Equity Incentive Plan. On May 19, 2009, at our 2009 Annual Meeting of Stockholders, or the 2009 Annual Meeting, our stockholders approved the Omnicell, Inc. 2009 Equity Incentive Plan, or the 2009 Plan, which authorized 2,100,000 shares to be issued. The 2009 Plan succeeded the 1999 Equity Incentive Plan, as amended, the 2003 Equity Incentive Plan, as amended, and the 2004 Equity Incentive Plan, together the Prior Plans. No additional awards will be granted under any of the Prior Plans; however, all outstanding stock awards granted under the Prior Plans continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards. For purposes of determining future common shares available for grant, for each share granted as a full-value award, including restricted stock and restricted stock units, or RSUs, performance stock awards, the shares available for grant were reduced by 1.4 shares. Equity awards granted as stock options and stock appreciation rights reduce the shares available for grant by one share.

On December 16, 2010, at a Special Meeting of Stockholders, our stockholders approved an amendment to increase the number of shares of common stock authorized for issuance under the 2009 Plan by 2,600,000 shares and to provide that the number of common stock shares available for issuance under the 2009 Plan be reduced by 1.8 shares for each share granted as a full-value award granted on and after October 1, 2010. For each share granted as a full-value award granted prior to October 1, 2010, future shares available for grants under the 2009 Plan were reduced by 1.4 shares. Awards granted as stock options and stock appreciation rights continue to reduce the number of shares available for issuance under the 2009 Plan on a one-for-one basis. At December 31, 2011, 2,518,088 shares of common stock were reserved for future issuance under the 2009 Plan.

Options granted under the 2009 Plan generally become exercisable over periods of up to four years, generally with one-fourth of the shares vesting one year from the vesting commencement date with respect to initial grants, and the remaining shares vesting in 36 equal monthly installments thereafter; however our board of directors may impose different vesting terms at its discretion on any award. Options under the 2009 Plan generally expire ten years from the date of grant. We also grant both restricted stock and restricted stock units to participants under the 2009 Plan. The board of directors determines the award amount, the vesting provisions and the expiration period (not to exceed ten years) for each grant. Grants of restricted stock to non-employee directors are granted on the date of our annual meeting of stockholders and vest in full on the date of our next annual meeting of stockholders, provided such non-employee director remains a director on such date. The fair value of the stock on the date of issuance is amortized to expense from the date of grant to the date of vesting. RSUs granted to employees generally vest over a period of four years and are expensed ratably on a straight-line basis over the vesting period. We consider the dilutive impact of options, restricted stock and restricted stock units in our diluted net income per share calculation.

The board of directors shall administer the 2009 Plan unless and until the board of directors delegates administration to a committee. The Board has delegated administration of the 2009 Plan to the Compensation Committee of the Board and the 2009 Plan is generally administered by such committee. The board of directors may suspend or terminate the 2009 Plan at any time. The board of directors may also amend the 2009 Plan at any time or from time to time. However, no amendment will be effective unless approved by our stockholders after its adoption by the board of directors to the extent stockholder approval is necessary to satisfy the applicable listing requirements of NASDAQ.

If we sell, lease or dispose of all or substantially all of our assets, or we are acquired pursuant to a merger or consolidation, then the surviving entity may assume or substitute all outstanding awards under the 2009 Plan. If the surviving entity does not assume or substitute these awards, then generally the stock awards will immediately and fully vest.

We have an Employee Stock Purchase Plan, or ESPP, under which employees can purchase shares of our common stock based on a percentage of their compensation, but not greater than 15% of their earnings, up to a maximum of $25,000 of fair value per year. The purchase price per share must be equal to the lower of 85% of the fair value of the common stock at the beginning of a 24-month offering period or the end of each six-month purchasing period.

At our 2009 Annual Meeting, the stockholders approved an amendment to the ESPP, which added 2,622,426 shares to the reserve for future issuance. As of December 31, 2011, there was a total of 1,926,560 shares reserved for future issuance under the ESPP. During the year ended December 31, 2011, 445,965 shares of common stock were purchased under the ESPP. As of December 31, 2011, 3,404,995 shares had been issued under the ESPP.

