10. Stock-Based Compensation

Equity Incentive Plans

In May 2012, we adopted the 2012 Equity Incentive Plan (2012 Plan). The number of shares of our common stock available for issuance under the 2012 Plan is equal to 6,500,000 shares plus up to 12,667,411 additional shares that may be added to the 2012 Plan in connection with the forfeiture, repurchase, cash settlement or termination of awards outstanding under the 2004 Equity Incentive Plan (2004 Plan), the 2008 New Employee Equity Incentive Plan, the 1997 Stock Plan and the Long-Term Stock Option Plan (collectively, the "Prior Plans") as of December 31, 2011. While a maximum of 12,667,411 shares could be added to the 2012 Plan from the Prior Plans, this assumes that all the awards outstanding on December 31, 2011 will be forfeited, repurchased, cash settled or terminated. Therefore, the actual number that may be added to the 2012 Plan share reserve will likely be lower. No additional awards have been or will be made after May 15, 2012 under the 2004 Plan. Stock options and stock appreciation rights (SARs) will reduce the 2012 Plan reserve by one share for every share granted, and stock awards other than options and SARs granted will reduce the 2012 Plan share reserve by 1.45 shares for every share granted. The 2012 Plan share reserve was also reduced by the number of stock awards granted under the 2004 Plan on or after January 1, 2012, using the same ratios described. As of December 31, 2013, total shares remaining available for issuance under the 2012 Plan were 3,152,390.

The 2012 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, stock unit awards and SARs to employees, non-employee directors and consultants. Stock options may be granted with an exercise price not less than the fair market value of the common stock on the grant date. Stock options granted to employees generally have a maximum term of 10 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 years. We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier.

Employee Stock Purchase Plan

Under the 2004 Employee Stock Purchase Plan (ESPP), our non-officer employees may purchase common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of the stock at the beginning of the offering period or at the end of each applicable purchase period. The ESPP provides for consecutive and overlapping offering periods of 24 months in duration, with each offering period composed of four consecutive six-month purchase periods. The purchase periods end on either May 15^th or November 15^th. ESPP contributions are limited to a maximum of 15 percent of an employee's eligible compensation.

Our ESPP plan also includes a feature that provides for a new offering period to begin when the fair market value of our common stock on any purchase date during an offering period falls below the fair market value of our common stock on the first day of such offering period. This feature is called a reset. We had resets for new twenty-four month offering periods starting on May 16, 2008, November 16, 2008, May 16, 2010, November 16, 2011, May 16, 2012 and November 16, 2012. We applied modification accounting to determine the incremental fair value associated with the ESPP resets and recognized the related incremental stock- based compensation expense.

As of December 31, 2013, a total of 2,025,000 shares of common stock were approved and authorized for issuance under the ESPP. Through December 31, 2013, we had issued 1,740,861 shares under the ESPP at an average price of $11.29 per share. As of December 31, 2013, total shares remaining available for issuance under the ESPP were 284,139. As a result of our announcement that our Board of Directors had approved plans to separate our businesses into two independent publicly traded companies, all monies remaining after the purchase on November 15, 2013 were refunded to employees. It was also determined that ESPP shares relating to purchase periods ending after November 15, 2013 were not probable of vesting. Therefore, $0.8 million of compensation expense relating to purchase periods ending after November 15, 2013 was reversed in the fourth quarter of 2013, and any remaining unamortized compensation expense relating to these purchase periods will not be recognized. ESPP was suspended after the November 15, 2013 purchase period.

Performance-Contingent RSAs

Over the past three years, the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") has approved grants of performance-contingent RSAs to senior management and a non-executive officer. Generally, these awards have dual triggers of vesting based upon the achievement of certain performance goals by a pre-specified date, as well as a requirement for continued employment. When the performance goals are deemed achieved for these types of awards, time-based vesting and, as a result, recognition of stock-based compensation expense commence.

