7. Stock-based compensation

Founders’ Stock

A summary of our Founders’ stock activity and related information is as follows:

	Shares
Unvested at December 31, 2013	987,081
Granted	—
Vested	(164,515	)
Unvested at March 31, 2014	822,566

We record stock-based compensation expense for the common stock subject to repurchase based on the grant date intrinsic value for employees and the vesting date intrinsic value for non-employees. All of the restricted shares were issued at fair value.

In January 2014, one holder of Founders’ stock transitioned from an employee to a non-employee. This resulted in an additional $0.3 million of stock-based compensation expense during the three months ended March 31, 2014 as the restricted stock is now marked-to-market at each reporting period until vest date.

Stock Options

A summary of our stock option activity and related information is as follows:

				Weighted
			Weighted	average
			average	remaining
			exercise	contractual	Aggregate
			price per	term	intrinsic
	Shares		Share ($)	(years)	value
					(in thousands)
Outstanding at December 31, 2013	2,413,237		9.26	9.05	6,087
Granted	377,098		10.09
Exercised	(109,866	)	0.04
Forfeited	(510,440	)	12.87
Cancelled	—		—
Outstanding at March 31, 2014	2,170,029		8.95	8.67	3,753
Exercisable at March 31, 2014	537,544		3.46	8.28	3,112
Vested and expected to vest at March 31, 2014	1,400,912		8.37	8.35	3,094

The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised was $1.1 million for the three months ended March 31, 2014.

The fair value of each stock-based option award is estimated on the grant date using the Black-Scholes option pricing model using the following assumptions:

	Three months ended March 31,
	2014	2013
Risk-free interest rate	1.6% - 1.8%	0.9% - 1.1%
Dividend yield	—	—
Volatility	78% - 84%	89% - 91%
Expected term (years)	5.3 - 5.8	5.3 - 9.7

The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to us including stage of product development and life science industry focus. The representative group of companies consisted of NeoGenomics, Inc., StemCells, Inc., BioSante Pharmaceuticals, Inc., Sangamo Biosciences, Inc., and Concept Therapeutics, Inc. As a result of being a development stage company in an early stage of product development with no revenues, the representative group of companies has certain similar, but not all similar, characteristics to us. We believe the group selected has sufficient similar economic and industry characteristics and includes companies that are most comparable to us.

As of March 31, 2014, we had approximately $8.6 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options and restricted stock units, which we expect to recognize over a weighted-average period of 2.45 years.

During the three months ended March 31, 2014, a senior executive resigned. As of the separation date, however, vesting was accelerated by twelve days for 92,223 of these options and the exercise period was extended to one year; these were accounted for as a modification. The remaining shares were forfeited. As a result of the forfeiture and the modification, we reversed $0.6 million, net, of stock-based compensation expense during the three months ended March 31, 2014.

During the three months ended March 31, 2014, we granted options to purchase 377,098 shares of our common stock at a weighted average grant date fair value of $7.06 per share, and with a weighted average exercise price of $10.09 per share. During the three months ended March 31, 2013, we granted options to employees to purchase 437,542 shares of our common stock at a weighted average grant date fair value of $9.42 per share, and with a weighted average exercise price of $12.78 per share.

Restricted Stock Units

On December 5, 2012, we issued a total of 192,308 restricted stock units, or RSUs, to our Chief Executive Officer. This grant included 128,205 RSUs with time-based vesting as follows: 16,025 shares on March 31, 2013 and 16,025 shares each quarter thereafter until December 31, 2014. The fair value of the time-based RSUs is based on the closing price of our common stock on the award date, or $7.80 per share. The stock-based compensation expense for the time-based grant is being recognized on a straight-line basis over the vesting period for the portion of the award that is probable of vesting. The grant also included 64,103 RSUs that will vest only upon the achievement of performance conditions that relate to 2013 and 2014 as determined by our board of directors. On March 20, 2013 the board of directors established the 2013 performance criteria for the first tranche of the award and communicated the performance criteria to our Chief Executive Officer. The grant date stock price of these performance-based RSUs was $10.00 per share. In December 2013, certain of the performance criteria were met and as a result, 19,230 performance-based RSUs vested out of a total of 32,051 performance-based RSUs granted. The total fair value of RSUs vested during 2013 (measured on the date of vesting) was $0.8 million and the remaining RSUs were forfeited. On February 7, 2014 the board of directors established the 2014 performance criteria for the second tranche of the award and communicated the performance criteria to the Chief Executive Officer. The grant date stock price of these performance-based RSUs was $8.75 per share. As of March 31, 2014, the Company has determined that the performance criteria are probable of achievement, and is recognizing the related expense for these awards over the requisite service period. We recognized total stock-based compensation expense for the service-based awards and performance-based awards of $0.2 million and $0.1 million for the three months ended March 31, 2014 and 2013, respectively.