14. STOCK-BASED COMPENSATION

Second Amended and Restated 2004 Equity Incentive Plan — The Company's Second Amended and Restated Equity Incentive Plan (the "2004 EIP") was adopted by the Board of Directors in February 2008 (termination date of January 4, 2014). Pursuant to the 2004 EIP, the Company may grant options, restricted stock and stock purchase rights to employees, directors, or consultants of the Company. Options granted may be either incentive stock options or nonstatutory stock options. Incentive stock options may be granted to employees (including offices and directors, who are also employees). Nonstatutory stock options may be granted to employees, directors or consultants.

Options under the 2004 EIP may be granted for periods up to ten years. All options issued to date have had up to a ten year life. The exercise price of incentive and nonstatutory stock options shall not be less than 100% of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. The Board of Directors also determine the vesting period of stock-based awards. The Company's stock options generally vest over four years. Restricted stock awards are subject to forfeiture if certain vesting requirements are not met.

In March 2011, the Company's Board of Directors approved a 2,000,000 increase in the options reserved for issuance under the Company's 2004 EIP.

On May 25, 2011, in conjunction with the Company's initial public offering, the 2004 EIP terminated so that no further awards may be granted under the 2004 EIP. Although the 2004 EIP terminated, all outstanding awards will continue to be governed by their existing terms.

2011 Equity Incentive Plan — On May 26, 2011, the Company's 2011 Equity Incentive Plan (the "2011 EIP", and together with the 2004 EIP (the "Plans")) became effective. The Company initially reserved 7,000,000 shares of common stock for issuance under the 2011 EIP. Starting on May 26, 2011, any shares subject to outstanding awards granted under the 2004 EIP that expire or terminate for any reason prior to the issuance of shares shall become available for issuance under the 2011 EIP.

2011 Employee Stock Purchase Plan — On May 26, 2011, the Company's 2011 Employee Stock Purchase Plan (the "2011 ESPP") became effective. The Company initially reserved 750,000 shares of common stock for issuance under the 2011 ESPP. The purchase price of the common stock under the Employee Stock Purchase Plan is 85% of the lower of the fair market value of a share of common stock on the first day of the offering period or the last day of the purchase period. No shares have been issued under the 2011 ESPP as of September 30, 2011.

Common Stock Subject to Repurchase — The Company allows employees and non-employees to exercise options prior to vesting. The Company has the right, but not the obligation, to repurchase any unvested (but issued) common shares upon termination of employment or service at the original purchase price per share. The consideration received for an exercise of an option is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability. The unvested shares and liability are reclassified to equity on a ratable basis as the award vests. There were 103,169 and 349,953 shares of common stock subject to repurchase as of September 30, 2011 and December 31, 2010, respectively. The Company's liability related to common stock subject to repurchase was $142,000 and $204,000 as of September 30, 2011 and December 31, 2010, respectively, and was recorded in other liabilities.

These shares were subject to a repurchase right held by the Company and therefore not included in issued and outstanding shares in the Company's consolidated statements of redeemable convertible preferred stock and stockholders' equity (deficit) as of September 30, 2011 and December 31, 2010. These shares have been reflected as exercised in the summary of option activity in all periods presented.

A summary of the Company's stock option and restricted stock activity under the Plans and related information is as follows:


	Number of Stock Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
								(in thousands)
Balance at December 31, 2010		5,538,004		$	2.60		8.7	$	23,190
Granted		2,822,765			5.85
Exercised		(397,560	)		0.91
Forfeited, cancelled or expired		(454,654	)		3.78

Balance at September 30, 2011		7,508,555		$	5.83		8.5	$	35,302

Options vested and exercisable — September 30, 2011		2,661,930		$	2.63		7.5	$	19,332


Options vested and expected to vest — September 30, 2011		7,119,227		$	5.74			$	34,119

A total of 6,100,486 shares were available for grant under the 2011 EIP as of September 30, 2011.

The weighted-average grant date fair value of options granted was $6.59 and $1.26 for the three months ended September 30, 2011 and September 30, 2010, respectively. The weighted-average grant date fair value of options granted was $5.65 and $1.25 for the nine months ended September 30, 2011 and 2010, respectively. The total intrinsic value of options exercised was $4.1 million and $0.9 million for the nine months ended September 30, 2011 and 2010, respectively.

The total fair value of options vested was $2.2 million and $0.3 million for the nine months ended September 30, 2011 and 2010, respectively.

The Company issues new common stock from authorized shares upon the exercise of stock options.

The following table summarizes stock options outstanding as of September 30, 2011:


	Options Outstanding					Options Vested and Exercisable
Range of Exercise Prices	Number of Options		Weighted- Average Remaining Contractual Term	Weighted- Average Exercise Price		Number of Vested Options		Weighted- Average Exercise Price
$0.001–0.13		874,623	5.80	$	0.11		847,051	$	0.11
$0.86–1.01		1,151,309	7.28		0.93		635,599		0.92
$2.35		1,666,512	8.84		2.35		681,265		2.35
$6.79–8.77		2,740,391	9.35		7.82		403,273		7.60
$11.17–15.00		734,620	9.85		11.99		65,326		13.70
$23.47–27.03		341,100	9.74		24.73		29,416		25.65

Totals		7,508,555	8.57		5.83		2,661,930		2.63

Stock-based compensation expense related to stock-based awards granted to employees and nonemployees were allocated to research and development and sales, general and administrative expense as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Research and development	$	534	$	113	$	1,567	$	282
Sales, general and administrative		2,018		231		6,008		673

	$	2,552	$	344	$	7,575	$	955

There was unrecognized stock compensation cost of $17.1 million and $6.7 million related to nonvested stock options as of September 30, 2011 and December 31, 2010, respectively. The Company expects to recognize this cost over a weighted-average period of 3.0 years and 3.4 years as of September 30, 2011 and December 31, 2010, respectively.

