Note 14. Equity Incentive Plans and Employee Benefits

9 Months Ended

Oct. 29, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

14. Equity incentive plans and employee benefits

Stock option plans

We have adopted equity incentive plans that provide for the grant of stock option awards to employees, directors and consultants that are designed to encourage and reward their long-term contributions to us and provide an incentive for them to remain with us.  These plans also align our employees’ interest with the creation of long-term shareholder value.  As of October 29, 2011, we have four stock option plans: the 2003 Director Stock Option Plan (the “2003 Director Plan”), the 2001 Stock Plan (the “2001 Plan”), the Amended and Restated 2009 Stock Incentive Plan (the “2009 Incentive Plan”) and the CopperGate Share Option Plan (the “CopperGate Plan”).  The 2009 Incentive Plan was approved by our shareholders in July 2009 along with the approval of a one-time stock option exchange program and on July 8, 2011, by shareholder approval, was amended and restated to increase the number of shares of common stock authorized for issuance by 2,000,000.  The CopperGate Plan was assumed by us in connection with the acquisition of CopperGate in November 2009.

Our 2009 Incentive Plan provides for the grant of stock options, restricted stock, restricted stock units, and other stock-related and performance awards that may be settled in cash, stock or other property.  In July 2009, 2,900,000 shares of common stock were reserved for issuance and in July 2011 an additional 2,000,000 shares were reserved for issuance under the 2009 Incentive Plan.  In addition, up to 1,000,000 shares of common stock subject to stock awards outstanding under the 2001 Plan but terminated prior to exercise and would otherwise be returned to the share reserves under our 2001 Plan may become available for issuance under the 2009 Incentive Plan.  

As of October 29, 2011, 2,959,552 shares were available for future grants under our stock incentive plans.  Additionally, up to 798,869 shares of common stock subject to stock awards outstanding under the 2001 Plan may become available for issuance under the 2009 Incentive Plan.  As of September 23, 2009, the 2001 Plan and the 2003 Director Plan were closed for future grants, however, these plans will continue to govern all outstanding options that we originally granted from each plan.

The total stock option activities and balances of our stock option plans are summarized as follows:

	Number of Shares Outstanding		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Balance, January 29, 2011		6,084,125	$	12.26		6.91	$	19,493,166
Granted		111,200		13.70
Cancelled		(66,184)		12.34
Exercised		(138,255)		8.43
Balance, April 30, 2011		5,990,886	$	12.38		6.74	$	13,048,120
Granted		220,100		11.84
Cancelled		(143,846)		11.81
Exercised		(33,004)		3.26
Balance, July 30, 2011		6,034,136	$	12.42		6.59	$	2,732,931
Granted		-		-
Cancelled		(89,414)		12.24
Exercised		(57,257)		2.19
Balance, October 29, 2011		5,887,465	$	12.52		6.31	$	2,302,384
Ending Vested and Expected to Vest		5,764,410	$	12.55		6.27	$	2,271,193
Ending Exercisable		3,613,124	$	12.86		5.40	$	2,001,194

The aggregate intrinsic value as of October 29, 2011, in the table above, represents the total pretax intrinsic value, based on our closing stock price of $8.45 on that date, which would have been received by the option holders had all options holders exercised their options as of that date. The aggregate exercise date intrinsic value of options that were exercised under our stock option plans was $0.3 million for each of the three months ended October 29, 2011 and October 30, 2010, determined as of the option exercise. The aggregate exercise date intrinsic value of options that were exercised under our stock option plans was $1.2 million and $2.4 million for the nine months ended October 29, 2011 and October 30, 2010, respectively, determined as of the date of option exercise. The total fair value of options that vested during the three months ended October 29, 2011 and October 30, 2010 was $2.3 million and $4.8 million, respectively. The total fair value of options that vested during the nine months ended October 29, 2011 and October 30, 2010 was $8.4 million and $8.9 million, respectively.

