Stock Option Plans

9 Months Ended

Jul. 03, 2011

Stock Option Plans

Stock Option Plans

4. Stock Option Plans

At July 3, 2011, the Company had two active stock-based compensation plans under which stock-based grants may be issued, and two other stock-based compensation plans under which grants are no longer being made. No further grants are being made under the Company's 1992 Stock Option Plan ("1992 Plan") and 1996 Non-Employee Directors' Stock Option Plan ("1996 Plan"), but option grants remain outstanding under both plans. The Company's active plans are the Amended and Restated 2001 Stock Incentive Plan ("2001 Plan") and the Amended and Restated 2006 Non-Employee Director Stock Option Plan ("2006 Plan").

On November 16, 2010, the Board of Directors adopted certain amendments to the 2001 Plan and 2006 Plan. With respect to the 2001 Plan, the Board adopted, subject to stockholder approval, an amendment that increased by 920,000 shares (for a total of 4,170,000 shares) the shares of Common Stock available for issuance under the 2001 Plan. With respect to the 2006 Plan, the Board adopted, subject to stockholder approval, an amendment that increased by 35,000 shares (for a total of 192,500 shares) the shares of Common Stock available for issuance under the 2006 Plan. The amendments to both the 2001 Plan and the 2006 Plan were approved by the stockholders at the 2011 annual meeting held on February 10, 2011. The amendments to both Plans also generally prohibit a repricing through cancellation and re-grants or cancellation of stock options in exchange for cash.

Stock options outstanding under the 1992 Plan, the 1996 Plan, the 2001 Plan, and the 2006 Plan generally vest over a four-year period and have exercise prices equal to the fair market value of the Common Stock at the date of grant. All options have a 10-year contractual term. All options issued under the 2001 Plan and 2006 Plan must have an exercise price no less than fair market value on the date of grant. Restricted Common Stock grants made under the 2001 Plan will generally vest over a four-year period.

In accordance with FASB ASC 718, Compensation—Stock Compensation, the Company is required to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize cost over the requisite service period. The Company recognizes compensation expense on fixed awards with pro rata vesting on a straight-line basis over the vesting period.

Stock-based compensation charges totaled approximately $1.1 million and $3.2 million during the three and nine months ended July 3, 2011, respectively, and totaled approximately $1.3 million and $3.1 million during the three and nine months ended July 4, 2010, respectively. The effect of recording stock-based compensation by line item for the three and nine months ended July 3, 2011 and July 4, 2010 was as follows:

	Three Months Ended				Nine Months Ended
(000's omitted)	July 3, 2011		July 4, 2010		July 3, 2011		July 4, 2010
Cost of revenue	$	106	$	52	$	293	$	207
Selling and marketing expense		199		302		604		680
General and administrative expense		657		738		1,954		1,720
Research and development expense		129		193		329		473
Total stock-based compensation	$	1,091	$	1,285	$	3,180	$	3,080

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants issued during the nine months ended July 3, 2011 and July 4, 2010:

	Nine Months Ended July 3, 2011			Nine Months Ended July 4, 2010
Dividend yield		0	%		0	%
Expected volatility		44.1	%		42.4	%
Risk-free interest rate		1.59	%		2.37	%
Expected lives (years)		5.27			5.14

The weighted-average, grant-date fair value of options granted (estimated using the Black-Scholes option-pricing model) was $12.98 and $8.79 for the nine months ended July 3, 2011 and July 4, 2010, respectively. During the nine months ended July 3, 2011, the Company issued 544,617 shares of Common Stock pursuant to exercised options for proceeds of approximately $9.5 million. Total intrinsic value of options exercised for the nine months ended July 3, 2011 and July 4, 2010 was approximately $16.8 million and $2.7 million, respectively. It is the Company's policy to issue new shares upon the exercise of options.

The following table summarizes the status of outstanding stock options as of July 3, 2011, as well as changes during the nine months ended July 3, 2011:

	Shares			Weighted- Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term in Years		Aggregate Intrinsic Value ($000's)
Outstanding at October 3, 2010		2,084,011		$	19.35
Granted		414,000			31.46
Exercised		(544,617	)		17.52
Forfeited		(16,175	)		21.80
Outstanding at July 3, 2011		1,937,219		$	22.43		6.83	$	67,877
Exercisable at July 3, 2011		1,018,266		$	18.99		5.34	$	39,179

The following table summarizes the status of unvested restricted stock awards as of July 3, 2011, as well as changes during the nine months ended July 3, 2011:

	Shares			Weighted- Average Fair Value
Unvested at October 3, 2010		40,154		$	24.82
Granted		44,150			47.57
Vested		(14,208	)		24.95
Forfeited		(2,139	)		25.88
Unvested at July 3, 2011		67,957		$	39.54

At July 3, 2011, there was approximately $9.8 million of unrecognized compensation cost related to non-vested stock option and restricted stock awards, which the Company expects to recognize over a weighted-average period of 2.9 years.