STOCK PLANS

2011 Employee Stock Purchase Plan

On September 7, 2011, the Company’s stockholders approved the 2011 Employee Stock Purchase Plan (the ESPP), under which 2,500,000 shares of the Company’s common stock have been reserved for issuance. The Company implemented the ESPP on March 1, 2012. Eligible employees may purchase shares of the Company’s common stock through regular payroll deductions of up to 20% of their eligible compensation. Under the terms of the offering under the ESPP, the number of shares of the Company’s common stock which a participant could purchase during any purchase period is limited to 2,000. In addition, the fair market value of shares purchased by an individual participant in the plan may not exceed $25,000 if the contribution period is within any calendar year. However, if contribution periods overlap calendar years, an individual participant is eligible to utilize the unused portion of the $25,000 limit from the subsequent purchase in the current purchase up to $50,000. Under the ESPP, shares of the company's common stock may be purchased on the last day of each bi-annual offering period at 85% of the fair market value on the last day of such offering period. The offering periods run from March 1 through August 31 and from September 1 through the last day of February of each year. During the fiscal year ended March 31, 2017, employees purchased 471,658 shares under the ESPP with a weighted average purchase price per share of $33.28. At March 31, 2017, 1,096,090 shares were available for future issuance under the ESPP.

1999 Stock Option and Incentive Plan

In April 1999, NetScout adopted the 1999 Stock Option and Incentive Plan (1999 Stock Option Plan). The 1999 Stock Option Plan, which was replaced by the 2007 Equity Incentive Plan effective September 12, 2007, provided for the grant of share-based awards to employees, officers and directors, consultants or advisors. Under the 1999 Stock Option Plan, NetScout could grant options that were intended to qualify as incentive stock options, options not intended to qualify as incentive stock options, restricted stock and other share-based awards. Incentive stock options could be granted only to employees of NetScout. At March 31, 2017, no options to purchase shares of common stock were outstanding under the 1999 Stock Option Plan. No additional grants can be made under the 1999 Stock Option Plan.

2007 Equity Incentive Plan

Enacted in September 2007, the 2007 Equity Incentive Plan (2007 Plan), replaced the 1999 Stock Option Plan. The 2007 Plan permits the granting of stock options, restricted stock and restricted stock units, collectively referred to as “share-based awards.” Periodically, the Company grants share-based awards to employees and officers of the Company and its subsidiaries. The Company accounts for these share-based awards in accordance with GAAP, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to its employees and directors. Share-based award grants are generally measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company’s common stock. Such value is recognized as a cost of revenue or an operating expense over the corresponding vesting period. On September 7, 2011, the Company’s stockholders approved an amendment and restatement of the 2007 Equity Incentive Plan to increase the shares of common stock reserved for issuance by 8,000,000 shares. On September 22, 2015, the Company's stockholders approved an amendment and restatement of the 2007 Equity Incentive Plan (the Amended 2007 Plan) to increase the shares of common stock reserved for issuance by 8,500,000. A total of 21,500,000 shares are reserved for issuance under the Amended 2007 Plan. In addition, any shares not delivered to a participant because an award is exercised through a reduction of shares subject to the award (cashless exercise) will not be available for issuance under the Amended 2007 Plan and any shares reacquired by the Company to cover withholding taxes upon exercise of a stock option or stock appreciation right or as consideration for the exercise of a stock option or stock appreciation right will not become available for issuance under the Amended 2007 Plan. Shares withheld to cover tax liabilities of restricted stock unit grants will be restored to the available reserve on the 2 for 1 amount. Furthermore, the share reserve under the Amended 2007 Plan is reduced one share for each share of common stock issued pursuant to a stock option or stock appreciation right and two shares for each share of common stock issued pursuant to restricted stock, restricted stock units, performance stock awards, or other stock awards granted under the Amended 2007 Plan on or after March 31, 2011. At March 31, 2017, an aggregate of 3,610,301 unvested equity awards were outstanding under the Amended 2007 Plan.

The Amended 2007 Plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee operates under guidelines established by the Board of Directors. The Compensation Committee had the authority to select the employees and consultants to whom awards are granted (except for directors and executive officers) and determine the terms of each award, including the number of shares of common stock subject to the award.

Share-based awards generally vest over four years. The exercise price of incentive stock options shall not be less than 100% of the fair market value of the common stock at the date of grant (110% for incentive stock options granted to holders of more than 10% of the voting stock of NetScout). The term of options granted cannot exceed ten years (five years for incentive stock options granted to holders of more than 10% of the voting stock of NetScout).

Based on historical experience, the Company assumed an annualized forfeiture rate of 0% for awards granted to its independent directors, approximately 2% for awards granted to its senior executives, and approximately 5% granted to all remaining employees during the fiscal years ended March 31, 2017, 2016 and 2015.

The following is a summary of share-based compensation expense including restricted stock units and employee stock purchases made under our employee stock purchase plan (ESPP) based on estimated fair values within the applicable cost and expense lines identified below (in thousands):



	Year Ended March 31,
	2017		2016		2015
Cost of product revenue	$	934	$	645	$	338
Cost of service revenue	3,956		2,601		1,194
Research and development	12,362		9,205		5,505
Sales and marketing	12,823		8,725		4,841
General and administrative	9,114		7,175		4,702
	$	39,189	$	28,351	$	16,580

Transactions under the 1999 Stock Option Plan and the 2007 Equity Incentive Plan during the fiscal years ended March 31, 2017, 2016 and 2015 are summarized in the table below.



	Stock Options				Restricted Stock Units
	Number of Shares		Weighted Average Exercise Price		Number of Awards		Weighted Average Fair Value
Outstanding – March 31, 2014	31,350		$	5.87	1,738,299		$	21.11
Granted	—		—		1,009,770		36.92
Exercised (Options)/Issued (RSU’s)	(23,850	)	5.87		(728,239	)	18.97
Canceled	(7,500	)	5.87		(90,515	)	21.44
Outstanding – March 31, 2015	—		$	—	1,929,315		$	30.18
Granted	—		—		1,806,490		37.20
Exercised (Options)/Issued (RSU’s)	—		—		(736,170	)	26.52
Canceled	—		—		(126,329	)	34.99
Outstanding – March 31, 2016	—		$	—	2,873,306		$	35.32
Granted	—		—		2,020,536		24.92
Exercised (Options)/Issued (RSU’s)	—		—		(950,159	)	33.16
Canceled	—		—		(333,382	)	33.40
Outstanding – March 31, 2017	—		$	—	3,610,301		$	30.24

At March 31, 2017, there were 8,602,261 shares of common stock available for grant under the Amended 2007 Plan.

The Company does not currently expect to repurchase shares from any source to satisfy its obligations under the 2007 Plan.

The aggregate intrinsic value of stock options exercised and the fair value of restricted stock units vested at March 31, 2017, 2016 and 2015 were as follows (in thousands):



	Year Ended March 31,
	2017		2016		2015
Total intrinsic value of stock options exercised	$	—	$	—	$	800
Total fair value of restricted stock unit awards vested	$	28,293	$	25,936	$	31,651

At March 31, 2017, there was no unrecognized compensation cost related to stock options.

At March 31, 2017, the total unrecognized compensation cost related to restricted stock unit awards was $87.2 million, which is expected to be amortized over a weighted-average period of 1.7 years.