The Company has two stock-based compensation programs, which are described below. None of the Company’s stock-based awards under these plans are classified as liabilities. The Company did not capitalize any stock-based compensation cost and recorded compensation expense for the three and six months ended July 1, 2012 and June 26, 2011, as follows:


	Three Months Ended				Six Months Ended
	July 1,		June 26,		July 1,		June 26,
*(in thousands)*	2012		2011		2012		2011
Cost of revenues	$	252	$	260	$	476	$	483
Research and development		2,900		2,927		5,741		5,624
Selling, general and administrative		4,157		3,859		7,673		7,254
Total	$	7,309	$	7,046	$	13,890	$	13,361
								\

The Company received cash of $1.7 million and $8.9 million related to the issuance of stock-based awards during the three and six months ended July 1, 2012. The Company received cash of $3.4 million and $10.5 million related to the issuance of stock-based awards during the three and six months ended June 26, 2011.

Equity Award Plans

The Company issues its common stock under the provisions of the 2008 Equity Plan (the “2008 Plan”). Stock option awards are granted with an exercise price equal to the closing market price of the Company’s common stock at the grant date. The options generally expire within 10 years and vest over four years.

The 2008 Plan was approved by stockholders at the 2008 Annual Meeting. The 2008 Plan became effective on January 1, 2009 (the “Effective Date”). It is a successor to the 1994 Incentive Stock Plan (the “1994 Plan”) and the 2001 Stock Option Plan (the “2001 Plan”). Up to 30,000,000 shares of our common stock have been initially reserved for issuance under the 2008 Plan. At the 2012 Annual Meeting, stockholders approved an increase in shares reserved for issuance under the 2008 plan by 9,500,000 shares which shares were registered on May 14, 2012 on Form S-8 bringing the total number of authorized and registered shares available under the 2008 Plan to 39,500,000. To the extent that a share that is subject to an award that counts as 1.6 shares against the 2008 Plan’s share reserve is added back into the 2008 Plan upon expiration or termination of the award or repurchase or forfeiture of the shares, the number of shares of common stock available for issuance under the 2008 Plan will be credited with 1.6 shares. The implementation of the 2008 Plan did not affect any options or restricted stock units outstanding under the 1994 Plan or the 2001 Plan on the Effective Date. To the extent that any of those options or restricted stock units subsequently terminate unexercised or prior to issuance of shares thereunder, the number of shares of common stock subject to those terminated awards will be added to the share reserve available for issuance under the 2008 Plan, up to an additional 15,000,000 shares. No additional shares may be issued under the 1994 Plan or the 2001 Plan. In 2006, the Company assumed the stock option plans and all outstanding stock options of Passave, Inc. as part of the merger consideration in that business combination. In 2010, the Company assumed the stock option plans and all outstanding stock options of Wintegra as part of that business combination.

Activity under the option plans during the six months ended July 1, 2012 was as follows:


	Number of options	Weighted average exercise price per share		Weighted average remaining contractual term (years)	Aggregate intrinsic value at July 1, 2012
Outstanding, January 1, 2012	29,130,398	$	7.97
Granted	421,423	$	6.44
Exercised	(645,819)	$	4.92
Forfeited	(858,576)	$	8.80
Outstanding, July 1, 2012	28,047,426	$	7.99	5.67	$	7,789,661
Vested & expected to vest, July 1, 2012	27,414,545	$	8.01	5.60	$	7,750,361
Exercisable, July 1, 2012	20,945,714	$	8.24	4.78	$	6,288,515

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock for the options that were in-the-money at July 1, 2012. During the each of the six months ended July 1, 2012, and June 26, 2011, $1.4 million and $1.5 million were recorded for forfeitures, respectively.

The fair value of the Company’s stock option awards granted to employees during the six months ended July 1, 2012 was estimated using a lattice-binomial valuation model. This model considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option. The model requires the input of highly subjective assumptions including the expected stock price volatility and expected life.

