Stock Options and Restricted Stock

The board of directors adopted the 2004 Stock Option Plan, or the 2004 Plan, and the Third Amended and Restated 2005 Equity Incentive Plan, or the 2005 Plan, which permits the sale or award of restricted common stock or grant of incentive and nonqualified stock options for the purchase of common stock to employees, directors and consultants up to a maximum aggregate of 13,000,000 shares and 12,000,000 shares at June 30, 2012 and December 31, 2011, respectively. At June 30, 2012 and December 31, 2011, 933,098 shares and 159,946 shares, respectively, were available under the 2005 Plan for future issuances of restricted common stock or grants of stock options.

Restricted Stock

The Company has issued shares of restricted common stock to employees, directors and consultants, which are subject to repurchase agreements and generally either vest over a four-year period from date of grant or immediately at the time of the grant. If the holder ceases to have a business relationship with the Company, the Company may repurchase any unvested shares of restricted common stock held by these individuals at their original purchase price. There were no unvested shares at June 30, 2012 or December 31, 2011.

Restricted stock is subject to transfer restrictions and contains the same rights and privileges as unrestricted shares of common stock. Shares of restricted stock are presented as outstanding as of the date of issuance. Grants made during 2010 and 2011 all vested immediately as of the date of the grant. There were no restricted stock grants between January 1, 2012 and June 30, 2012.

Stock Options

Stock options generally have terms of ten years. Stock options granted under the stock plans will typically vest 25% after the first year of service and ratably each month over the remaining 36-month period contingent upon employment with the Company on the date of vesting.

The Company utilizes the Black-Scholes model to determine the fair value of stock options. Management is required to make certain assumptions with respect to selected model inputs, including anticipated changes in the underlying stock price (i.e., expected volatility) and option exercise activity (i.e., expected term). The Company bases its expected volatility on the historical volatility of comparable publicly traded companies for a period that is equal to the expected term of the options. The expected term of options granted is derived using the “simplified” method as allowed under the provisions of the SEC’s Staff Accounting Bulletin No. 107 and represents the period of time that options granted are expected to be outstanding. The expected term for performance-based and non-employee awards is based on the period of time for which each award is expected to be outstanding, which is typically the remaining contractual term. The risk-free rate is based on the U.S. Treasury yield in effect at the time of the grant period for a period commensurate with the estimated expected life.

The following table summarizes stock option activity:



	Number of Shares		Weighted-Average Exercise Price		Aggregate Intrinsic Value⁽¹⁾		Weighted-Average Remaining Contractual Term (in years)
Balance, December 31, 2011	9,086,586		$	10.79	$	86,590	7.3
Options granted ⁽³⁾	626,500		$	25.03
Exercised	(71,442	)	$	18.92
Canceled/forfeited	(399,652	)	$	19.09
Balance, June 30, 2012	9,241,992		$	11.33	$	140,159	6.9
Vested and exercisable as of June 30, 2012	5,780,981		$	8.09	$	106,431	5.9
Vested and exercisable as of June 30, 2012 and expected to vest thereafter ⁽²⁾	8,653,670		$	10.85	$	135,450	6.8


(1)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying award and the fair value of $26.50, and $20.14 of our common stock on June 30, 2012, and December 31, 2011.


(2)	Stock options expected to vest reflect an estimated forfeiture rate.


(3)	Includes 242,500 shares granted to non-employees. The assumptions used to value these grants are similar to those used for grants made to employees with the exception of the expected term.

The fair value of vested shares was $5,655 for the six months ended June 30, 2012 and $10,885 during the year ended December 31, 2011. The total intrinsic value of options exercised was $462 for the six months ended June 30, 2012 and $4,143 during the year ended December 31, 2011.

The weighted-average fair value of options granted during the six months ended June 30, 2012 was $12.72 per share and $9.71 per share for the year ended December 31, 2011 based on the Black-Scholes model. The following weighted-average assumptions were used for grants made to employees and do not include the assumptions for non-employee grants:



	June 30, 2012		December 31, 2011
Risk-free interest rate	1.0	%	1.8	%
Expected volatility	44.6	%	43.8	%
Expected life (in years)	6		6
Dividend yield	—	%	—	%

The following table summarizes information concerning outstanding and exercisable options as of June 30, 2012:



	Options Outstanding				Options Exercisable and Vested
Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (in Years)	Weighted- Average Exercise Price		Number of Shares	Weighted- Average Exercise Price
$ 1.00 - $ 1.40	971,103	2.4	$	1.16	971,103	$	1.16
$2.98	216,240	4.3	$	2.98	216,240	$	2.98
$5.00	1,362,500	4.9	$	5.00	1,362,500	$	5.00
$7.50	1,737,000	7.0	$	7.50	1,284,822	$	7.50
$11.29	255,000	7.6	$	11.29	166,041	$	11.29
$13.00	955,000	7.5	$	13.00	562,597	$	13.00
$14.82	1,905,316	8.3	$	14.82	840,814	$	14.82
$15.50 - $21.00	1,153,333	8.6	$	19.03	355,614	$	17.87
25.50 - 26.50	686,500	9.7	$	25.74	21,250	25.50
$ 1.00 - $26.50	9,241,992	6.9	$	11.33	5,780,981	$	8.09

The fair value of the common stock has been determined by the Board of Directors at each award grant date based on a variety of factors, including arm’s length sales of the Company’s capital stock (including redeemable convertible preferred stock), valuations of comparable public companies, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s products, the composition and ability of the technology and management team, an evaluation of and benchmark to the Company’s competition, the current climate in the marketplace, the illiquid nature of the common stock, the effect of rights and preferences of preferred shareholders, and the prospects of a liquidity event, among others. In addition, at least quarterly the Company performs a valuation to assist in determining the current market value of the stock.

At June 30, 2012 and December 31, 2011, total unrecognized estimated compensation expense related to non-vested stock options granted prior to that date was approximately $29,345 and $31,124, respectively. This expense will be recognized on a straight-line basis over the weighted average remaining vesting period of 2.4 and 2.6 years as of June 30, 2012, and December 31, 2011, respectively.