As of December 31, 2011, our unrecognized compensation cost related to the shares to be purchased under our ESPP was approximately $0.5 million and is expected to be recognized over a weighted average period of 0.6 years.

We have established a 401(k) tax-deferred savings plan, whereby eligible employees may contribute a percentage of their eligible compensation, but not greater than 75% of their earnings, up to the maximum as required by law. On January 1, 2009, the Company began matching 401(k) contributions, up to 3% maximum of employee contributions or $1,000, whichever is lower. The Company's total 401(k) contributions for the years ended December 31, 2011 2010 and 2009 were $0.6 million, $0.5 million and $0.5 million, respectively.

We adopted ASC 718, Stock Compensation, using the modified prospective transition method beginning January 1, 2006. For awards granted prior to but not yet vested as of January 1, 2006, share-based compensation expense was based on the grant-date fair value previously estimated in accordance with the original provisions of SFAS 123 and adjusted for estimated forfeitures. We have recognized compensation expense based on the estimated grant date fair value method required under ASC 718 using straight-line amortization method. As ASC 718 requires that share-based compensation expense be based on awards that are ultimately expected to vest, estimated share-based compensation in 2011, 2010 and 2009 has been reduced for estimated forfeitures.

Total share-based compensation resulting from stock option grants, restricted stock awards, restricted stock units and shares purchased under our ESPP were included in our consolidated statements of operations as follows (in thousands, except per share data):

	Year Ended December 31,

	2011		2010		2009
Cost of revenues	$	1,398	$	1,350	$	1,478
Research and development		1,269		755		1,184
Selling, general and administrative		6,832		6,910		7,063

Total share-based compensation expense	$	9,499	$	9,015	$	9,725

We did not capitalize any share-based compensation into inventory during 2011, 2010 and 2009 as it was not material. Income tax (charges) benefits realized from share-based compensation and resulting increases (decreases) to additional paid in capital during 2011, 2010 and 2009 were $2.9 million, $2.0 million and $(5.5) million, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The fair value of shares issued under the employee stock purchase plans is estimated on the date of issuance using the Black-Scholes-Merton model. The weighted average assumptions used for options granted and ESPP in 2011, 2010 and 2009 were as follows:

	Year Ended December 31,

Stock Option Plans	2011			2010			2009
Risk-free interest rate(1)		1.6	%		2.3	%		2.3	%
Dividend yield		0	%		0	%		0	%
Volatility(2)		48.5	%		50.3	%		60.2	%
Expected life(3)		5.2 yrs			5.2 yrs			5.0 yrs

	Year Ended December 31,

Employee Stock Purchase Plan	2011			2010			2009
Risk-free interest rate(1)		0.5	%		0.4	%		0.7	%
Dividend yield		0	%		0	%		0	%
Volatility(2)		40.2	%		48.5	%		67.6	%
Expected life(3)		0.5 - 2 yrs			0.5 - 2 yrs			0.5 - 2 yrs

(1): The risk-free interest rate for both stock options and the ESPP is based on the zero-coupon U.S. Treasury rate curve in effect at the time of the option grant or at the beginning of the ESPP offering period.
(2): Expected volatility for both stock options and the ESPP reflects a combination of historical and market-based implied volatility consistent with ASC 718 and Securities and Exchange Commission Staff Accounting Bulletin 107. We determined that the combination of historical and market-based implied volatility provides a more accurate reflection of our market conditions and is more representative of future stock price trends than employing solely historical volatility.
(3): Represents the period of time that options granted are expected to be outstanding, which is derived from historical data on employee exercise and post-vesting employment termination behavior.

