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. As of September 29, 2013, a total of 1,272,871 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 September 29, 2013, a total of 307,500 shares were reserved for future grants under the ESPP.

Option Activity

Stock options activity during the nine months ended September 29, 2013, was as follows:



	Options Outstanding
	Number of shares		Weighted Average Exercise Price Per Share
	(in thousands)		(in dollars)
December 31, 2012	4,324		$	29.29
Granted	496		33.47
Exercised	(264	)	21.33
Cancelled and expired	(200	)	33.87
September 29, 2013	4,356		$	30.04

RSU Activity

RSU activity during the nine months ended September 29, 2013, was as follows:



	RSUs Outstanding
	Number of shares		Weighted Average Grant Date Fair Value Per Share
	(in thousands)		(in dollars)
December 31, 2012	112		$	28.36
RSUs granted	716		29.10
RSUs vested	(85	)	26.86
RSUs cancelled	(12	)	28.14
September 29, 2013	731		$	29.27

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 nine months ended September 29, 2013 and September 30, 2012:



	Three Months Ended				Nine Months Ended
	September 29, 2013		September 30, 2012		September 29, 2013		September 30, 2012
Expected life (in years)	4.4		4.4		4.4		4.4
Risk-free interest rate	1.14	%	0.48	%	0.71	%	0.64	%
Expected volatility	46.4	%	52.3	%	48.1	%	52.2	%
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				Nine Months Ended
	September 29, 2013		September 30, 2012		September 29, 2013		September 30, 2012
Cost of revenue	$	479	$	473	$	1,074	$	1,021
Research and development	1,047		778		2,854		2,066
Sales and marketing	1,331		1,238		3,871		3,623
General and administrative	1,654		1,530		4,693		4,096
Total stock-based compensation	$	4,511	$	4,019	$	12,492	$	10,806

As of September 29, 2013, $19.9 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 2.45 years. Additionally, $15.5 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 3.22 years.