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Stock-Based Compensation
9 Months Ended
Sep. 30, 2011
Stock-Based Compensation [Abstract] 
Stock-Based Compensation

Note 5. Stock-Based Compensation

We currently grant stock-based awards under two equity incentive plans. As of September 30, 2011, we had 1,104,167 shares authorized to be granted under the two plans. Under these plans we may grant various types of equity awards to our employees, directors and consultants, at prices determined by our Board of Directors, including incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, and performance-based shares. Incentive stock options may only be granted to employees under these plans with a grant price not less than the fair market value of the stock on the date of grant. We also use these plans to grant shares to employees for the employer match of employee 401(k) plan contributions. Share numbers and exercise prices have been adjusted for the 1-for-10 reverse stock split effected in July 2011.

Our stock-based compensation expense for the three and nine months ended September 30 was as follows:

 

                                 
    Three months ended
September 30,		     Nine months ended
September 30,		  
    2011     2010     2011     2010  

Research and development expense

   $ 343,845     $ 371,694     $ 1,304,846     $ 1,531,632  

Selling, general and administrative expense

     320,539       493,675       1,308,265       1,456,251  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total employee stock-based compensation expense and effect on net loss

   $ 664,384     $ 865,369     $ 2,613,111     $ 2,987,883  
   

 

 

    

 

 

    

 

 

    

 

 

  

Effect on basic and diluted net loss per share

   $ (0.05 )    $ (0.07 )    $ (0.19 )    $ (0.24 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

As of September 30, 2011, we had approximately $3,736,000 of total unrecognized compensation expense related to unvested awards of stock options and restricted stock units granted under our various equity incentive plans that we expect to recognize over a weighted-average vesting period of 2.1 years.

 

Stock Options

Generally, stock options granted to employees have a maximum term of ten years, and vest over a four year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three-year service period. We may grant options with different vesting terms from time to time. Upon employee termination of service, any unexercised vested option will be forfeited three months following termination or the expiration of the option, whichever is earlier. Unvested options are forfeited on termination.

A summary of our stock option activity for the three months ended September 30, 2011 is as follows:

 

                 
    Number of options     Weighted-average
exercise price ($)		  

Balance at June 30, 2011

     996,463       20.10  

Granted

     —         —    

Exercised

     —         —    

Cancelled

     (100,498 )      19.10  
   

 

 

    

 

 

  

Outstanding options at September 30, 2011

     895,965       20.20  
   

 

 

    

 

 

  

A summary of changes in unvested options for the three months ended September 30, 2011 is as follows:

 

                         
    Number of options     Weighted-average
exercise price ($)		     Weighted-average
grant
date fair value ($)		  

Unvested options at June 30, 2011

     196,542       12.10       9.70  

Granted

     —         —         —    

Vested

     (23,157 )      14.40       11.50  

Cancelled

     (2,913 )      11.60       8.40  
   

 

 

            

 

 

  

Unvested options at September 30, 2011

     170,472       11.80       9.50  
   

 

 

            

 

 

  

The estimated fair value of options vested was approximately $266,000 in the three months ended September 30, 2011.

Restricted Stock Units

We have granted restricted stock units (RSUs) to certain employees which entitle the holders to receive shares of our common stock upon vesting of the RSUs. The fair value of restricted stock units granted are based upon the market price of the underlying common stock as if it were vested and issued on the date of grant.

A summary of changes in unvested restricted stock units for the three months ended September 30, 2011 is as follows:

 

                 
    Number of RSUs     Weighted-average
grant
date fair value ($)		  

Unvested restricted stock units at June 30, 2011

     294,507       11.40  

Granted(1)

     1,000       2.08  

Vested

     (5,832 )      13.00  

Cancelled

     —         —    
   

 

 

    

 

 

  

Balance unvested at September 30, 2011

     289,675       11.40  
   

 

 

    

 

 

  

 

(1) These restricted stock units vest and convert into shares of our common stock after one year from the date of grant.

Stock Appreciation Rights

In July 2006, we granted cash-settled Stock Appreciation Rights (SARs) to certain employees that give the holder the right, upon exercise, to the difference between the price per share of our common stock at the time of exercise and the exercise price of the SARs.

The SARs have a maximum term of ten years with an exercise price of $20.00, which is equal to the market price of our common stock at the date of grant. The SARs vest 25% on the first anniversary of the grant date and 75% vest monthly over the remaining three-year service period. All of the outstanding SARs as of September 30, 2011 are fully vested. Compensation expense is based on the fair value of SARs which is calculated using the Black-Scholes option pricing model. The stock-based compensation expense and liability are re-measured at each reporting date through the earlier date of settlement or forfeiture of the SARs.

 

A summary of the changes in SARs for the three months ended September 30, 2011 is as follows:

 

         
    Number of SARs  

Outstanding at June 30, 2011

     135,409  

Granted

     —    

Exercised

     —    

Forfeited and expired

     (20,222 ) 
   

 

 

  

Outstanding SARs at September 30, 2011

     115,187  
   

 

 

  

SARs exercisable at September 30, 2011

     115,187  

For the three months ended September 30, 2011, we re-measured the liability related to the SARs and reduced compensation expense by approximately $4,000. For the same period in 2010, we reduced compensation expense by approximately $97,000.

The compensation expense recognized for the three months ended September 30, 2011 may not be representative of compensation expense for future periods and its resulting effect on net loss and net loss per share attributable to common stockholders, due to changes in the fair value calculation which is dependent on the stock price, volatility, interest and forfeiture rates, additional grants and subsequent periods of vesting. We will continue to recognize compensation cost each period, which will be the change in fair value from the previous period through the earlier date of settlement or forfeiture of the SARs.