A summary of option activity under the 2009 Plan for the years ended December 31, 2011, 2010 and 2009 is presented below:

Options:	Number of Shares			Weighted Average Exercise Price

	(in thousands)
Outstanding at December 31, 2008		4,711		$	13.45
Granted		788		$	8.72
Exercised		(126	)	$	8.81
Expired		(183	)	$	17.23
Forfeited		(442	)	$	13.81

Outstanding at December 31, 2009		4,748		$	12.61
Granted		666		$	12.99
Exercised		(431	)	$	8.46
Expired		(164	)	$	16.50
Forfeited		(79	)	$	14.80

Outstanding at December 31, 2010		4,740		$	12.86
Granted		494		$	14.57
Exercised		(413	)	$	8.30
Expired		(86	)	$	13.59
Forfeited		(42	)	$	20.76

Outstanding at December 31, 2011		4,693		$	13.36
Vested and expected to vest at December 31, 2011		4,666		$	13.36
Exercisable at December 31, 2011		3,616		$	13.47

Outstanding options at December 31, 2011 had a weighted-average remaining contractual life of 5.5 years and an aggregate intrinsic value of $20.3 million. Vested and expected to vest options had a weighted-average remaining contractual life of 5.5 years and an aggregate intrinsic value of $20.2 million. Exercisable options at December 31, 2011 had a weighted-average remaining contractual life of 4.6 years and an aggregate intrinsic value of $16.5 million.

The ranges of outstanding and exercisable options for equity share-based payment awards as of December 31, 2011 were as follows:

Range of Exercise Prices	Number Outstanding		Weighted Average Exercise Price of Outstanding Options		Number Exercisable		Weighted Average Exercise Price of Exercisable Options

	(in thousands)				(in thousands)
$2.70 - $7.94		754	$	6.58		630	$	6.32
$8.49 - $10.41		478	$	9.78		440	$	9.76
$10.58 - $10.75		701	$	10.66		662	$	10.66
$10.83 - $12.48		634	$	12.06		461	$	11.94
$12.53 - $14.07		502	$	13.41		262	$	13.26
$14.08 - $15.04		500	$	14.43		125	$	14.87
$15.48 - $20.95		687	$	19.40		599	$	19.83
$21.07 - $26.25		313	$	22.80		313	$	22.80
$26.99 - $26.99		38	$	26.99		38	$	26.99
$29.16 - $29.16		86	$	29.16		86	$	29.16

$2.70 - $29.16		4,693	$	13.36		3,616	$	13.47

As of December 31, 2011, $6.2 million of total unrecognized compensation costs related to unvested options is expected to be recognized over a weighted average period of 2.6 years. The weighted average fair value of options granted was $6.47, $6.13 and $4.57 during 2011, 2010 and 2009, respectively. The intrinsic value of options exercised during 2011, 2010 and 2009 was $2.9 million, $2.1 million and $0.3 million, respectively. The total fair value of shares vested during 2011, 2010 and 2009 was $4.0 million, $4.9 million, $5.6 million, respectively.

A summary of activity of restricted stock granted under the 2009 Plan as of December 31, 2011 is presented below:

	Shares of Restricted Stock

	(in thousands)
Nonvested at December 31, 2008		41		11.91
Granted		52		9.25
Vested		(41	)	11.91

Nonvested at December 31, 2009		52		9.25
Granted		79		12.91
Vested		(54	)	9.40

Nonvested at December 31, 2010		77		12.91
Granted		68		14.71
Vested		(77	)	12.91

Nonvested at December 31, 2011		68		14.71

The fair value of restricted stock is the product of the number of shares granted and the closing market price of our common stock on the grant date. The total fair value of restricted stock grants vested in 2011, 2010 and 2009 was $1.1 million, $0.7 million and $0.5 million, respectively. Our unrecognized compensation cost related to nonvested restricted stock is approximately $0.4 million and is expected to be recognized over a weighted average period of 0.4 years.

