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 September 30, 2012, a total of 2,713,679 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 September 30, 2012, a total of 387,058 shares were reserved for future grants under the ESPP.

Option Activity

Stock options activity during the nine months ended September 30, 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	1,272		33.81
Cancelled and expired	(313	)	30.34
Exercised	(472	)	22.79
September 30, 2012	4,437		$	29.19

RSU Activity

RSU activity during the nine months ended September 30, 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	(103	)	29.19
RSUs cancelled	(9	)	30.59
September 30, 2012	115		$	28.10

Valuation and Expense Information

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option valuation model that uses the assumptions noted in the following table. The estimated 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 a remaining term commensurate with the estimated expected term. Expected volatility is based on historical volatility over the most recent period commensurate with the estimated expected term.

The following table sets forth the assumptions used to fair value option grants during the three and nine months ended September 30, 2012 and October 2, 2011 based on its historical experience.



	Three Months Ended				Nine Months Ended
	September 30, 2012		October 2, 2011		September 30, 2012	October 2, 2011
Expected life (in years)	4.4		4.3		4.3 - 4.4	4.3 - 4.4
Risk-free interest rate	0.48	%	1.09	%	0.48% - 0.91%	1.09% - 1.87%
Expected volatility	52.3	%	50.7	%	52.1% - 52.5%	49.9% - 50.7%
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				Nine Months Ended
	September 30, 2012		October 2, 2011		September 30, 2012		October 2, 2011
Cost of revenue	$	473	$	259	$	1,021	$	737
Research and development	778		606		2,066		1,873
Sales and marketing	1,238		1,264		3,623		3,949
General and administrative	1,530		1,325		4,096		3,775
Total stock-based compensation	$	4,019	$	3,454	$	10,806	$	10,334

As of September 30, 2012, $27.2 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 1.46 years. Additionally, $2.2 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 0.83 years.