Included in these performance-contingent RSAs is the grant of 1,290,000 special long-term retention and incentive performance-contingent RSAs to senior management approved by the Compensation Committee in 2011. The awards have dual triggers of vesting based upon the achievement of certain performance conditions over a six-year timeframe from 2011 through December 31, 2016 and continued employment. The maximum potential expense associated with this program is $28.2 million related to stock-based compensation expense, which would be recognized in increments based on achievement of the performance conditions. As of December 31, 2013, we determined that the achievement of the requisite performance conditions was not probable and, as a result, no compensation expense has been recognized. If sufficient performance conditions are achieved in 2014, then we would recognize up to $6.7 million in stock-based compensation expense associated with these RSAs.

Performance-Contingent RSUs

The Compensation Committee of the Company's Board of Directors has approved grants of performance-contingent RSUs to employees. These awards have dual triggers of vesting based upon the successful achievement of certain corporate operating milestones in specified timelines, as well as a requirement for continued employment. When the performance goals are deemed to be probable of achievement for these types of awards, time-based vesting and, as a result, recognition of stock-based compensation expense commences.

Director Compensation Program

Our non-employee directors receive compensation for services provided as a director. Each member of our Board who is not an employee receives an annual retainer as well as a fee for each board and committee meeting attended. Commencing on April 27, 2011, chairpersons of the various committees of the Board, the Audit Committee, the Compensation Committee, Nominating/Corporate Governance Committee and the Science and Technology Advisory Committee receive a fixed retainer. The lead independent director also receives a fixed retainer.

Each of our independent directors receives periodic automatic grants of equity awards under a program implemented under the 2004 Plan. These grants are non-discretionary. Only our independent directors or affiliates of such directors are eligible to receive automatic grants under the 2004 Plan. Under the program, as amended in July 2010, each individual who first becomes an independent director will, on the date such individual joins the Board, automatically be granted (i) a one-time grant of RSUs covering 6,000 shares of our common stock and (ii) a one-time nonstatutory stock option grant covering 6,000 shares of our common stock.

These initial equity grants vest monthly over the director's first two years of service. In addition, on the date of joining the Board, the new director will also receive the standard annual equity awards (if joining on the date of the Company's Annual Meeting of Stockholders) or pro-rated annual equity awards (if joining on any other date). The pro-ration is based upon the number of months of service the new board member will provide during the 12-month period ending on the one-year anniversary of the most recent annual meeting of stockholders. Annually, upon his or her re-election to the Board at the Annual Meeting of Stockholders, each independent director is automatically granted both an RSU covering 6,000 shares of our common stock and a nonstatutory stock option covering 6,000 shares of our common stock. These standard annual equity awards vest monthly over the twelve month period of service following the date of grant. In addition, all automatic equity awards vest in full if the Company is subject to a change in control or the Board member dies while in service.

Stock-Based Compensation Expense

Stock-based compensation expense is included in the consolidated statements of operations as follows:

	Year Ended December 31,

(In thousands)	2013		2012		2011
Research and development	$	16,017	$	13,667	$	13,422
Selling, general and administrative		9,670		10,116		11,494


Total stock-based compensation expense	$	25,687	$	23,783	$	24,916

Stock-based compensation expense included in the consolidated statements of operations by award type is as follows:

	Year Ended December 31,

(In thousands)	2013		2012		2011
Employee stock options	$	4,132	$	3,417	$	4,528
Employee RSUs		10,174		10,803		10,876
Employee RSAs		9,723		7,602		5,498
Employee performance RSUs		61		743		2,414
Employee performance RSAs		1,061		366		—
Non-employee options and RSUs		—		—		307
ESPP		536		852		1,293


Total stock-based compensation expense	$	25,687	$	23,783	$	24,916

Total stock-based compensation expense capitalized to inventory was $0.2 million for 2013, $0.4 million for 2012, and $0 for 2011.

