On September 8, 2005, the Board of Directors approved the 2005 Stock Incentive Plan (the "2005 Plan"), which was later approved by the Company's stockholders. Pursuant to the 2005 Plan, stock options, restricted shares, stock units, including RSUs, and stock appreciation rights may be granted to employees, consultants, and outside directors of the Company. Options granted may be either incentive stock options or nonstatutory stock options. The Company initially reserved 5,000,000 shares of the Company's common stock for issuance under the 2005 Plan, effective upon the closing of the Company's initial public offering on October 4, 2005. On June 8, 2009, the Company's stockholders approved an amendment to the 2005 Plan to increase the shares reserved for issuance under the 2005 Plan by 3,980,000 shares. The amended and restated plan also extends the term under which awards may be granted under the 2005 Plan until January 27, 2019.

Stock options are governed by stock option agreements between the Company and recipients of stock options. Incentive stock options may be granted under the 2005 Plan at an exercise price of not less than 100% of the fair market value of the common stock on the date of grant, determined by the Compensation Committee of the Board of Directors. Nonstatutory stock options may be granted under the 2005 Plan at an exercise price of not less than 80% of the fair market value of the common stock on the date of grant, determined by the Compensation Committee of the Board of Directors. Options become exercisable and expire as determined by the Compensation Committee, provided that the term of incentive stock options may not exceed 10 years from the date of grant. Stock option agreements may provide for accelerated exercisability in the event of an optionee's death, disability, or retirement or other events.

Under the 2005 Plan, each outside director who joins the board after the effective date of the 2005 Plan will receive an automatic nonstatutory stock option grant that vests at a rate of 25% at the end of the first year, with the remaining balance vesting monthly over the next three years. On the first business day following the annual meeting of the Company's stockholders, each outside director who is continuing board service and who was not initially elected to the board at the annual meeting will receive an additional nonstatutory stock option grant, which will vest in full on the first anniversary of the date of grant or, if earlier, immediately prior to the next annual meeting of the Company's stockholders. Nonstatutory stock options granted to outside directors must have an exercise price equal to 100% of the fair market value of the common stock on the date of grant. Nonstatutory stock options terminate on the earlier of the day before the tenth anniversary of the date of grant or the date twelve months after termination of the outside director's service as a member of the Board of Directors.

In 2011, the Compensation Committee of the Board of Directors revised the Company's equity incentive guidelines. Under the revised guidelines, most employees receive grants of RSUs in lieu of stock options. Employees with titles of vice president and above are eligible to receive stock options and RSUs. The target percentages of equity grant value for employees with titles of vice president and above other than our executive officers are 50% stock options and 50% RSUs, and the target percentages for executive officers are 75% stock options and 25% RSUs. The RSUs generally vest in three equal annual installments. As of April 2011, outside directors were given the option to elect to receive some or all of their retainers (other than retainers for serving as committee chair) in the form of RSUs that vest immediately. Restricted shares, stock units and stock appreciation rights granted under the 2005 Plan are governed by agreements between the Company and recipients of the awards. Terms of the agreements are determined by the Compensation Committee.

In June 2011, the Company's stockholders approved the Company's Employee Stock Purchase Plan ("ESPP"). The ESPP provides eligible employees with an opportunity to purchase common stock from the Company and to pay for their purchases through payroll deductions. The ESPP is implemented through a series of offerings of purchase rights to eligible employees beginning December 1, 2011. Under the ESPP, the Compensation Committee of the Company's Board of Directors may specify offerings with a duration of not more than 27 months, and may specify shorter purchase periods within each offering. During each purchase period, payroll deductions accumulate without interest. On the last day of the purchase period, accumulated payroll deductions are used to purchase common stock for employees participating in the offering. The purchase price is specified pursuant to the offering, but cannot, under the terms of the ESPP, be less than 85% of the fair market value per share of the Company's common stock on either the last trading day preceding the offering date or on the purchase date, whichever is less.

The Company's Board of Directors has determined that the purchase periods initially shall have a duration of six months and that the purchase price will be 85% of the fair market value per share of the Company's common stock on either the last trading day preceding the offering date or the purchase date, whichever is less. The length of the purchase period applicable to U.S. employees and the purchase price may not be changed without the approval of the independent members of the Company's Board of Directors.

During 2011, no shares were issued under the ESPP. A total of 1,250,000 shares of common stock have been reserved for issuance under the ESPP, and were available for issuance as of December 31, 2011.

As of December 31, 2011, there was $388,000 of unrecognized compensation expense related to the ESPP, which is expected to be recognized over an estimated weighted-average period of 5 months.

