NOTE 7 STOCK INCENTIVE PLANS AND STOCK-BASED COMPENSATION

Stock-Based Benefit Plans

In March 2011, the Company's Board of Directors adopted the 2011 Stock Incentive Plan (2011 Plan) subject to approval of its stockholders, which was received in May 2011. The primary purpose of the 2011 Plan is to enhance the Company's ability to attract, motivate and retain the services of qualified employees, officers and directors, consultants and other service providers upon whose judgment, initiative and efforts, the successful conduct and development of the Company's business largely depends.

The 2011 Plan authorizes the Company to grant up to 6,000,000 shares of common stock. This number of shares is subject to adjustments as to the number and kind of shares in the event of stock splits, stock dividends or certain other similar changes in the capital structure of the Company. Upon approval of the 2011 Plan by the Company's stockholders, the Company's 2006 Performance-Based Stock Incentive Plan was terminated for purposes of future grants, and only the 6,000,000 shares authorized for issuance under the 2011 Plan remained available for future grants.

The 2011 Plan permits the grant of stock appreciation rights, restricted stock, restricted stock units, incentive stock options and non-qualified stock options. For purposes of calculating the total number of shares that may be issued under the 2011 Plan, the 2011 Plan provides that "full value" awards shall be counted against the share limit to a greater extent than "appreciation" awards. Stock options and stock appreciation rights, which are "appreciation" awards, shall be counted against the share limit under the 2011 Plan as one (1) share for each share of common stock subject to such award. Restricted stock and restricted stock units, which are "full value" awards, shall be counted against the share limit under the 2011 Plan as one and seven tenths (1.7) shares for each share of common stock subject to such award.

Any stock options or stock appreciation rights granted under the 2011 Plan will have exercise prices or base values not less than the fair market value of the Company's common stock on the date of grant and terms of not more than seven years. The vesting of substantially all awards granted to directors under the 2011 Plan occurs over a period of one year. The vesting of substantially all awards granted to officers and employees under the 2011 Plan occurs over a period of three years, and the vesting of substantially all restricted stock unit awards is also conditioned upon the achievement of performance thresholds established by the Compensation Committee of the Company's Board of Directors. Currently, such performance thresholds relate to the fiscal year in which the award is granted, and if such performance thresholds are met, the awards vest in equal installments on the first three anniversaries of the grant date. All awards are subject to forfeiture if employment or other service terminates prior to the vesting of the awards.

The Company maintains an Employee Stock Purchase Plan (Purchase Plan) to provide employees of the Company with an opportunity to purchase common stock through payroll deductions. The Purchase Plan allows employees to purchase common stock in any quarterly offering period at 95% of the fair market value of the stock on the last day of the offering period.

Stock-Based Compensation Expense

ASC 718 requires the Company to recognize compensation expense related to the fair value of its stock-based awards. The Company estimates the fair value of stock options and stock appreciation rights at the date of grant using a Black-Scholes-Merton option-pricing model. The weighted average fair value and underlying assumptions for all stock appreciation rights are set forth in the table below. No stock options were granted during the periods presented.

		$.00,00			$.00,00			$.00,00
	Year Ended
	December 31,			January 1,			January 2,
	2011			2011			2010
Fair value	$	7.75		$	5.44		$	1.64
Expected annual volatility		54.08	%		50.31	%		45.50	%
Risk-free interest rate		1.59	%		2.27	%		1.66	%
Expected term (years)		4.5			4.5			4.4
Annualized expected dividend yield		—			—			—

The total stock-based compensation expense included in the Company's consolidated statements of operations was as follows:

		$00,00000		$00,00000		$00,00000
	Year Ended
(In thousands)	December 31, 2011		January 1, 2011		January 2, 2010
Cost of sales	$	488	$	392	$	137
Selling, general and administrative expenses		5,029		3,896		1,979
Research and development expense		684		560		216

	$	6,201	$	4,848	$	2,332

As required by ASC 718, the Company estimates the expected future forfeitures of stock options, stock appreciation rights and restricted stock units and recognizes compensation expense for only those equity awards expected to vest, excluding the expected future forfeitures. If actual forfeitures differ from the Company's estimates, the amount of compensation expense recognized for the applicable period is cumulatively adjusted. The Company assumed a forfeitures rate of 15.4% in recognizing compensation expense for each of the years 2011, 2010 and 2009.

At December 31, 2011, the total compensation cost related to unvested stock-based awards granted to employees, officers and directors under the Company's stock-based benefit plans that had not yet been recognized was $6.2 million (net of estimated forfeitures of $2.3 million). This future compensation expense will be amortized, using the straight-line attribution method over a weighted-average period of 1.4 years. The actual compensation expense that the Company will recognize in the future related to stock-based awards outstanding at December 31, 2011 will be adjusted for subsequent forfeitures. All performance conditions applicable to stock-based awards outstanding at December 31, 2011 have been met.

Stock-Based Award Activity

The following table summarizes stock option activity for the year ended December 31, 2011:


	Number of Options (In thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at January 1, 2011		1,740		$	14.32
Exercised		(199	)	$	12.74
Expired (cancelled post-vesting)		(203	)	$	19.59

Outstanding at December 31, 2011		1,338		$	13.75		2.0	$	1,336

Vested and expected to vest at December 31, 2011		1,338		$	13.75		2.0	$	1,336
Options exercisable at December 31, 2011		1,338		$	13.75		2.0	$	1,336

The intrinsic value of options exercised during fiscal years 2011, 2010 and 2009 totaled $0.9 million, $0.4 million and $0.4 million, respectively. The intrinsic value of options exercised is calculated as the difference between the market price on the date of exercise and the exercise price, multiplied by the number of options exercised.

The grant date fair value of options that vested during fiscal year 2009 totaled $1.1 million. No options vested during fiscal year 2011 or 2010.

The following table summarizes the Company's stock appreciation rights activity for the year ended December 31, 2011:


	Number of Shares (In thousands)			Weighted Average Exercise Price
Outstanding at January 1, 2011		1,150		$	6.60
Granted		256		$	17.06
Exercised		(95	)	$	5.42
Forfeited (cancelled pre-vesting)		(19	)	$	9.83
Expired (cancelled post-vesting)		(2	)	$	8.34

Outstanding at December 31, 2011		1,290		$	8.71

The intrinsic value of stock appreciation rights exercised during fiscal years 2011 and 2010 totaled $1.1 million and $0.6 million, respectively. No stock appreciation rights were exercised during fiscal year 2009. The intrinsic value of stock appreciation rights exercised is calculated as the difference between the market price on the date of exercise and the base value, multiplied by the number of stock appreciation rights exercised.

The grant date fair value of stock appreciation rights that vested during fiscal years 2011 and 2010 totaled $1.1 million and $0.5 million, respectively. No stock appreciation rights vested during fiscal year 2009.

The following table summarizes the Company's restricted stock unit activity for the year ended December 31, 2011:


	Number of Shares (In thousands)			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2011		1,583		$	8.31
Granted		321		$	16.96
Vested		(623	)	$	7.87
Forfeited		(398	)	$	9.79

Outstanding at December 31, 2011		883		$	11.10

At December 31, 2011, the Company had reserved 8,719,465 shares of common stock for future issuance under its stock incentive plans, which included 5,207,693 shares that were reserved for the future grant of stock-based awards under these plans, and had reserved 1,092,161 shares of common stock for future issuance under the Purchase Plan.