4. STOCK-BASED COMPENSATION

        Total stock-based compensation expense related to all of our stock-based awards was as follows (in thousands):

Employee Stock Option Plans

        In 2011, we adopted our 2011 Plan which was approved in May 2011 by our stockholders, (i) to establish a reserve of shares authorized for issuance under the 2011 Plan of 3,500,000 shares of common stock, (ii) provide that the number of shares available for issuance under the 2011 Plan shall be reduced by one share for each share of common stock subject to a stock option or stock appreciation right with a strike price of at least 100% of the fair market value of the underlying common stock on the grant date and by 1.7 shares for each share of common stock subject to any other type of award issued pursuant to the 2011 Plan, and (iii) establish an equity plan that specifically excludes our Chief Executive Officer as an eligible participant. In 2012, an amendment to the 2011 Plan was approved primarily to (i) increase the aggregate number of shares of common stock authorized for issuance under the 2011 Plan by 600,000 shares, (ii) provide that the number of shares available for issuance under the 2011 Plan shall be reduced by one share for each share of common stock subject to a stock option or stock appreciation right with a strike price of at least 100% of the fair market value of the underlying common stock on the grant date and by 1.4 (instead of 1.7) shares for each share of common stock subject to any other type of award issued pursuant to the 2011 Plan and (iii) include the Company's Chief Executive Officer as an eligible participant under the 2011 Plan. Options granted under our 2011 Plan expire no later than ten years from the date of grant. Options may be granted with different vesting terms from time to time, ranging from zero to five years. As of December 31, 2012, a total of 4,090,106 shares of common stock were authorized for issuance under the 2011 Plan. Options to purchase 9,894 shares were exercised during the year ended December 31, 2012 under the 2011 Plan.

        In 2011, an amendment to the 2000 Plan was approved primarily to (i) increase the number of shares authorized for issuance by 600,000 shares to an aggregate total of 13,610,403 and (ii) provide that the number of shares available for issuance under the 2000 Plan shall be reduced by one share for each share of common stock subject to a stock option or stock appreciation right with a strike price of at least 100% of the fair market value of the underlying common stock on the grant date and by 1.7 shares for each share of common stock subject to any other type of award issued pursuant to the 2000 Plan. In 2012, an amendment to the 2000 Plan was approved primarily to (i) extend the term of the 2000 Plan to May 22, 2022, (ii) provide that the number of shares available for issuance under the 2000 Plan shall be reduced by one share for each share of common stock subject to a stock option or stock appreciation right with a strike price of at least 100% of the fair market value of the underlying common stock on the grant date and by 1.4 (instead of 1.7) shares for each share of common stock subject to any other type of award issued pursuant to the 2000 Plan and (iii) increase the maximum amount that may be received by an individual in any calendar year attributable to performance-based stock awards under the 2000 Plan from the value of not more than 166,666 shares of the Company's common stock to the value of not more than 1,500,000 shares of the Company's common stock. Options granted under our 2000 Plan expire no later than ten years from the date of grant. Options may be granted with different vesting terms from time to time, ranging from zero to five years. As of December 31, 2012, a total of 11,624,675 shares of common stock were authorized for issuance under the 2000 Plan. Options to purchase 200,226 shares were exercised during the year ended December 31, 2012 under the 2000 Plan.

        In 2011, an amendment to the Directors' Plan was approved primarily to increase the number of shares authorized for issuance by 250,000 shares to an aggregate total of 1,135,000 shares. The exercise price of options under the Directors' Plan is equal to the fair market value of the common stock on the date of grant. The maximum term of the options granted under the Directors' Plan is ten years. As of December 31, 2012, a total of 1,088,182 shares of common stock were authorized for issuance under the Directors' Plan. Options to purchase 44,029 shares were exercised during the year ended December 31, 2012 under the Directors' Plan.

        Pursuant to FASB ASC 718, we are required to estimate the amount of expected forfeitures when calculating compensation costs. We estimated the forfeiture rate using our historical experience with nonvested options. We adjust our stock-based compensation expense as actual forfeitures occur, review our estimated forfeiture rates each quarter and make changes to our estimate as appropriate.

        The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. We have segregated option awards into the following three homogenous groups for the purposes of determining fair values of options: officers and directors, all other employees, and consultants.

        We determined weighted-average valuation assumptions separately for each of these groups as follows:

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  Volatility—We estimated volatility using the historical share price performance over the expected life of the option up to the point where we have historical market data. We also considered other factors, such as implied volatility, our current clinical trials and other company activities that may affect the volatility of our stock in the future. We determined that at this time historical volatility is more indicative of our expected future stock performance than implied volatility.
  
  

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  Expected term—For options granted to consultants, we use the contractual term of the option, which is generally ten years, for the initial valuation of the option and the remaining contractual term of the option for the succeeding periods. We worked with various historical data to determine the applicable expected term for each of the other option groups. This data included: (1) for exercised options, the term of the options from option grant date to exercise date; (2) for cancelled options, the term of the options from option grant date to cancellation date, excluding nonvested option forfeitures; and (3) for options that remained outstanding at the balance sheet date, the term of the options from option grant date to the end of the reporting period and the estimated remaining term of the options. The consideration and calculation of the above data gave us reasonable estimates of the expected term for each employee group. We also considered the vesting schedules of the options granted and factors surrounding exercise behavior of the option groups, our current market price and company activity that may affect our market price. In addition, we considered the optionee type (i.e., officers and directors or all other employees) and other factors that may affect the expected term of the option.
  
