(4) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company maintains the 2010 Omnibus Long-Term Incentive Plan, the 2010 Employee Stock Purchase Plan, the 2000 Stock Option and Incentive Plan and the 2000 Employee Stock Purchase Plan (collectively, the “Stock Plans”). In July 2013 the Company’s stockholders approved an amendment to the 2010 Omnibus Long-Term Incentive Plan to increase the number of shares reserved for issuance thereunder by 2,800,000 shares and to increase the fungible share ratio to 1.55 (from 1.35) so that each share of common stock covered by an award other than an option or stock appreciation right will reduce the shares available under the plan by 1.55 shares.

Stock-Based Compensation Expense

The Company recorded $1.8 million and $5.7 million in stock-based compensation expense during the three and nine months ended September 30, 2013 in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors. The Company recorded $1.5 million and $4.0 million in stock-based compensation expense during the three and nine months ended September 30, 2012 in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees and non-employee directors.

In connection with the June 7, 2013 resignation of Laura Stoltenberg, the Company’s former Chief Commercial Officer, the Company modified the vesting of 100,000 shares of Ms. Stoltenberg’s previously unvested restricted stock units of which 41,250 of the restricted stock units vested upon the execution of the separation agreement, 10,000 will vest in March 2014, and the remaining 48,750 will vest in twenty-four equal monthly installments beginning in April 2014, subject to Ms. Stoltenberg’s continuing compliance with the terms of the separation agreement. Ms. Stoltenberg forfeited all other unvested restricted stock units and stock option awards. It was determined that the continuing compliance and service to be provided to the Company under the separation agreement was not substantive and, as a result, the Company recorded the full value of the modified restricted stock units as additional stock-based compensation expense in the second quarter of 2013.

Determining Fair Value

Valuation and Recognition - The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions in the table below. The estimated fair value of employee stock options is recognized to expense using the straight-line method over the vesting period.

Expected Term - The Company uses the simplified calculation of expected life, described in the SEC’s Staff Accounting Bulletins 107 and 110, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected life. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.

Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.

Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.

Forfeitures - The Company records stock-based compensation expense only for those awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. The Company’s forfeiture rate used in the nine months ended September 30, 2013 was 2.76%. The Company’s forfeiture rate used in the nine months ended September 30, 2012 was 1.38%.

The fair value of each restricted stock and restricted stock unit award is determined on the date of grant using the closing stock price on that day.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013		2012

Option Plan Shares
Risk-free interest rates	1.73%			0.81% - 0.89%			0.94% - 1.73%		0.81% - 0.89%
Expected term (in years)	6			6			6		6
Expected volatility	82.9%			86.0%			82.9% - 84.0%		86.0% - 92.0%
Dividend yield	0%			0%			0%		0%
Weighted average fair value per share of options granted during the period	$	10.34		$	7.47		$	8.12	$	6.90

ESPP Shares
Risk-free interest rates			(1)			(1)	0.11% - 0.20%		0.19% - 0.27%
Expected term (in years)			(1)			(1)	0.5-2		0.5-2
Expected volatility			(1)			(1)	39.1% - 45.6%		40% - 55%
Dividend yield			(1)			(1)	—		—
Weighted average fair value per share of stock purchase rights granted during the period			(1)			(1)	$	2.80	$	3.47

(1) The Company did not issue stock purchase rights under its 2010 Purchase Plan during the respective period.

Stock Option and Restricted Stock Activity

A summary of stock option activity under the Stock Plans during the nine months ended September 30, 2013 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
Options	Shares		Price		Term (Years)	Value (1)
(Aggregate intrinsic value in thousands)

Outstanding, January 1, 2013	6,181,996		$	2.62	6.6
Granted	290,570		$	11.36
Exercised	(234,544	)	$	5.17
Forfeited	(129,625	)	$	10.15
Outstanding, September 30, 2013	6,108,397		$	2.78	6.5	$	55,277

Exercisable, September 30, 2013	5,237,044		$	1.79	5.7	$	52,461

Vested and expected to vest September 30, 2013	6,057,354		$	2.74	6.5	$	55,142

(1)The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices that were lower than the $11.80 market price of the Company’s common stock at September 30, 2013. The total intrinsic value of options exercised during the three and nine months ended September 30, 2013 was $1.0 million and $1.6 million, respectively. The total intrinsic value of options exercised during the three and nine months ended September 30, 2012 was $0.4 million and $3.8 million, respectively.

As of September 30, 2013, there was $14.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all Stock Plans. Total unrecognized compensation cost will be adjusted for future changes in forfeitures. The Company expects to recognize that cost over a weighted average period of 2.72 years.

A summary of restricted stock activity under the Stock Plans during the nine months ended September 30, 2013 is as follows:

			Weighted
	Restricted		Average Grant
	Shares		Date Fair Value
Outstanding, January 1, 2013	813,955		$	8.51
Granted	998,102		$	11.80
Released	(188,981	)	$	9.06
Forfeited	(358,981	)	$	9.45
Outstanding, September 30, 2013	1,264,095		$	10.76

During the first quarter of 2012, the Company granted a total of 262,500 restricted stock units to certain executives that would have vested based upon the satisfaction of certain service and performance conditions. These performance conditions were not met and the awards were forfeited during the first quarter of 2013. The expense recorded through December 31, 2012 for these awards totaling $0.6 million was reversed during the first quarter of 2013 due to the forfeiture.

During the first quarter of 2013, the Company granted a total of 180,750 restricted stock units to certain executives that will vest based upon the satisfaction of certain service and performance conditions. The Company performed an evaluation of internal and external factors, and determined the number of shares that are most likely to vest based on the probability of which performance conditions will be met. The expense for the fair value of the awards that are expected to vest is being recognized ratably over the vesting period.

Warrants to purchase 75,000 shares of common stock were issued in connection with a consulting agreement in 2009. The warrants contain a performance condition and vest if the Company successfully receives FDA approval for its Cologuard test. The Company is uncertain if the performance conditions will be attained, and therefore no expense has been recorded on this warrant as of September 30, 2013. The exercise price of the warrant is $0.01.