Stock Plans and Stock-Based Compensation

9 Months Ended

Sep. 30, 2012

Stock Plans and Stock-Based Compensation

9. Stock Plans and Stock-Based Compensation

2012 Equity Incentive Plan

The Company’s board of directors adopted the 2012 Equity Incentive Plan in July 2012. The 2012 Equity Incentive Plan went into effect and the 2001 Stock Plan was terminated in August 2012. However, the awards under the 2001 Stock Plan outstanding as of and subsequent to the termination of the 2001 Plan will continue to be governed by their existing terms.

Under the 2012 Equity Incentive Plan, the aggregate number of common shares issued shall not exceed the sum of (a) 4,000,000 common shares, (b) the number of common shares reserved under the 2001 Stock Plan that were not issued or subject to outstanding awards under the 2001 Stock Plan upon its termination, (c) any common shares subject to outstanding options under the 2001 Stock Plan upon its termination that subsequently expire or lapse unexercised and common shares issued pursuant to awards granted under the 2001 Stock Plan that were outstanding upon its termination and that are subsequently forfeited to or repurchased by the Company; provided, however, that no more than 3,800,000 common shares, in the aggregate, shall be added to the 2012 Equity Incentive Plan pursuant to clauses (b) and (c). In addition, the number of shares reserved for issuance under the 2012 Equity Incentive Plan will be increased automatically on the first business day of each fiscal year of the Company, starting with fiscal year 2013 and ending in fiscal year 2022, by a number equal to the least of (a) 5% of the total number of common shares outstanding on December 31 of the prior year, (b) 3,000,000 common shares, subject to certain adjustments in accordance with the 2012 Equity Incentive Plan, or (c) a number of common shares determined by the Company’s board of directors.

Under the 2012 Equity Incentive Plan, the Company may grant shares, stock units, stock appreciation rights, performance cash awards and/or options to employees, directors, consultants, and other service providers. For options, the per share exercise price may not be less than the fair market value of a Company common share on the date of grant. Awards generally vest over four years and expire 10 years from the date of grant. Options generally become exercisable as they vest following the date of grant.

In general, to the extent that awards under the 2012 Equity Incentive Plan are forfeited or lapse without the issuance of shares, those shares will again become available for awards.

The Company’s board of directors has discretion to administer the 2012 Equity Incentive Plan. The Company’s board of directors has delegated authority to administer the 2012 Equity Incentive Plan to the Company’s compensation committee. The 2012 Equity Incentive Plan provides that in the event of certain significant corporate transactions, each outstanding award will be treated in the manner described in the definitive transaction agreement or as the board of directors determines. Outstanding options granted under the 2001 Stock Plan will become fully vested unless continued or assumed by a surviving entity in a significant corporate transaction. An individual award agreement or any other written agreement between a participant and the Company may provide that an award will be subject to additional acceleration of vesting and exercisability in the event of certain change in control transactions.

The Company’s board of directors may amend or terminate the 2012 Equity Incentive Plan at any time. If the Company’s board of directors amends the plan, it need not seek stockholder approval of the amendment unless required by applicable law, regulation or rule. The 2012 Equity Incentive Plan will continue in effect for 10 years from its adoption date, unless the Company’s board of directors decides to terminate the plan earlier.

As of September 30, 2012, under the 2012 Equity Incentive Plan, the Company may grant shares and/or options to purchase up to 7,557,567 shares of common stock to employees, directors, consultants, and other service providers. For options, the per share exercise price may not be less than the fair market value of a Company common share on the date of grant. Options generally vest over four years, expire 10 years from the date of grant, and become exercisable as they vest following the date of grant.

A summary of the stock option activity for the nine months ended September 30, 2012 under all of the Company’s options plans is as follows:

	Options			Weighted Average Exercise Price
Outstanding at January 1, 2012		3,869,007		$	0.33
Granted		1,483,500			1.21
Exercised		(208,292	)		0.27
Cancelled		(1,377,893	)		0.35
Outstanding at September 30, 2012		3,766,322		$	0.67
Weighted-average fair value of options granted during the period				$	1.98

Stock-Based Compensation

The Company recorded stock-based compensation expense in the condensed consolidated statements of comprehensive loss as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2012		2011		2012		2011
General and administrative	$	235	$	23	$	303	$	69
Research and development		254		32		313		97
	$	489	$	55	$	616	$	166

At September 30, 2012, the Company had $1.8 million of total unrecognized compensation expense, net of estimated forfeitures, related to outstanding stock options that will be recognized over a weighted-average period of 3.3 years.