have been satisfied at 81.5% and as a result, 17,449 non-vested stock units will be awarded. The award stipulates that the grant date for such awards will be the date of the 2011 earnings release. These awards have not been included in the table above.

During the second quarter of 2009, we awarded performance-based awards to certain employees. The target level established by the award, which is based on our performance for the years ending 2009 and 2010, provided for the recipients to receive 57,319 non-vested stock units and if the target objective was surpassed to the point of achieving the projected maximum payout, the recipients would receive 85,977 non-vested stock units. As of December 31, 2010, it was determined that the performance-based objectives established by the award were satisfied at 54.8% and as a result, 31,390 non-vested stock units were awarded and have been included in the table above.

At December 31, 2011, there was $0.2 million of unrecognized compensation cost related to our non-vested stock units that we expect to be recognized over a weighted-average period of 0.3 years.