(8) Stock-based Compensation

Stock Plans

The Company issued stock options and restricted stock awards during the six months ended June 30, 2011.

A summary of the status of the Company’s stock option activity at June 30, 2011 and changes during the six months then ended is presented in the table and narrative below:


	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2010		3,605,718		$	6.44
Granted		696,291		$	15.09
Exercised		(409,160	)	$	3.31
Cancelled		(51,158	)	$	9.43

Outstanding at June 30, 2011		3,841,691		$	8.30		7.02	$	47,300,085

Vested or expected to vest at June 30, 2011		3,702,857		$	8.09		6.93	$	46,345,172

Exercisable at June 30, 2011		2,364,276		$	5.44		5.75	$	35,876,765

The aggregate intrinsic value in the table above represents the value (the difference between the Company’s closing common stock price on the last trading day of the six months ended June 30, 2011 and the exercise price of the options, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2011. As of June 30, 2011, there was $9.2 million of total unrecognized stock-based compensation expense related to stock options granted under the Company’s 2002 Stock Incentive Plan and 2010 Stock Incentive Plan (the “plans”). The expense is expected to be recognized over a weighted-average period of 2.6 years.

Stock-based awards to employees are required to be measured at fair value. The Company uses the Black-Scholes pricing model in order to calculate the estimated fair value of its stock option grants. This model requires the Company to make assumptions with respect to factors such as volatility, interest rate, dividend yield and term. Since the Company completed its initial public offering in March 2010, it did not have sufficient history as a publicly traded company to evaluate its volatility. As such, the Company has used an average of several peer companies’ volatilities to determine a reasonable estimate of its volatility. For purposes of identifying similar entities, the Company considered characteristics such as industry, length of trading history, market capitalization and similar product pipelines. The Company utilized a weighted average method of using its own data for the quarters that it has been public, along with data it obtained from its peer companies. Due to the lack of available quarterly data for these peer companies and insufficient history as a public company, the Company elected to use the “simplified” method for “plain vanilla” options to estimate the expected term of the stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option.

During the three and six months ended June 30, 2011 and 2010, respectively, the assumptions used in the Black-Scholes pricing model for new grants were as follows:


	Three Months Ended June 30,
	2011			2010
Volatility factor		64.37	%		64.12-64.43	%
Risk-free interest rate		2.13	%		2.11	%
Dividend yield		—			—
Expected term (in years)		5.50-6.25			5.50-6.25


	Six Months Ended June 30,
	2011		2010
Volatility factor		64.37%-65.01%		63.92-64.43%
Risk-free interest rate		2.13%-2.57%		2.11%-2.92%
Dividend yield		—		—
Expected term (in years)		5.50-6.25		5.50-6.25

The restricted stock activity for the three months ended June 30, 2011 is as follows:


	Number of Shares		Weighted- Average Exercise Price
Unvested at December 31, 2010		—		—
Granted		69,000	$	14.16
Cancelled		—		—
Expired		—		—
Vested/Released		—		—

Unvested at June 30, 2011		69,000	$	14.16

As of June 30, 2011, there was $0.5 million of total unrecognized stock-based compensation expense related to restricted stock awards granted under the plans. The expense is expected to be recognized over a weighted-average period of 0.9 years.

On February 15, 2011, the Company’s Board of Directors adopted, subject to stockholder approval, amendment no. 1 to the Company’s 2010 Stock Incentive Plan to increase the amount of options granted to newly elected Board members, and amendment no. 2 to the Company’s 2010 Stock Incentive Plan to increase the number of shares of common stock reserved for issuance under the Company’s 2010 Stock Incentive Plan by 3,000,000. Pursuant to amendment no. 2, the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock Incentive Plan is the sum of (i) 4,875,000 shares of common stock plus (ii) the number of shares of common stock subject to awards granted under the 2002 Stock Incentive Plan which expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right, up to a maximum of 5,500,000 shares.

On April 12, 2011, the Company’s board of directors approved an amendment no. 3 to the Company’s 2010 Stock Incentive Plan which became effective upon its approval, to include the following provisions:

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restrictions on “repricing,” within the meaning of the rules of the NASDAQ Stock Market, any stock option or stock appreciation rights, or SARs, award unless such action is approved by the Company’s stockholders;

•

minimum vesting provisions with respect to certain awards granted under the plan;

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a maximum limit on the aggregate number of shares that may be granted as awards other than options; and

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revised share counting rules that prohibit the recycling of shares that are tendered or withheld to pay the exercise price of an award or to satisfy tax withholding obligations.