The options outstanding and currently exercisable at October 29, 2011 were in the following exercise price ranges:

Options Outstanding										Options Exercisable
Range of Exercise Prices Per Share				Number of Shares Outstanding at October 29, 2011		Weighted Average Remaining Life (Years)		Weighted Average Exercise  Price Per Share		Number of Shares  Exercisable at October 29, 2011		Weighted Average Exercise Price Per Share
$	0.92	$	7.89		650,416		2.47	$	4.91		601,138	$	5.12
$	7.99	$	10.51		342,752		7.01	$	9.66		192,107	$	9.55
$	10.59	$	10.59		620,591		8.22	$	10.59		217,077	$	10.59
$	10.87	$	10.87		684,980		6.94	$	10.87		398,116	$	10.87
$	11.06	$	11.07		1,029,611		6.35	$	11.07		686,644	$	11.06
$	11.09	$	11.66		669,706		6.05	$	11.33		466,277	$	11.33
$	11.69	$	12.21		593,513		7.92	$	11.96		205,656	$	12.05
$	12.27	$	15.25		611,536		6.30	$	14.56		274,929	$	14.38
$	15.32	$	41.58		631,360		6.06	$	25.03		529,666	$	25.90
$	45.83	$	45.83		53,000		6.02	$	45.83		41,514	$	45.83
$	0.92	$	45.83		5,887,465		6.31	$	12.52		3,613,124	$	12.86

Restricted Stock Awards

We value restricted stock awards using the intrinsic value on the date of grant.  These awards are granted under our 2009 Stock Incentive Plan and reduce shares available to grant under the plan by 1.3 shares for every 1 share of restricted stock granted and consist of time-based restricted shares, which shares remain subject to our right of repurchase until vested.  The shares vest over five years according to the terms specified in the individual grants.  There were no shares of restricted stock outstanding as of October 30, 2010.  The following table sets forth the shares of restricted stock outstanding as of October 29, 2011:

	Restricted Stock Awards		Weighted Average Grant Date Fair Value per Unit		Aggregate Intrinsic Value
Balance as of January 29, 2011		85,137	$	13.39	$	1,139,984
Granted		28,070		8.63		242,244
Balance as of October 29, 2011		113,207	$	12.21	$	1,382,228

Employee stock purchase plan

As of October 29, 2011, we had reserved a total of 2,500,000 shares of common stock for issuance under the 2010 Purchase Plan, of which 286,171 had been issued.

Valuation of stock-based compensation

The fair value of stock-based compensation awards is estimated at the grant date using the Black-Scholes option valuation model.  The determination of fair value of stock-based compensation awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.  These variables include, but are not limited to, our expected stock price volatility over the term of the awards and actual employee stock option exercise behavior.

The fair value of each option and employee stock purchase right was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Three Months Ended
	October 29, 2011				October 30, 2010
	Stock Option  Plan		Employee Stock Purchase Plan		Stock Option Plan		Employee Stock Purchase Plan
Expected volatility		-		49.49%		55.01%		41.67%
Risk-free interest rate		-		0.10%		1.50%		0.22%
Expected term (in years)		-		0.50		5.93		0.50
Dividend yield		-	None		None		None
Weighted average fair value at grant date		-		$2.27		$5.46		$2.63

	Nine Months Ended
	October 29, 2011				October 30, 2010
	Stock Option Plan		Employee Stock  Purchase Plan		Stock Option Plan		Employee Stock  Purchase Plan
Expected volatility		51.78%		49.49%		55.28%		41.67%
Risk-free interest rate		1.90%		0.10%		2.56%		0.22%
Expected term (in years)		5.93		0.50		5.94		0.50
Dividend yield	None		None		None		None
Weighted average fair value at grant date		$6.25		$2.27		$5.92		$2.63

The computation of the expected volatility assumptions used in the Black-Scholes calculations for new grants and purchase rights is based on the historical volatility of our stock price, measured over a period equal to the expected term of the grants or purchase rights. The risk-free interest rate is based on the yield available on U.S. Treasury STRIPS with an equivalent remaining term. The expected term life of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The expected term of purchase rights is the period of time remaining in the then current offering period. The dividend yield assumption is based on our history of not paying dividends and assumption of not paying dividends in the future.