The Company’s estimates of expected volatilities are based on a weighted historical and market-based implied volatility. The Company uses historical data to estimate option exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the stock option valuation model and represents the period of time that granted options are expected to be outstanding. The risk-free rate for periods within the expected life of the stock option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair values of the Company’s stock option awards were calculated for expense recognition using an estimated forfeiture rate, assuming no expected dividends and using the following weighted average assumptions:


	Three Months Ended		Six Months Ended
	July 1,	June 26,	July 1,	June 26,
	2012	2011	2012	2011
Expected life (years)	6.2	4.6	5.3	4.5
Expected volatility	45%	42%	45%	42%
Risk-free interest rate	0.9%	2.0%	0.8%	2.0%

The weighted average grant-date fair value per stock option granted during the three and six months ended July 1, 2012, was $2.70 and $2.47, respectively. The weighted average grant-date fair value per stock option granted during the three and six months ended June 26, 2011 was $2.59 and $2.60, respectively. The total intrinsic value of stock options exercised during the three and six months ended July 1, 2012 was $0.6 million and $1.1 million, respectively.

As of July 1, 2012, there was $17 million of total unrecognized compensation costs related to unvested stock-based compensation arrangements granted under the plans, which is expected to be recognized over an average period of 2.3 years.

Restricted Stock Units

On February 1, 2007, the Company amended its stock award plans to allow for the issuance of Restricted Stock Units (“RSUs”) to employees and members of the Board of Directors. The first grant of RSUs occurred on May 25, 2007. The grants vest over varying terms, up to a maximum of four years from the date of grant.

A summary of RSU activity during the six months ended July 1, 2012 is as follows:


	Restricted Stock Units	Weighted Average Remaining Contractual Term			Aggregate intrinsic value at July 1, 2012
Unvested shares at January 1, 2012	3,679,683		-		-
Awarded	682,871		-		-
Released	(913,547)		-		-
Forfeited	(164,108)		-		-
End of Period	3,284,899		1.52	$	20,169,169
Restricted Stock Units vested and expected to vest July 1, 2012	2,799,701		1.48	$	17,190,164

The intrinsic value of RSUs vested during the three and six months ended July 1, 2012 was $5.5 million and $5.9 million, respectively. As of July 1, 2012, total unrecognized compensation costs, adjusted for estimated forfeitures, related to unvested RSUs was $15 million, which is expected to be recognized over the next 2.4 years.

Employee Stock Purchase Plan

In 1991, the Company adopted an Employee Stock Purchase Plan (the “ESPP”) under Section 423 of the Internal Revenue Code. The ESPP allows eligible participants to purchase shares of the Company’s common stock at six-month intervals through payroll deductions at a price of 85% of the lower of the fair market value at specific dates in those six-month intervals (calculated in the manner provided in the plan). Shares of the Company’s common stock are offered under the ESPP through a series of successive offering periods, generally with a maximum duration of 24 months. Under the ESPP, the number of shares authorized to be available for issuance under the plan is increased automatically on January 1 of each year until the expiration of the plan. The increase will be limited to the lesser of (i) 1% of the outstanding shares on January 1 of each year, (ii) 2,000,000 shares (after adjusting for stock dividends), or (iii) an amount to be determined by the Board of Directors. The ESPP was terminated on February 10, 2011 and no additional shares will be issued under the ESPP.

The 2011 Employee Stock Purchase Plan (the “2011 Plan”) was approved by stockholders at the 2010 Annual Meeting. The 2011 Plan became effective on February 11, 2011 and is the successor to the ESPP. The 2011 Plan consists of consecutive offering periods, generally of a duration of 6 months, and allows eligible employees to purchase shares of the Company’s common stock at the end of each such offering period at a price per share equal to 85% of the lower of the fair market value of a share of Common Stock on the start date or the fair market value of a share of Common Stock on the exercise date of the offering period. Employees purchase such shares through payroll deductions which may not exceed 10% of their total cash compensation. The 2011 Plan imposes certain limitations upon an employee’s right to acquire Common Stock, including the following: (i) no employee may purchase more than 7,500 shares of Common Stock on any one purchase date and (ii) no employee may be granted rights to purchase more than $25,000 worth of Common Stock for each calendar year that such rights are at any time outstanding. Up to 12,000,000 shares of our common stock have been initially reserved for issuance under the 2011 Plan.

During the first half of 2012, 1,231,640 shares were issued under the 2011 Plan at a weighted average price of $4.84 per share. As of July 1, 2012, 9,596,017 shares were available for future issuance under the 2011 Plan compared to 10,827,657 under the 2011 Plan as at December 31, 2011.

The weighted average grant-date fair value per ESPP award granted during the first half of 2012 was $1.79. The total intrinsic value of ESPP shares issued during the first half of 2012 was $2.6 million.

For the period ending July 1, 2012, total unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested ESPP awards was $0.4 million which is expected to be recognized over the next month.