Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

13. Stock-Based Compensation

Amended and Restated 2007 Stock Option/Stock Issuance Plan

The Company established the 2007 Stock Option/Stock Issuance Plan (the “2007 Plan”) as a method to grant stock options, common stock and Class A common stock as an incentive to employees and nonemployees. The 2007 Plan, as originally approved, provided for a maximum of 10.2 million common shares to be granted to eligible employees, consultants and directors. On April 16, 2010, the 2007 Plan was amended such that the maximum number of common shares to be granted to eligible employees, consultants and directors was increased to 22.0 million. Options granted under the 2007 Plan are granted at an exercise price that approximates the fair market value of the stock at the time the option is granted. The stock options expire on the tenth anniversary of the date of grant. A portion of the stock options became exercisable upon issuance and the remaining stock options vested ratably over a five-year period. Shares of common stock or Class A common stock issued under the 2007 Plan were granted at the discretion of the 2007 Plan administrator and were either granted through the immediate purchase of such shares or as a bonus for services rendered to the Company. Options to purchase approximately 8.7 million shares of Class A common stock and options to purchase approximately 7.0 million shares of Class B common stock were outstanding as of September 30, 2011 under the 2007 Plan. Options to purchase approximately 9.8 million shares of Class B common stock and options to purchase approximately 5.6 million shares of Class A common stock were outstanding as of December 31, 2010. The company issued restricted stock in June 2011 under the 2007 Plan. Approximately 915,000 unvested restricted shares were outstanding at September 30, 2011 under the 2007 Plan. The shares are issuable to employees, directors and consultants upon having satisfied the necessary service conditions to earn the rights to the shares. The restricted shares have graded vesting in the range of four to five years. The fair value of all option grants is estimated using the Black-Scholes model.

In March 2011, the Company amended the 2007 Plan to allow the 2007 Plan Administrator to set the exercise price of any stock option grants under the 2007 Plan, even if such exercise price did not correspond with the fair value of the underlying common stock, provided that such grants at the grant date contained conditions of vesting and exercise for termination of services in compliance with Section 409A of the Internal Revenue Code. Concurrent with the 2007 Plan amendment, the Company issued options to purchase an aggregate of 2,428,262 shares of Class A common stock at $1.98 per share to three senior executives. The options vest 100% at the end of five years of service and expire on December 31, 2016. The options were valued at $6.02 on the grant date.

Stock-Based Compensation Expense

Stock-based compensation expense related to options and restricted stock granted was allocated to research and development expense and sales, general and administrative expense as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Research and development	$	247	$	142	$	466	$	192
Sales, general and administrative		1,340		316		4,321		422
Total stock-based compensation expense	$	1,587	$	458	$	4,787	$	614

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

Stock option activity for the Company under the 2007 Plan was as follows:

				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Remaining		Intrinsic
	Shares			Price		Life (Years)		Value
	(In thousands)							(In thousands)
Outstanding at December 31, 2010		15,408		$	0.74
Options Granted		3,200			5.12
Exercised		(1,460	)		0.09
Forfeited		(2,131	)		2.59
Outstanding at September 30, 2011		15,017		$	1.51		7.9	$	288,712
Exercisable		5,663		$	0.75		8.1	$	113,171

There were no options granted during the quarter ended September 30, 2011 under the 2007 Plan. The weighted-average grant-date fair value of options granted during the quarter ended September 30, 2010 was $0.88, and for the nine months ended September 30, 2011 and 2010 was $7.13 and $0.68, respectively. The total intrinsic value of options exercised during the three and nine months ended September 30, 2011 was $26,000 and $2.8 million, respectively. There remains $22.4 million in unrecognized stock-based compensation cost that is expected to be recognized over a weighted-average period of 3.3 years.

The weighted average assumptions used to value stock option grants under the 2007 Plan for the three and nine months ended September 30, 2011 and 2010 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Expected volatility		—	%		98.80	%		83.15	%		107.97	%
Risk-free interest rate		—	%		0.50	%		2.12	%		0.57	%
Dividend yield		—	%		—	%		—	%		—	%
Expected term (in years)		—			1.4			5.70			1.5

The Company has never paid dividends and does not expect to pay dividends. The risk-free interest rate was based on the market yield currently available on United States Treasury securities with maturities approximately equal to the option’s expected term. Expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The simplified method was used to calculate the expected term. Historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term, as the Company is a development stage company and fair market value of shares granted changed from the Company’s historical grants as a result of its initial public offering in June 2011. The expected volatility was based on the historical stock volatilities of several comparable publicly-traded companies over a period equal to the expected terms of the options, as the Company does not have a long trading history to use to estimate the volatility of its own common stock.