The following table summarizes option activity for the years ended December 31, 2011, 2010 and 2009:

	Outstanding Options

	Outstanding Options					Weighted-Average Remaining Contractual Life
	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life		Aggregate Intrinsic Value
	(In thousands)					(In years)		(In thousands)
Balance at December 31, 2008		4,665		$	14.76
Increase in shares reserved for issuance under the 2005 Plan		—
Options granted		348		$	19.82
Options exercised		(220	)	$	7.90
Options forfeited		(109	)	$	19.06

Balance at December 31, 2009		4,684		$	15.36

Options granted		1,265		$	16.90
Options exercised		(327	)	$	9.13
Options forfeited		(300	)	$	19.35

Balance at December 31, 2010		5,322		$	15.88

Options granted		561		$	23.40
Options exercised		(748	)	$	12.78
Options forfeited		(108	)	$	19.01
Balance at December 31, 2011		5,027		$	17.12		6.4	$	41,649

Exercisable at December 31, 2011		3,585		$	16.01		5.6	$	33,405

Vested and expected to vest at December 31, 2011		4,893		$	17.04		6.3	$	40,901

The total intrinsic value of stock options exercised during the years ended December 31, 2011, 2010 and 2009 was $9.8 million, $2.9 million and $2.8 million, respectively. The total fair value of stock options vesting during the years ended December 31, 2011, 2010 and 2009 was $10.1 million, $5.5 million and $10.2 million, respectively.

	Number of Shares			Weighted-Average Grant Date Fair Value

	(In thousands)
Balance at December 31, 2010		—		$	—
RSUs granted		347		$	23.28
RSUs vested		(5	)	$	25.16
RSUs cancelled		(16	)	$	23.06

Balance at December 31, 2011		326		$	23.26

The fair value of RSUs as of the vesting date was $133,000 for the year ended December 31, 2011. There were no RSUs granted prior to 2011.

The Company recorded employee stock-based compensation expense of $11.7 million, $10.3 million and $10.2 million for the years ended December 31, 2011, 2010 and 2009, respectively. Employee stock-based compensation expense was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Employee stock-based compensation expense includes expense related to stock options and RSUs granted to outside directors of the Company as well as stock purchased under the ESPP. The following table presents the impact of employee stock-based compensation expense on selected statements of operations line items for the periods indicated:

	Year Ended December 31,

	2011		2010		2009
	(In thousands)
Cost of product revenues	$	335	$	342	$	364
Research and development		3,017		2,881		3,098
Selling and marketing		3,194		3,086		3,171
General and administrative		5,189		4,035		3,522

Total	$	11,735	$	10,344	$	10,155

As of December 31, 2011, total unrecognized compensation expense related to unvested stock options, net of estimated forfeitures, was $16.1 million. The Company expects to recognize this expense over a weighted-average period of 26 months.

Fair values of awards granted under the 2005 Plan and ESPP were estimated at grant or purchase dates using a Black-Scholes option valuation model. Option valuation models require the input of highly subjective assumptions that can vary over time. The Company's assumptions regarding expected volatility are based on the historical volatility of the Company's common stock. The expected life of options granted is estimated based on historical option exercise data and assumptions related to unsettled options. The risk-free interest rate is estimated using published rates for U.S. Treasury securities with a remaining term approximating the expected life of the options granted. The Company uses a dividend yield of zero as it has never paid cash dividends and does not anticipate paying cash dividends in the foreseeable future. The weighted-average fair values and assumptions used in calculating such values during each fiscal year are as follows:

	Year Ended December 31,

	2011			2010			2009
Expected volatility:
Stock options		47	%		52	%		55	%
ESPP		47	%		—	%		—	%
Risk-free interest rate:
Stock options		2.29	%		2.49	%		2.33	%
ESPP		0.05	%		—	%		—	%
Expected life in years:
Stock options		6.22			5.77			5.80
ESPP		0.50			—			—
Weighted-average fair value:
Stock options	$	11.19		$	8.61		$	10.44
ESPP	$	7.16			—			—

The Company grants stock options to non-employee consultants from time to time in exchange for services performed for the Company. The Company did not grant any stock options to non-employee consultants during the years ended December 31, 2011 and 2010. During the year ended December 31, 2009, the Company granted options to purchase 5,000 shares to a non-employee consultant. The fair value of these option grants was determined using the Black-Scholes option pricing model. In general, the options vest over the contractual period of the respective consulting arrangements and, therefore, the Company revalues the options periodically and records additional compensation expense related to these options over the remaining vesting periods. During the year ended December 31, 2011, there was no stock-based compensation expense related to these options. During the years ended December 31, 2010 and 2009, stock-based compensation expense related to these options was $15,000 and $80,000, respectively.