Employee Benefit Plans

The Company grants options and restricted stock units from the Amended and Restated 2006 Long-Term Incentive Plan, and 2003 Stock Plan under which awards may be granted to all employees. Award vesting periods for these plans are generally four years. As of July 1, 2012, a total of 2,864,065 shares were reserved for future grants under these plans.

Additionally, the Company sponsors an Employee Stock Purchase Plan (the “ESPP”), pursuant to which eligible employees may contribute up to 10% of base compensation, subject to certain income limits, to purchase shares of the Company’s common stock. Employees may purchase stock semi-annually at a price equal to 85% of the fair market value on the purchase date. As of July 1, 2012, a total of 422,460 shares were reserved for future grants under the ESPP.

Option Activity

Stock options activity during the six months ended July 1, 2012, was as follows:



	Options Outstanding
	Number of shares		Weighted Average Exercise Price Per Share
	(in thousands)		(in dollars)
December 31, 2011	3,950		$	27.03
Granted	1,059		34.12
Cancelled and expired	(251	)	29.48
Exercised	(286	)	22.13
July 1, 2012	4,472		$	28.88

RSU Activity

RSU activity during the six months ended July 1, 2012, was as follows:



	RSUs Outstanding
	Number of shares		Weighted Average Grant Date Fair Value Per Share
	(in thousands)		(in dollars)
December 31, 2011	177		$	27.86
RSUs granted	50		31.64
RSUs vested	(100	)	29.14
RSUs cancelled	(9	)	30.59
July 1, 2012	118		$	28.17

Valuation and Expense Information

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option valuation model and the weighted average assumptions in the following table. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behavior. The risk free interest rate is based on the implied yield currently available on U.S. Treasury securities with an equivalent remaining term. Expected volatility is based on a combination of the historical volatility of the Company's stock. The weighted average assumptions for option grants for the three and six months ended July 1, 2012 and July 3, 2011 based on its historical experience.



	Three Months Ended				Six Months Ended
	July 1, 2012		July 3, 2011		July 1, 2012		July 3, 2011
Expected life (in years)	4.4		4.4		4.4		4.4
Risk-free interest rate	0.62% - 0.71%		1.73	%	0.58% - 0.91%		1.80	%
Expected volatility	52.1	%	50.0	%	52.1	%	50.0	%
Dividend yield	—		—		—		—

The following table sets forth the total stock-based compensation expense resulting from stock options, RSUs and the ESPP included in the Company’s unaudited condensed consolidated statements of operations (in thousands):



	Three Months Ended				Six Months Ended
	July 1, 2012		July 3, 2011		July 1, 2012		July 3, 2011
Cost of revenue	$	278	$	243	$	548	$	478
Research and development	677		606		1,288		1,267
Sales and marketing	1,191		1,384		2,385		2,685
General and administrative	1,249		1,275		2,566		2,450
Total stock-based compensation	$	3,395	$	3,508	$	6,787	$	6,880

As of July 1, 2012, $28.3 million of total unrecognized compensation cost related to stock options, adjusted for estimated forfeitures, is expected to be recognized over a weighted-average period of 1.53 years. Additionally, $2.7 million of total unrecognized compensation cost related to non-vested RSUs, adjusted for estimated forfeitures, is expected to be recognized over a weighted-average period of 0.91 years.