  

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  Risk-free interest rate—The risk-free interest rate is based on U.S. Treasury constant maturity rates with similar terms to the expected term of the options for each option group.
  
  

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  Dividend yield—The expected dividend yield is 0% as we have not paid and do not expect to pay dividends in the future.

        The following table summarizes the weighted-average assumptions relating to options granted pursuant to our equity incentive plans for the years ended December 31, 2012, 2011 and 2010:

        Options are priced at the market price of our common stock on the date immediately preceding the date of grant, become exercisable at varying dates and generally expire ten years from the date of grant. At December 31, 2012, options to purchase 3,198,586 shares of common stock were available for grant and 16,802,963 reserved shares of common stock were available for future issuance under our stock option plans.

        We recorded stock-based compensation expense of approximately $55,000 and $31,000 for the years ended December 31, 2012 and 2010, respectively, associated with options granted to consultants reflecting the fair value valuation and periodic fair value re-measurement of outstanding consultant options under FASB ASC 505-50. For the year ended December 31, 2011, there was no stock-based compensation expense associated with options granted to consultants. The valuation is based upon the current market value of our common stock and other assumptions, including the expected future volatility of our stock price, risk-free interest rate and expected term. We amortized stock-based compensation related to consultants using a straight-line attribution method consistent with the method used for employees and with the attribution election we made upon adoption of FASB ASC 718. No options to purchase shares granted to consultants were exercised during the year ended December 31, 2012.

Stock-Based Compensation Award Activity

        Option activity under our equity incentive plans was as follows:

        Weighted-average grant date fair value of options granted during 2012, 2011 and 2010 was $5.44, $4.63 and $6.14, respectively.

        The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for the options that were in-the-money at December 31, 2012. We had approximately 762,999 and 766,425 of nonvested stock options with approximately no intrinsic value at December 31, 2012 and approximately $699,000 intrinsic value at December 31, 2011. During the years ended December 31, 2012, 2011 and 2010, the aggregate intrinsic value of options exercised under our stock option plans was approximately $701,000, $201,000 and $122,000, respectively, determined as of the date of option exercise.

        As of December 31, 2012, there was approximately $2.6 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock-based compensation arrangements granted under our stock option plans and approximately $742,000 of total unamortized compensation cost related to our Purchase Plan. The unamortized compensation cost related to our stock option plans and our Purchase Plan is expected to be recognized over a weighted-average period of approximately 2.20 years and 1.5 years, respectively. For the years ended December 31, 2012, and 2011, there were 2,128,233 and 2,121,922 shares vested with weighted-average exercise price of $8.12 and $8.27, respectively. Future option grants and their increasing valuation will increase our compensation cost in the future as the options are granted, valued and expensed ratably according to their vesting periods.

        Details of our stock options by exercise price are as follows as of December 31, 2012:

Employee Stock Purchase Plan

        In August 2000, we adopted our Purchase Plan which was approved in September 2000 by our stockholders. The Purchase Plan permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lesser of 85% of the fair market value of the common stock on the first day of the offering or 85% of the fair market value of our common stock on the purchase date. The initial offering period commenced on the effective date of our initial public offering. We issued 269,681, 247,880 and 228,585 shares of common stock during 2012, 2011 and 2010, respectively, pursuant to the Purchase Plan at an average price of $5.81, $6.08 and $6.09 per share, respectively. For 2012, 2011 and 2010, the weighted average fair value of stock purchased under the Purchase Plan was $3.42, $2.96 and $3.73, respectively. As of December 31, 2012, we had 467,747 reserved shares of common stock available for future issuance under the Purchase Plan.

        The fair value of awards granted under our Purchase Plan is estimated on the date of grant using the Black-Scholes option pricing model, which uses weighted-average assumptions. Our Purchase Plan provides for a twenty-four month offering period comprised of four six-month purchase periods with a look-back option. A look-back option is a provision in our Purchase Plan under which eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85% of the fair market value on the first day of the offering period or 85% of the fair market value on the purchase date. Our Purchase Plan also includes a feature that provides for a new offering period to begin when the fair market value of our common stock on any purchase date during an offering period falls below the fair market value of our common stock on the first day of such offering period. This feature is called a "reset." Participants are automatically enrolled in the new offering period. We had a "reset" on January 2, 2013 because the fair market value of our stock on December 31, 2012 was lower than the fair market value of our stock on July 2, 2012, the first day of the offering period. We applied modification accounting in accordance with ASC Topic No. 718, Stock Compensation, to determine the incremental fair value associated with this Purchase Plan "reset" and will recognize the related stock-based compensation expense according to FASB ASC Subtopic No. 718-50, Employee Share Purchase Plan. The total incremental fair value for this Purchase Plan "reset" was approximately $874,000, that will be recognized from January 2, 2013 to December 31, 2014.

        The following table summarizes the weighted-average assumptions related to our Purchase Plan for the years ended December 31, 2012, 2011 and 2010. Expected volatilities for our Purchase Plan are based on the historical volatility of our stock. Expected term represents the weighted-average of the purchase periods within the offering period. The risk-free interest rate for periods within the expected term is based on U.S. Treasury constant maturity rates.