No income tax benefit has been recognized relating to stock-based compensation expense and no tax benefits have been realized from exercised stock options.

Employee Stock-Based Compensation — Stock compensation expense of $2.5 million and $0.3 million was recognized during the three months ended September 30, 2011 and 2010, respectively, for stock-based awards granted to employees. Stock compensation of $4.0 million and $0.8 million was recognized during the nine months ended September 30, 2011 and 2010, respectively, for stock-based awards granted to employees. The grant date fair value of employee stock-based awards was estimated using the following weighted-average assumptions:


	Three months ended September 30,		Nine months ended September 30,
	2011	2010	2011	2010
Expected term (in years)	5.2–6.1	5.5–6.2	5.2–6.1	5.5–6.2
Volatility	49.7%–53.1%	56.1%–56.5%	49.6%–53.1%	54.7%–56.5%
Risk-free interest rate	1.1%–1.9%	1.6%–1.9%	1.1%–2.5%	1.6%–2.4%
Dividend yield	0%	0%	0%	0%

Nonemployee Stock-Based Compensation — Stock compensation expense of $61,000 and $18,000 was recognized during the three months ended September 30, 2011 and 2010, respectively, for stock-based awards granted to nonemployees. Stock compensation expense of $3.6 million and $0.1 million was recognized during the nine months ended September 30, 2011 and 2010, respectively, for stock-based awards granted to non-employees. The fair value of non-employee stock-based awards was estimated using the following weighted-average assumptions:


	Three months ended September 30,		Nine months ended September 30,
	2011	2010	2011	2010
Expected term (in years)	9.9–10.0	10.0	9.5–10.0	9.7–10.0
Volatility	51.6%–52.0%	55.1%–55.4%	48.5%–52.1%	54.9%–55.8%
Risk-free interest rates	1.8%–2.0%	2.5%–2.8%	1.8%–3.0%	2.5%–2.8%
Dividend yield	0%	0%	0%	0%

Restricted Stock Awards — The Company granted 32,000 and 64,500 shares of restricted stock awards for the nine months ended September 30, 2011 and 2010, respectively.

Activity and related information for our restricted stock awards is summarized as follows:


	Number of Shares			Weighted Average Grant- Date Fair Value
Unvested at December 31, 2010		28,750		$	1.38
Granted		32,000			16.85
Vested		(32,708	)		3.03
Forfeited or cancelled		—			—

Unvested at September 30, 2011		28,042		$	17.11

There was unrecognized stock compensation costs of $0.3 million and $0.1 million related to nonvested restricted stock as of September 30, 2011 and December 31, 2010, respectively. The Company expects to recognize those costs over a weighted-average period of 1.9 years and 0.5 years as of September 30, 2011 and December 31, 2010, respectively.

Restricted Stock Units — The Company awarded 140,000 restricted stock units to an employee in the nine months ended September 30, 2011. There were no restricted stock units issued in the nine months ended September 30, 2010. The restricted stock units have a vesting term of 30 months. The weighted-average grant date fair value of restricted stock units granted in the nine months ended September 30, 2011 was $23.56. No restricted stock units were vested as of September 30, 2011. Stock compensation expense of $0.2 million and $0.2 million was recognized during the three and nine months ended September 30, 2011, respectively, for restricted stock units. The Company had not issued restricted stock units prior to 2011, and therefore, there was no stock compensation expense recognized during the three and nine months ended September 30, 2010.

Performance-Based Restricted Stock Units — The Company granted 60,000 performance-based restricted stock units to an employee that vest contingent upon the achievement of pre-determined performance-based milestones in the nine months ended September 30, 2011. If these performance-based milestones are not met, the restricted stock units will not vest, in which case, any stock-based compensation expense recognized to date will be reversed. There were no performance-based restricted stock units issued in the nine months ended September 30, 2010. The weighted-average grant date fair value of performance-based restricted stock units granted in the nine months ended September 30, 2011 was $23.56. No performance-based restricted stock units were vested as of September 30, 2011. Stock compensation expense of $0.2 million and $0.2 million was recognized during the three and nine months ended September 30, 2011, respectively, for performance-based restricted stock units granted to employees. The Company had not issued performance-based restricted stock units prior to 2011, and therefore, there was no stock compensation expense recognized during the three and nine months ended September 30, 2010 related to performance-based restricted stock units.

Stock Option Modification — In August 2011, the Company modified stock options by accelerating vesting of options as well as increasing the period to exercise options post-termination date. This modification resulted in the Company recording an additional $0.3 million of stock compensation expense in the nine months ended September 30, 2011.

Common Stock Warrant — In June 2010, the Company entered into a transaction with an executive placement group to provide recruiting services. As partial compensation for services rendered, the Company granted a warrant to purchase 5,000 shares of the Company's common stock at an exercise price of $2.35 per share, the estimated fair value of the Company's common stock at the time the warrant was granted. Prior to our initial public offering, this warrant was fully exercised in May 2011.