10. Stock-based Compensation

The Company's equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, consultants, officers, and directors and to align stockholder and employee interests. The Company may grant options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance shares, performance units, and other stock-based or cash-based awards to employees, officers, directors, and consultants. Under these programs, stock options may be granted at prices not less than the fair market value on the date of grant for stock options. These options generally vest over 4 years and expire from 5 to 10 years from the date of grant. Restricted stock generally vests over one year. RSUs generally vest over 3 years. On June 3, 2011, the Company's stockholders approved the 2011 Equity Incentive Plan (the "2011" Plan) in which 2,300,000 shares were authorized. In addition, 400,000 shares were transferred from the Company's 2007 Equity Incentive Plan (the "2007 Plan") and 2,279,263 shares were transferred from the Company's 2008 Equity Incentive Plan (the "2008 Plan") for a total of 4,979,263 originally available for grant under the 2011 Plan. Under the 2011 Plan, any award other than an option or stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued. The 2007 Plan and 2008 Plan have been terminated.


	December 31,
	2011
Common stock shares available for grant		4,824,838
Common stock options outstanding		3,267,838
Restricted stock awards outstanding		18,000
Restricted stock units outstanding		407,765

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan ("ESPP"). Under the ESPP, eligible employees may purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of the Company's stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six-month offering period or purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A total of 1,000,000 shares of common stock have been reserved for issuance under the ESPP. As of December 31, 2011, 456,891 shares had been purchased since the inception of the ESPP in 1999. Under ASC 718-10, the ESPP is considered a compensatory plan and the Company is required to recognize compensation cost related to the fair value of the award purchased under the ESPP. Shares purchased under the ESPP for the year ended December 31, 2011 are listed below. No shares were purchased under the ESPP for the year ended December 31, 2010. The intrinsic value listed below is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.


	Year Ended December 31, 2011
Shares purchased under ESPP		28,702
Average price of shares purchased under ESPP	$	5.04
Intrinsic value of shares purchased under ESPP	$	74,566

Summary of Stock Options

The following table sets forth the summary of option activity under the Company's stock option plans for the years ended December 31, 2011, 2010, and 2009:


	Number of Shares			Weighted Average Exercise Price		Weighted Average Fair Value Of Options Granted		Aggregate Intrinsic Value of Options Exercised (In thousands)

Outstanding at January 1, 2009		7,009,667			$9.13
Granted		2,066,533			3.69		$2.19
Exercised		(71,207	)		2.03				$174
Cancelled		(3,963,758	)		7.88

Outstanding at December 31, 2009		5,041,235			7.99
Granted		662,185			5.37		3.11
Exercised		(130,135	)		3.28				308
Cancelled		(1,572,759	)		11.67

Outstanding at December 31, 2010		4,000,526			6.26

Granted		429,963			7.11		4.07
Exercised		(560,132	)		4.09				2,485
Cancelled		(602,519	)		6.99
Outstanding at December 31, 2011		3,267,838			6.61

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's common stock for the options that were in-the-money.

Information regarding stock options outstanding at December 31, 2011, 2010, and 2009 is summarized below:


	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (In millions)
December 31, 2009
Options outstanding		5,041,235	$	7.99		5.52	$	1.8
Options vested and expected to vest using estimated forfeiture rates		4,666,844		8.18		5.28		1.6
Options exercisable		3,247,607		9.25		3.78		1.0

December 31, 2010
Options outstanding		4,000,526	$	6.26		6.39	$	5.5
Options vested and expected to vest using estimated forfeiture rates		3,798,092		6.32		6.25		5.1
Options exercisable		2,541,701		6.80		5.03		2.9

December 31, 2011
Options outstanding		3,267,838	$	6.61		5.53	$	1.3
Options vested and expected to vest using estimated forfeiture rates		3,151,950		6.62		5.44		1.3
Options exercisable		2,377,683		6.99		4.61		0.8

Additional information regarding options outstanding as of December 31, 2011 is as follows:


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$1.28 - $3.81	135,364	3.76	$	2.48	120,230	$	2.42
3.85 - 3.85	600,000	7.87		3.85	325,000		3.85
4.03 - 5.10	389,722	4.87		4.85	286,129		4.88
5.17 - 5.65	356,228	7.04		5.55	185,858		5.55
5.71 - 6.61	357,443	6.46		6.35	184,208		6.12
6.62 - 7.00	551,919	2.57		6.96	520,869		6.97
7.02 - 8.61	357,068	5.47		8.37	320,012		8.39
8.71 - 10.24	328,094	5.04		9.18	243,377		9.17
12.38 - 16.57	187,000	5.77		15.49	187,000		15.49
17.15 - 17.15	5,000	5.78		17.15	5,000		17.15

$1.28-$17.15	3,267,838	5.53	$	6.61	2,377,683	$	6.99

Summary of Restricted Stock Units

RSU activity for the years ended December 31, 2011, 2010, and 2009 was as follows:


	Number of Shares			Weighted Average Grant Date Fair Value		Fair Value of Released RSU's (In thousands)
Outstanding at January 1, 2009		34,500
Awarded		292,287			$3.01
Released		(10,528	)				$55
Forfeited		(118,204	)

