Note 9. Stock-based Compensation

Stock Option and Award Plans: The Company grants options to purchase shares of its common stock and is authorized to award restricted shares of common stock pursuant to the terms of its 2008 Equity Incentive Plan, its 1993 Stock Option Plan and its 1997 Stock Option Program. Upon stockholder approval of the 2008 Equity Incentive Plan in August 2008, the 1993 Stock Option Plan and the 1997 Stock Option Program were terminated, and all shares available for future grants of awards under the 1993 Stock Option Plan and the 1997 Stock Option Program were terminated. Stock options generally become exercisable ratably over a four-year period and expire after seven to ten years. Options may be granted to officers, employees, directors and independent contractors to purchase common stock at a price not less than 100% of the fair market value at the date of grant.

Restricted stock awards (RSAs) granted under the equity plans are independent of option grants and are subject to restrictions. RSAs, which have been issued since fiscal 2007, are subject to forfeiture if employment or services are terminated prior to the release of restrictions, which generally occurs on a ratable basis over one to two years from the date of grant. Until the restriction is released, the shares cannot be transferred. These shares have the same cash dividend and voting rights as other common stock and are considered as issued and outstanding. The cost of the awards, determined to be the fair market value of the shares at the date of grant, is expensed ratably over the period the restrictions lapse.

Restricted stock unit awards (RSUs) granted under the 2008 Equity Incentive Plan are also independent of option grants and are subject to restrictions. RSUs, which the Company began issuing in fiscal 2011, are subject to forfeiture if employment or services are terminated prior to the release of restrictions, which generally occurs on a ratable basis over periods ranging from one day to two years from the date of grant. Until the restriction is released, the shares cannot be transferred. These shares are not considered as issued and outstanding until the release of restrictions. The cost of the awards, determined to be the fair market value of the shares at the date of grant, is expensed ratably over the period the restrictions lapse.

For both RSAs and RSUs, upon release of restrictions, a portion of the released shares are repurchased from employees by the Company to satisfy withholding-tax obligations arising from the vesting of restricted stock awards. The withholding tax obligations were based upon the fair market value of the Company's common stock on the vesting dates. The Company repurchased shares from employees in fiscal 2012, 2011 and 2010 as follows.

	2012		2011		2010
Shares repurchased		128,055		296,091		267,431
Total price of shares repurchased (in thousands)	$	279	$	1,161	$	1,200

Stock Compensation Expense: The following table shows total stock-based compensation expense included in the Consolidated Statements of Operations:

(in thousands)	2012		2011		2010
Cost of revenue	$	549	$	851	$	732
Sales and marketing		827		1,679		1,680
Research and development		1,077		2,064		1,636
General and administrative		769		1,356		1,741
	$	3,222	$	5,950	$	5,789

There was no stock-based compensation cost capitalized as part of inventory in fiscal 2012, 2011 or 2010.

In September 2009, the Company completed an offer to exchange certain employee stock options issued under the 2008 Equity Incentive Plan, the 1993 Stock Option Plan and the 1997 Stock Option Program (the Offer to Exchange). Certain previously granted options were exchanged for restricted shares of the Company's common stock. Options for an aggregate of 923,844 shares of the Company's common stock were exchanged for an aggregate of 256,034 restricted shares. The number of restricted shares issued under the Offer to Exchange was based on ratios designed to equalize the value of stock options exchanged with that of restricted shares issued. Restricted shares issued under the Offer to Exchange were issued and outstanding upon grant, but are subject to vesting over approximately two years following the date of grant. The Company did not incur additional non-cash stock compensation expense in connection with the Offer to Exchange as the fair value of the stock options exchanged was equivalent to the fair value of the restricted shares awarded.

The fair value of each stock option award is measured, at the date of grant, using a Black-Scholes option pricing model. The weighted average fair value of the Company's stock option awards granted to employees was $0.83, $2.73 and $3.21, respectively, for fiscal 2012, 2011, and 2010, and was estimated using the following weighted-average assumptions:

	2012			2011			2010
Expected term, in years		4.97			4.94			5.08
Expected volatility		81.32	%		73.46	%		69.68	%
Risk-free interest rate		1.05	%		1.82	%		2.47	%
Expected dividends		-			-			-

At March 30, 2012, the total compensation cost related to unvested stock-based awards not yet recognized, net of estimated forfeitures, was approximately $3.4 million. The weighted-average period during which the cost will be amortized is approximately 1.3 years. The cost to be amortized will be adjusted for subsequent changes in estimated forfeiture rates.

Stock Options and Awards Activity:

Stock option activity in the Company's employee stock plans is summarized below:

	Shares			Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Options outstanding at March 26, 2011		4,301,940		$	5.72
Granted		2,132,600		$	1.30
Exercised		-
Forfeited and expired		(1,143,834	)	$	4.90
Options outstanding at March 30, 2012		5,290,706		$	4.12		5.03	$	339
Options exercisable at March 30, 2012		2,980,023		$	5.71		4.01	$	-
Options vested and expected to vest at March 30, 2012		5,098,002		$	4.18		4.98	$	317

Intrinsic value is calculated as the difference between the market value of our common stock as of March 30, 2012 and the exercise price of the option. The aggregate intrinsic value of options outstanding and options vested and expected to vest includes options with an exercise price below $1.07, the closing price of our common stock on March 30, 2012, as reported by the NASDAQ Global Market.

Stock award activity in the Company's employee stock plans is summarized below:

	Shares			Weighted Average Grant Date Fair Value
Nonvested stock at March 26, 2011		437,273		$	3.99
Granted		371,550		$	2.05
Vested		(398,752	)	$	3.73
Forfeited and cancelled		(124,152	)	$	2.75
Nonvested stock at March 30, 2012		285,919		$	2.36

The total fair value of RSAs and RSUs vested was $1.5 million, $3.2 million and $2.9 million for fiscal 2012, 2011 and 2010, respectively.