3. Stock-Based Compensation

The Company accounts for its stock-based compensation at fair value. The following table summarizes stock-based compensation expense by financial statement line item for the three months ended June 30, 2011 and 2010 (in thousands):


	Three months ended
	June 30,
	2011	2010
Cost of revenues	$329	$383
Research and development	660	468
Selling, general and administrative	2,477	2,727
Total	$3,466	$3,578

During the three months ended June 30, 2011, the Company granted approximately 634,000 and 213,000 shares of stock options and restricted stock, respectively, to employees under the 2007 Stock Incentive Plan. The restricted stock granted during the three months ended June 30, 2011 includes approximately 5,000 shares of performance-based restricted stock, which will vest upon achievement of certain financial performance measurements. At June 30, 2011, the Company determined that achievement of the performance measures are probable and as such, will recognize the fair value of the performance based awards over the estimated period of each award. The remaining shares granted vest upon the passage of time, generally 3 years. For awards that vest upon the passage of time, expense is being recorded over the vesting period.

In connection with the vesting of certain restricted stock awards issued to certain executive officers of the Company, these employees paid withholding taxes due by returning 23,861 shares valued at $0.3 million. The Company has recorded these shares as treasury stock as of June 30, 2011.

The estimated fair value of the Company's stock-based awards, less expected annual forfeitures, is amortized over the awards' service period. The total unrecognized compensation cost for unvested outstanding stock options was $12.6 million for the three months ended June 30, 2011. This expense will be recognized over a weighted average expense period of approximately 2.6 years. The total unrecognized compensation cost for unvested outstanding restricted stock was $6.5 million for the three months ended June 30, 2011. This expense will be recognized over a weighted average expense period of approximately 2.3 years.

The weighted-average assumptions used in the Black-Scholes valuation model for stock options granted during the three months ended June 30, 2011 and 2010 are as follows:


	Three months ended
	June 30,
	2011	2010
Expected volatility	67.5%	66.4%
Risk-free interest rate	1.9%	2.2%
Expected life (years)	5.9	6.1
Dividend yield	None	None

The expected volatility rate was estimated based on an equal weighting of the historical volatility of the Company's common stock and the implied volatility of the Company's traded options. The expected term was estimated based on an analysis of the Company's historical experience of exercise, cancellation, and expiration patterns. The risk-free interest rate is based on the average of the five and seven year U.S. Treasury rates.

The Company recorded $0.6 million of stock compensation expense in the three months ended June 30, 2011 related to outstanding stock options of the former Chief Executive Officer as discussed in Note 14, "Chief Executive Officer Transition."