The following table sets forth the stock-based compensation expense for the three and nine months ended October 29, 2011 and October 30, 2010 (in thousands):

	Three Months Ended
	October 29, 2011		October 30, 2010
Cost of revenue	$	123	$	159
Research and development expenses		1,544		1,806
Sales and marketing expenses		475		541
General and administrative expenses		664		824
Total stock-based compensation	$	2,806	$	3,330

	Nine Months Ended
	October 29, 2011		October 30, 2010
Cost of revenue	$	352	$	431
Research and development expenses		4,760		5,188
Sales and marketing expenses		1,634		1,525
General and administrative expenses		2,386		2,382
Total stock-based compensation	$	9,132	$	9,526

As of October 29, 2011, the unrecorded stock-based compensation balance related to stock options outstanding excluding estimated forfeitures was $22.9 million and will be recognized over an estimated weighted average amortization period of 3.0 years. The amortization period is based on the expected remaining vesting term of the options.

401(k) tax deferred savings plan

We maintain a 401(k) tax deferred savings plan for the benefit of qualified employees who are U.S. based.  Under the 401(k) tax deferred savings plan, U.S. based employees may elect to reduce their current annual taxable compensation up to the statutorily prescribed limit, which is $16,500 in calendar year 2011.  Employees age 50 or over may elect to contribute an additional $5,500.  We have a matching contribution program whereby we match employee contributions made by each employee at a rate of $0.25 per $1.00 contributed.  The matching contributions to the 401(k) tax deferred savings plan totaled $0.2 million and $0.2 million for the three months ended October 29, 2011 and October 30, 2010, respectively.  The matching contributions to the 401(k) tax deferred savings plan totaled $0.7 million and $0.6 million for the nine months ended October 29, 2011 and October 30, 2010, respectively.  

Group registered retirement savings plan

We maintain a Group Registered Retirement Savings Plan, or GRRSP, for the benefit of qualified employees who are based in Canada.  Under the GRRSP, Canadian based employees may elect to reduce their annual taxable compensation up to the statutorily prescribed limit, which is $22,000 Canadian in calendar year 2011.  We have a matching contribution program under the GRRSP whereby we match employee contributions made by each employee up to 2.5% of their annual salary.  The matching contributions to the GRRSP totaled $29,000 and $22,000 for the three months ended October 29, 2011 and October 30, 2010, respectively.  The matching contributions to the GRRSP totaled $86,000 and $66,000 for the nine months ended October 29, 2011 and October 30, 2010, respectively.  

Retirement pension plan

We maintain a Retirement Pension Plan for the benefit of qualified employees who are based in Denmark.  Under the Retirement Pension Plan, Denmark-based employees may elect to reduce their annual taxable compensation up to their annual salary.  We have a matching contribution program whereby we will contribute 3.0% of our employee’s annual salary and may elect to terminate future contributions at our option at any time.  The matching contributions to the Retirement Pension Plan totaled $48,000 and $34,000 for the three months ended October 29, 2011 and October 30, 2010, respectively.  The matching contributions to the Retirement Pension Plan totaled $140,000 and $88,000 for the nine months ended October 29, 2011 and October 30, 2010, respectively.

In addition, for our qualified Taiwan-based employees, we are required by Labor Standards Law in Taiwan to contribute to their Labor Pension Fund accounts monthly at the rate of 6% of their base salary.  Employees may voluntarily contribute per month, up to 6% of monthly wages to their fund account.  The Labor Pension fund is managed by Local Authority.  The employer contributions to the Labor Pension Fund totaled $14,000 and $38,000 for the three and nine months ended October 29, 2011, respectively.  There were no employer contributions to the Labor Pension Fund for the three and nine months ended October 30, 2010.

Severance plan

We maintain a severance plan for Israeli employees pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment.  Upon termination of employment, employees are entitled to one-month salary for each year of employment or portion thereof.  As of October 29, 2011, we have an accrued severance liability of $1.5 million offset by $1.4 million of accrued employee severance funds.