A summary of activity of restricted stock units, or RSUs, granted under the 2009 Plan as of December 31, 2011 is presented below:

	Restricted Stock Units

	(in thousands)
Nonvested at December 31, 2008		236		20.11
Granted		150		9.09
Vested		(91	)	18.72
Forfeited		(31	)	20.36

Nonvested at December 31, 2009		264		14.32
Granted		195		12.83
Vested		(140	)	15.10
Forfeited		(11	)	15.34

Nonvested at December 31, 2010		308		12.98
Granted		145		14.39
Vested		(152	)	14.26
Forfeited		(14	)	12.82

Nonvested at December 31, 2011		287		13.03

The fair value of RSUs is the product of the number of shares granted and the closing market price of our common stock on the grant date. The total fair value of RSUs vested in 2011, 2010 and 2009 was $2.4 million, $1.9 million and $1.6 million, respectively. Expected future compensation expense relating to RSUs outstanding on December 31, 2011 is $3.6 million over a weighted- average period of 2.5 years.

In 2011, we began incorporating performance-based restricted stock units ("PSUs") as an element of our executive compensation plans. For the executive officers, the 2011 grants totaled 100,000 stock options, 50,000 time-based RSUs and 100,000 PSUs. Our unrecognized compensation cost related to non-vested performance-based restricted stock units at December 31, 2011 was approximately $0.5 million and is expected to be recognized over a weighted-average period of 1.3 years. For the year ended December 31, 2011 we recognized $0.6 million of compensation expense for the performance-based restricted stock units.

The number of PSU awards eligible for time-based vesting is based on the percentile placement of our total shareholder return among the companies listed in the NASDAQ Healthcare Index (the "Index"). We calculate total shareholder return based on the one year annualized rates of return reflecting price appreciation plus reinvestment of dividends. Stock price appreciation is calculated based on the average closing prices of the applicable company's common stock for the 20 trading days ending on the last trading day of the year prior to the date of grant as compared to the average closing prices for the 20 trading days ended on the last trading day of the year of grant. The following table shows the percent of PSUs eligible for further time-based vesting based on our percentile placement:

Percentile Placement of Our Total Shareholder Return		% of PSUs Eligible for Time- Based Vesting(1)

Below the 35th percentile		0%
At least the 35th percentile, but below the 50th percentile		50%
At least the 50th percentile, but below the 65th percentile		100%
At least the 65th percentile, but below the 75th percentile		110% to 119%(2)
At or above the 75th percentile		120%

(1): Depending on our market-based performance, the 100,000 PSUs awarded in 2011 could result in actual shares released of none, 50,000, 100,000 or linear interpolation between 110,000 and 120,000 shares, with 120,000 shares as the maximum result for market performance at or above the 75^th percentile in the industry.
(2): In this range, the actual percentage of PSUs eligible for further time-based vesting is based on straight-line interpolation, where, for example, if the ranking is the 70^th percentile, then the vesting percentage is 115%.

The fair value of a PSU award is the average of trial-specific values of the award over each of one million Monte Carlo trials. Each trial-specific value is the market value of the award at the end of the one-year performance period discounted back to the grant date. The market value of the award for each trial at the end of the performance period is the product of (a) the per share value of Omnicell stock at the end of the performance period and (b) the number of shares that vest. The number of shares that vest at the end of the performance period depends on the percentile ranking of the total shareholder return for Omnicell stock over the performance period relative to the total shareholder return of each of the other companies in the Index as shown in the table above.

After the last trading day of 2011, the Compensation Committee of our Board of Directors determined 76.3% as the percentile rank of the company's 2011 total shareholder return, ranking 92^nd out of the 427 member peer group. This resulted in 120% of the 2011 PSU awards, or 120,000 shares, as eligible for further time-based vesting. The eligible PSU awards will vest as follows: 25% of the eligible awards for the first year vested January 15, 2012 with the remaining eligible awards vesting in equal increments, semi-annually, over the subsequent three year period of 2012 to 2014. Vesting is contingent upon continued service.

A summary of activity of the PSUs for the year ended December 31, 2011 is presented below:

Performance-based Stock Units	Number of Units		Weighted- Average Grant Date Fair Value Per Unit

	(in thousands)
Non-vested, December 31, 2010		—		—
Granted		100	$	11.15
Vested		—		—
Forfeited		—		—

Non-vested, December 31, 2011		100	$	11.15