Employee Benefit Plans

The Company grants options and restricted stock units from the Amended and Restated 2006 Long-Term Incentive Plan, under which awards may be granted to all employees. Award vesting periods for this plan is generally four years. In June 2014, the Company adopted amendments to the 2006 Plan which increased the number of shares of the Company’s common stock that may be issued under the 2006 plan by an additional 1,500,000 shares. As of June 29, 2014, a total of 2,002,221 shares from 2006 plan were reserved for future grants under the plan. During the second quarter of 2013, the Company's 2003 Stock Plan expired and the remaining unissued 62,791 reserved shares were retired accordingly.

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 June 29, 2014, a total of 261,025 shares were reserved for future grants under the ESPP.

Option Activity

Stock options activity during the six months ended June 29, 2014, was as follows:



	Number of shares		Weighted Average Exercise Price Per Share
	(in thousands)		(in dollars)
Outstanding at December 31, 2013	4,165		$	30.11
Granted	389		32.79
Exercised	(218	)	23.71
Cancelled	(59	)	35.77
Expired	(111	)	36.42
Outstanding at June 29, 2014	4,166		$	30.45

RSU Activity

RSU activity during the six months ended June 29, 2014, was as follows:



	Number of shares		Weighted Average Grant Date Fair Value Per Share
	(in thousands)		(in dollars)
Outstanding at December 31, 2013	731		$	29.40
RSUs granted	433		33.11
RSUs vested	(178	)	30.05
RSUs cancelled	(31	)	29.15
Outstanding at June 29, 2014	955		$	30.89

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 weighted average assumptions used to fair value option grants during the three and six months ended June 29, 2014 and June 30, 2013:



	Three Months Ended				Six Months Ended
	June 29, 2014		June 30, 2013		June 29, 2014		June 30, 2013
Expected life (in years)	4.5		4.5		4.5		4.4
Risk-free interest rate	1.44	%	0.67	%	1.44	%	0.69	%
Expected volatility	42.6	%	47.3	%	42.6	%	48.2	%
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
	June 29, 2014		June 30, 2013		June 29, 2014		June 30, 2013
Cost of revenue	$	489	$	406	$	960	$	595
Research and development	1,227		1,135		2,623		1,807
Sales and marketing	1,401		1,310		3,350		2,540
General and administrative	1,817		1,540		3,131		3,039
Total stock-based compensation	$	4,934	$	4,391	$	10,064	$	7,981

As of June 29, 2014, $15.3 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 2.51 years. Additionally, $20.9 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 3.05 years.