NOTE 5. STOCK-BASED COMPENSATION

At December 28, 2013, the Company has two stock-based compensation programs, which are described below. The Company’s stock-based awards under these plans are classified as equity. The Company did not capitalize any stock-based compensation cost and recorded compensation expense as follows:

Stock-based compensation expense:


	Year Ended
	December 28,		December 29,		December 31,
(in thousands)	2013		2012		2011
Cost of revenues	$	899	$	875	$	945
Research and development		11,095		11,583		11,648
Selling, general and administrative		14,270		13,857		14,462
Total	$	26,264	$	26,315	$	27,055

The Company received cash of $25.2 million, $16.0 million and $16.8 million from the exercise of stock-based awards during 2013, 2012 and 2011, respectively. The total intrinsic value of stock awards exercised during 2013 was $18.7 million.

As of December 28, 2013, there was $7.8 million of total unrecognized compensation cost related to unvested stock options granted under the Company’s stock option plans, which is expected to be recognized over a period of 2.1 years. As of December 28, 2013, there was $29.4 million of total unrecognized compensation cost related to unvested Restricted Stock Units (“RSUs”) awarded under the Company’s stock option plans, which is expected to be recognized over a period of 2.8 years.

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 contractual 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 and Employee Stock Purchase Plan, awards were estimated using the following weighted average assumptions:

Stock Options:


	December 28,	December 29,	December 31,
	2013	2012	2011
Expected life (years)	5.9	5.4	4.5
Expected volatility	40%	42%	43%
Risk-free interest rate	1.6%	0.8%	1.9%

Employee Stock Purchase Plan:


	December 28,	December 29,	December 31,
	2013	2012	2011
Expected life (years)	0.5	0.5	0.5
Expected volatility	35%	42%	44%
Risk-free interest rate	0.1%	0.2%	0.1%

Stock Option 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 year ended December 28, 2013 was as follows:


	Number of options	Weighted average exercise price per share		Weighted average remaining contractual term (years)	Aggregate intrinsic value at December 28, 2013
Outstanding, December 29, 2012	28,001,047	$	7.93		$	2,189,509
Granted	1,059,548	$	6.43		$	75,007
Exercised	(2,617,357)	$	5.30		$	3,231,050
Forfeited	(2,887,766)	$	7.30		$	-
Outstanding, December 28, 2013	23,555,472	$	8.10	4.88	$	6,834,586
Exercisable, December 28, 2013	20,141,940	$	8.33	4.32	$	6,004,820

No adjustment has been recorded for fully vested options that expired during the year ended December 28, 2013. A reversal of $2.7 million was recorded for pre-vesting forfeitures during the year ended December 28, 2013.

The following table summarizes information on options outstanding and exercisable at December 28, 2013:


	Options Outstanding				Options Exercisable
		Weighted	Weighted			Weighted
		Average	Average			Average
		Remaining	Exercise			Exercise
	Options	Contractual	Price per		Options	Price per
Range of Exercise Prices	Outstanding	Life (years)	Share		Exercisable	Share
$0.05 -- $6.23	5,061,993	5.68	$	5.05	4,049,922	$	4.94
$6.26 -- $7.22	5,852,502	6.35		6.87	3,975,722		6.84
$7.24 -- $8.06	5,246,409	3.57		7.84	5,054,314		7.85
$8.15 -- $10.97	6,061,701	4.01		9.61	5,729,115		9.65
$11.32 -- $21.50	1,332,867	0.13		19.20	1,332,867		19.20
$0.05 -- $21.50	23,555,472	4.64	$	8.10	20,141,940	$	8.33

The weighted-average estimated fair values of each employee stock option granted during 2013, 2012, and 2011, were $2.47, $2.16, and $2.55, respectively.

Restricted Stock Units

On February 1, 2007, the Company amended its stock award plans to allow for the issuance of RSUs to employees and directors. The first grant of RSUs occurred on May 25, 2007. The grants vest over varying terms, to a maximum of four years from the date of grant.

A summary of RSU activity during the year ended December 28, 2013 is as follows:


	Restricted Stock Units	Weighted Average Remaining Contractual Term	Aggregate intrinsic value
Unvested shares at December 29, 2012	5,358,201	1.61	$ 27,433,989
Awarded	3,643,245	-	$ -
Released	(2,069,822)	-	$ -
Forfeited	(752,587)	-	$ -
Unvested shares at December 28, 2013	6,179,037	1.74	$ 39,545,837
Restricted Stock Units expected to vest December 28, 2013	5,319,515	1.63	$ 34,044,896

The weighted-average estimated fair values of each RSU awarded during 2013, 2012, and 2011, were $6.45, $5.95, and $7.09, respectively.

Employee Stock Purchase Plan

In 2011, the Company’s Employee Stock Purchase Plan (“2011 Plan”) was approved by stockholders at the 2010 Annual Meeting. The 2011 Plan became effective on February 11, 2011 and replaced the preceding employee stock purchase plan. 12,000,000 shares of our common stock have been reserved for issuance under the 2011 Plan.

During 2013, 2,156,199 shares were issued under the 2011 Plan at a weighted-average price of $5.19 per share. As of December 28, 2013, 6,296,935 shares were available for future issuance under the 2011 Plan (2012—8,453,523 available for issuance).

The weighted-average estimated fair values of Employee Stock Purchase Plan awards during years 2013, 2012, and 2011, were $1.61, $1.69, and $1.88, respectively.