Equity and Stock Based Compensation Plans

Options

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the following table. The expected life of options granted was calculated using the simplified method. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. The expected volatility is based on the historical volatility of the Company's stock price. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.



	Three Months Ended				Six Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013
Stock Options
Expected life	4.6 years		4.6 years		4.6 years		4.5 years
Expected volatility	52.00	%	68.90	%	54.86	%	72.32	%
Risk-free interest rate	1.56	%	1.02	%	1.54	%	0.90	%
Dividends	—		—		—		—
Employee Stock Purchase Plan
Expected life	0.5 years		0.5 years		0.5 years		0.5 years
Expected volatility	32.60	%	25.94	%	32.60	%	27.61	%
Risk-free interest rate	1.00	%	0.10	%	1.00	%	0.11	%
Dividends	—		—		—		—

The weighted average fair value per share of the stock options awarded in the three months ended June 28, 2014 and June 29, 2013, was $7.30 and $7.94, respectively, and in the six months ended June 28, 2014 and June 29, 2013, was $8.13 and $8.70, respectively, based on the fair market value of the Company’s common stock on the grant dates.

A summary of activity under the Company’s stock option plans during the six months ended June 28, 2014 is as follows:



	Number of Shares Outstanding (Options)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in Thousands)
Options:
Outstanding at December 28, 2013	1,909,039		$	13.22	4.02	$	10,341
Exercised	(327,466	)	$	10.39
Granted	74,300		$	17.56
Cancelled	(70,688	)	$	15.42
Outstanding at June 28, 2014	1,585,185		$	13.91	3.96	$	7,139
Exercisable at June 28, 2014	1,028,377		$	12.73	3.17	$	5,840

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $18.37 as of June 27, 2014, the last trading day of the quarter, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the three months ended June 28, 2014 and June 29, 2013, was $0.8 million and $0.6 million, respectively, and during the six months ended June 28, 2014 and June 29, 2013, was $2.5 million and $1.4 million, respectively.

Restricted Stock Units ("RSUs")

A summary of activity for RSUs during the six months ended June 28, 2014, is as follows:



	Number of RSUs		Weighted Average Fair Value
Outstanding RSUs at December 28, 2013	334,444		$	18.61
Granted	385,385		$	17.65
Released	(134,858	)	$	17.91
Cancelled	(15,246	)	$	17.51
Outstanding RSUs at June 28, 2014	569,725		$	18.37

Stock-based Compensation Expense

Stock-based compensation expense for all share-based payment awards made to the Company’s employees and directors pursuant to the employee stock option and employee stock purchase plans by function was as follows (in thousands):



	Three Months Ended				Six Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013
Cost of products	$	68	$	53	$	129	$	98
Cost of service	89		71		174		130
Research and development	296		362		636		679
Selling	437		501		863		941
General and administrative	886		764		1,608		1,360
Total stock-based compensation expense	$	1,776	$	1,751	$	3,410	$	3,208