As of December 31, 2013, the unrecognized stock-based compensation cost, net of expected forfeitures, and the estimated weighted-average amortization period, using the straight-line attribution method, was as follows:

(In thousands, except amortization period)	Unrecognized Compensation Cost

Stock options	$	16, 916	3.1
RSUs		15,473	2.4
RSAs		23,296	2.5
Performance RSUs		4	0.1
Performance RSAs		627	2.9


Total unrecognized stock-based compensation expense	$	56,316

Compensation Awards

The following table summarizes equity award activity under the 2012 Plan and Prior Plans and related information:

(In thousands, except per share data)			Weighted- average Exercise Price of Outstanding Options				Weighted- average Fair Value per Share at Grant				Weighted- average Fair Value per Share at Grant

Balance at December 31, 2010	7,654		$	16.91	1,897		$	12.45	33		$	26.10
Granted	629			21.98	471			24.96	2,483			24.61
Exercised	(1,265	)		8.87	—			—	—			—
Released RSUs/RSAs	—			—	(797	)		13.89	(74	)		24.96
Forfeited	(127	)		29.15	(29	)		15.35	—			—


Balance at December 31, 2011	6,891			18.62	1,542			15.47	2,442			24.62
Granted	335			21.91	528			18.45	447			18.11
Exercised	(947	)		7.98	—			—	—			—
Released RSUs/RSAs	—			—	(752	)		14.19	(388	)		24.77
Forfeited	(159	)		24.43	(78	)		18.48	—			—


Balance at December 31, 2012	6,120			20.30	1,240			17.32	2,501			23.43
Granted	820			35.54	572			23.47	510			23.25
Exercised	(1,977	)		14.04	—			—	—			—
Released RSUs/RSAs	—			—	(630	)		15.38	(452	)		21.64
Forfeited	(139	)		25.69	(67	)		18.14	(194	)		24.37


Balance at December 31, 2013	4,824			25.30	1,115			21.53	2,365			23.66

As of December 31, 2013, the aggregate intrinsic value of the options outstanding was $51.2 million and the aggregate intrinsic value of the options exercisable was $45.3 million.

The total intrinsic value of the options exercised was $41.4 million in 2013, $15.2 million in 2012, and $17.1 million in 2011. The total estimated fair value of options vested was $3.7 million in 2013, $4.1 million in 2012, and $6.4 million in 2011.

Valuation Assumptions

We based the range of weighted-average estimated values of employee stock option grants and rights granted under the employee stock purchase plan, as well as the weighted-average assumptions used in calculating these values, on estimates at the date of grant, as follows:

	Year Ended December 31,

	2013	2012	2011
*Employee stock options*
Risk-free interest rate	0.76% - 2.02%	0.74% - 1.17%	1.10% - 2.57%
Expected life (in years)	5 - 6	5 - 6	5 - 6
Volatility	58% - 60%	55% - 60%	49% - 55%
Dividend yield	—%	—%	—%
Weighted-average estimated fair value of stock options granted	$19.96	$11.50	$11.11
*Employee stock purchase plan issuances*
Risk-free interest rate	0.09% - 0.26%	0.14% - 0.29%	0.05% - 0.54%
Expected life (in years)	0.5 - 2	0.5 - 2	0.5 - 2
Volatility	56% - 61%	51% - 64%	48% - 59%
Dividend yield	—%	—%	—%
Weighted-average estimated fair value of ESPP issuances	$16.44	$8.07	$9.46

Range of Stock Option Exercise Prices

As of December 31, 2013, all outstanding options to purchase our common stock are summarized in the following table (in thousands, except years and per share data):

	Options Outstanding						Options Exercisable

Range of Exercise Prices	Number Outstanding		Weighted- average Remaining Contractual Life in Years		Weighted- average Exercise Prices		Options Exercisable		Weighted- average Remaining Contractual Life in Years		Weighted- average Exercise Price
$3.10 - $9.69		280		0.5	$	8.99		280		0.5	$	8.99
$9.70 - $16.00		557		3.1		14.77		551		3.1		14.80
$16.01 - $19.80		936		3.8		18.26		785		3.1		18.24
$19.81 - $24.71		467		6.7		22.08		271		5.6		22.00
$24.72 - $29.70		987		3.2		28.23		939		2.9		28.31
$29.71 - $35.00		916		3.6		33.34		893		3.4		33.39
$35.01 - $41.53		681		9.7		37.46		8		3.1		35.46


Total		4,824		4.5		25.30		3,727		3.1		23.51

Stockholders' Equity

In 2013, approximately 2.0 million awards were exercised at a weighted-average exercise price of $14.04 per share, for total cash proceeds of approximately $27.7 million.