Restricted stock activity for the Company under the 2007 Plan was as follows:

				Weighted-
	Number of			Average
	Shares			Grant-Date
	(In thousands)			Fair Value
Nonvested—December 31, 2010		—		$	—
Granted		1,623			15.00
Vested		—			—
Canceled or forfeited		(708	)		15.00
Nonvested—September 30, 2011		915		$	15.00

As of September 30, 2011, there was $13.7 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2007 Plan. That cost is expected to be recognized over a weighted-average period of 4.4 years.

Common Stock Subject to Repurchase — In accordance with the stock option agreements between the Company and the holders of options to purchase shares of its common stock, option holders may exercise their options prior to vesting. The Company has the right to repurchase, at the lower of the original purchase price or the then current fair market value, any unvested (but issued) common shares upon termination of service of the option holder. The consideration received for an exercise of an unvested option is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability. The shares and liability are reclassified into equity on a ratable basis as the award vests. As of September 30, 2011 and December 31, 2010, there were no shares outstanding subject to repurchase by the Company.

Stock Grants — In March 2010, the Board of Directors of the Company authorized the issuance of 896,000 shares of common stock to the Company’s chief executive officer in lieu of a cash bonus. The shares were valued at $81,000 and were fully vested at the time of issuance and recorded as stock-based compensation expense.

Following the effectiveness of the Company’s 2011 Long-Term Incentive Plan described below, no further awards will be made under the 2007 Plan.

2011 Long-Term Incentive Plan

In May 2011, the Company’s Board of Directors adopted, and the Company’s stockholders subsequently approved, the Company’s 2011 Long-Term Incentive Plan (the “2011 Plan”), which became effective upon the completion of the Company’s initial public offering. The 2011 Plan provides for a maximum of approximately 10.2 million Class A common shares to be granted to eligible employees, consultants, and directors. Under the 2011 Plan, the compensation committee of the Board of Directors may grant awards in the form of stock options, stock appreciation rights, restricted or unrestricted shares of Class A common stock, units denominated in Class A common stock, cash and performance units representing the right to receive Class A common stock upon the attainment of certain performance goals. Any of the above awards may be subject to the attainment of one or more performance goals.

Stock option activity for the Company under the 2011 Plan was as follows:

			Weighted		Weighted
			Average		Average		Aggregate
			Exercise		Remaining		Intrinsic
	Shares		Price		Life (Years)		Value
	(In thousands)						(In thousands)
Outstanding at December 31, 2010		—	$	—
Options Granted		222		14.74
Exercised		—		—
Forfeited		—		—
Outstanding at September 30, 2011		222	$	14.74		10.0	$	1,334

The weighted-average grant-date fair value of options granted under the 2011 Plan during the quarter and nine months ended September 30, 2011 was $10.30. There is a remaining $2.3 million in unrecognized stock-based compensation cost that is expected to be recognized over a weighted-average period of 4.8 years. The fair value of the options granted under the 2011 Plan was calculated using the following assumptions: (1) expected volatility of 80.5%, (2) risk-free interest rate of 1.16%, (3) dividend yield of 0%, and (4) expected term of 6.3 years.

The Company has never paid dividends and does not expect to pay dividends. The risk-free interest rate was based on the market yield currently available on United States Treasury securities with maturities approximately equal to the option’s expected term. Expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The simplified method was used to calculate the expected term. Historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term, as the Company is a development stage company and fair market value of shares granted changed from the Company’s historical grants as a result of its initial public offering in June 2011. The expected volatility was based on the historical stock volatilities of several comparable publicly-traded companies over a period equal to the expected terms of the options, as the Company does not have a long trading history to use to estimate the volatility of its own common stock.

Restricted stock activity for the Company under the 2011 Plan was as follows:

			Weighted-
	Number of		Average
	Shares		Grant-Date
	(In thousands)		Fair Value
Nonvested—December 31, 2010		—	$	—
Granted		161		15.01
Vested		—		—
Canceled or forfeited		—		—
Nonvested—September 30, 2011		161	$	15.01

As of September 30, 2011, there was $2.4 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2011 Plan. That cost is expected to be recognized over a weighted-average period of 5.0 years.