Outstanding at December 31, 2009		198,055

Awarded		363,928			5.58		315

Released		(69,021	)

Forfeited		(75,039	)

Outstanding at December 31, 2010		417,923

Awarded		243,908			6.61

Released		(159,384	)				1,163

Forfeited		(94,682	)

Outstanding at December 31, 2011		407,765

Information regarding RSU's at December 31, 2011, 2010, and 2009 is summarized below:


	Number of Shares		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (In millions)		Fair Value (In millions)
December 31, 2009
RSUs outstanding		198,055		1.21	$	0.9	$	0.9
RSUs vested and expected to vest using estimated forfeiture rates		148,206		1.21	$	0.7

December 31, 2010
RSUs outstanding		417,923		1.13	$	2.8	$	2.8
RSUs vested and expected to vest using estimated forfeiture rates		330,038		1.00	$	2.2

December 31, 2011
RSUs outstanding		407,765		0.95	$	2.1	$	2.1
RSUs vested and expected to vest using estimated forfeiture rates		336,454		0.92	$	1.7

The aggregate intrinsic value is calculated as the market value as of the end of the reporting period.

Summary of Restricted Stock Awards

Restricted stock award activity for the years ended December 31, 2011, 2010, and 2009 was as follows:


	Number of Shares			Weighted Average Grant Date Fair Value		Total Fair Value of Awards Released (In thousands)
Outstanding at January 1, 2009		0
Awarded		27,000		$	2.70
Released		0				$	0
Forfeited		0

Outstanding at December 31, 2009		27,000			2.70
Awarded		22,500			5.59
Released		(31,500	)		3.11		147
Forfeited		0

Outstanding at December 31, 2010		18,000			5.59
Awarded		30,000			6.61
Released		(21,000	)		5.74		159
Forfeited		(9,000	)		6.61


Outstanding at December 31, 2011		18,000			6.61

Stock-based Compensation

Valuation and amortization method — The Company uses the Black-Scholes-Merton option pricing model ("Black-Scholes model"), single-option approach to determine the fair value of stock options and ESPP shares. All share-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. Stock-based compensation expense recognized at fair value includes the impact of estimated forfeitures. The Company estimates future forfeitures at the date of grant and revises the estimates if necessary, in subsequent periods if actual forfeitures differ from these estimates. The determination of the fair value of share-based payment awards on the date of grant using an option pricing model is affected by the Company's stock price as well as assumptions regarding a number of complex and subjective variables. These variables include actual and projected employee stock option exercise behaviors that impact the expected term, the Company's expected stock price volatility over the term of the awards, risk-free interest rate, and expected dividends.

Expected term — The Company estimates the expected term of options granted by calculating the average term from the Company's historical stock option exercise experience. The expected term of ESPP shares is the length of the offering period. The Company used the simplified method approved by the SEC to determine the expected term for options granted prior to December 31, 2007.

Expected volatility — The Company estimates the volatility of its common stock taking into consideration its historical stock price movement and its expected future stock price trends based on known or anticipated events.

Risk-free interest rate — The Company bases the risk-free interest rate that it uses in the option pricing model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

Expected dividend — The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option-pricing model.

Forfeitures — The Company is required to estimate future forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest.

The assumptions used to value option grants and shares under the ESPP are as follows:


	Options			Employee Stock Purchase Plan
	2011	2010	2009	2011	2010	2009
Expected life (in years)	4.5	5.2	5.5	0.5	0.5	0.5
Interest rate	0.8%	1.4%	2.1%	0.2%	0.6%	0.4%
Volatility	72%	68%	68%	45%	80%	109%
Dividend yield	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%

Total stock-based compensation recognized in the consolidated statements of operations is as follows:


	Year Ended December 31,
	2011		2010		2009
Income Statement Classifications	(In thousands)

Cost of product sales	$	0	$	10	$	162
Sales and marketing		526		722		853
Research and development		825		803		1,149
General and administrative		2,204		1,874		2,360

Total	$	3,555	$	3,409	$	4,524

As of December 31, 2011, there was $4.1 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options, restricted stock awards and restricted stock units granted to the Company's employees and directors. This cost will be recognized over an estimated weighted-average period of approximately 2.35 years for options, 0.20 years for restricted stock awards and 1.67 years for restricted stock units. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Stock Repurchase Program

On November 1, 2007, the Company announced its Board of Directors' authorized the repurchase of up to $50 million of the Company's common stock. The Company may repurchase its stock for cash in the open market in accordance with applicable securities laws. The timing of and amount of any stock repurchase will depend on share price, corporate and regulatory requirements, economic and market conditions, and other factors. The stock repurchase authorization has no expiration date, does not require the Company to repurchase a specific number of shares, and may be modified, suspended, or discontinued at any time.

During the twelve months ended December 31, 2008, the Company repurchased 2,786,563 shares for approximately $18.4 million at an average cost of $6.60 per share net of transaction costs through open market repurchases. During the year ended December 31, 2011, the Company repurchased 1,139,997 shares for $6.5 million at an average cost of $5.66 net of transaction costs through open market repurchases. These amounts are classified as treasury stock on the Company's consolidated balance sheet.