Stockholders’ Equity

2000 Stock Plan, 2007 Equity Incentive Plan and Employee Stock Purchase Plan

In December 2000, the Company adopted the 2000 Stock Plan (“2000 Plan”). Under the 2000 Plan, as amended, the Company had reserved an aggregate of 14.2 million shares of its common stock for issuance. As of December 27, 2014, options to purchase 0.8 million shares of the Company’s common stock were outstanding under the 2000 Plan. The Company’s board of directors decided not to grant any additional options or other awards under the 2000 Plan following the Company’s IPO in 2007. The 2000 Plan expired on December 6, 2010. However, the 2000 Plan will continue to govern the terms and conditions of the outstanding options previously granted under the 2000 Plan.

In February 2007, the Company’s board of directors adopted the 2007 Equity Incentive Plan (“2007 Plan”) and the Company’s stockholders approved the 2007 Plan in May 2007. The Company has reserved a total of 46.8 million shares of common stock for issuance under the 2007 Plan. Pursuant to the 2007 Plan, the Company may award stock options, restricted stock, RSUs, PSUs, performance shares and stock appreciation rights to employees, consultants and members of the Company’s board of directors. The 2007 Plan has a maximum term of 10 years from the date of adoption, or it can be earlier terminated by the Company’s board of directors.

The ESPP was adopted by the board of directors in February 2007 and approved by the stockholder in May 2007. The ESPP was last amended by the stockholders in May 2014 to increase the shares authorized under the ESPP to 16.6 million shares of common stock. The ESPP has a 20-year term. Eligible employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the ESPP are limited to 15% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year.

Shares Reserved for Future Issuances

Common stock reserved for future issuance was as follows (in thousands):




	December 27, 2014
Outstanding stock options and awards	11,217
Reserved for future option and award grants	17,256
Reserved for future ESPP	7,262
Total common stock reserved for stock options and awards	35,735

Stock-based Compensation Plans

The Company has stock-based compensation plans pursuant to which the Company has granted stock options, RSUs and PSUs. The Company also has an ESPP for all eligible employees. As of December 27, 2014, there were a total of 17.3 million shares of common stock available for grant under the Company’s 2007 Plan. The following tables summarize the Company’s equity award activity and related information (in thousands, except per share data):



	Number of Options		Weighted-Average Exercise Price Per Share		Aggregate Intrinsic Value
Outstanding at December 31, 2011	9,873		$	7.03	$	7,924
Options granted	127		$	7.18
Options exercised	(582	)	$	4.39	$	1,484
Options canceled	(410	)	$	8.50
Outstanding at December 29, 2012	9,008		$	7.13	$	5,726
Options granted	—		$	—
Options exercised	(2,217	)	$	6.59	$	7,583
Options canceled	(424	)	$	8.04
Outstanding at December 28, 2013	6,367		$	7.26	$	17,452
Options granted	25		$	9.02
Options exercised	(2,001	)	$	6.99	$	8,182
Options canceled	(93	)	$	12.38
Outstanding at December 27, 2014	4,298		$	7.29	$	32,833
Vested and expected to vest as of December 27, 2014	4,296				$	32,814
Exercisable at December 27, 2014	4,219		$	7.28	$	32,261



	Number of Restricted Stock Units		Weighted-Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding at December 31, 2011	5,957		$	8.77	$	37,407
RSUs granted	3,620		$	7.51
RSUs released	(2,495	)	$	9.07	$	17,742
RSUs canceled	(379	)	$	8.27
Outstanding at December 29, 2012	6,703		$	8.01	$	38,873
RSUs granted	3,602		$	7.63
RSUs released	(3,070	)	$	8.26	$	25,028
RSUs canceled	(652	)	$	7.63
Outstanding at December 28, 2013	6,583		$	7.72	$	64,443
RSUs granted	2,705		$	8.80
RSUs released	(2,797	)	$	7.84	$	24,858
RSUs canceled	(449	)	$	7.85
Outstanding at December 27, 2014	6,042		$	8.14	$	90,085
Expected to vest as of December 27, 2014	5,850				$	87,221



	Number of Performance Stock Units		Weighted-Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding at December 31, 2011	2,595		$	10.51	$	16,304
PSUs granted	515		$	7.85
PSUs released	(883	)	$	9.40	$	5,448
PSUs canceled	(859	)	$	10.04
Outstanding at December 29, 2012	1,368		$	10.53	$	7,933
PSUs granted	552		$	6.63
PSUs released	(684	)	$	10.53	$	4,284
PSUs canceled	(515	)	$	11.31
Outstanding at December 28, 2013	721		$	7.04	$	7,054
PSUs granted	508		$	8.34
PSUs released	(255	)	$	6.36	$	2,097
PSUs canceled	(98	)	$	7.18
Outstanding at December 27, 2014	876		$	7.49	$	13,067
Expected to vest as of December 27, 2014	663				$	9,884

The aggregate intrinsic value of unexercised options is calculated as the difference between the closing price of the Company’s common stock of $14.91 at December 26, 2014 and the exercise prices of the underlying stock options. The aggregate intrinsic value of the options which have been exercised is calculated as the difference between the fair market value of the common stock at the date of exercise and the exercise price of the underlying stock options. The aggregate intrinsic value of unreleased RSUs and unreleased PSUs is calculated using the closing price of the Company's common stock of $14.91 at December 26, 2014. The aggregate intrinsic value of RSUs and PSUs released is calculated using the fair market value of the common stock at the date of release.

The following table presents total stock-based compensation cost for instruments granted but not yet amortized, net of estimated forfeitures, of the Company’s equity compensation plans as of December 27, 2014. These costs are expected to be amortized on a straight-line basis over the following weighted-average periods (in thousands, except for weighted-average period):



	Unrecognized Compensation Expense, Net		Weighted- Average Period (in years)
Stock options	$	239	1.5
RSUs	$	28,287	2.3
PSUs	$	2,055	1.5

The following table summarizes information about options outstanding at December 27, 2014.



	Options Outstanding				Vested and Exercisable Options
Exercise Price	Number of Shares	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number of Shares	Weighted- Average Exercise Price
	(In thousands)	(In years)			(In thousands)
$0.76 - $ 4.04	754	1.51	$	2.06	754	$	2.06
$6.30 - $ 7.25	536	5.29	$	6.87	504	$	6.88
$7.45 - $ 7.61	706	3.72	$	7.54	704	$	7.54
$7.68 - $ 8.19	1,069	3.91	$	8.12	1,049	$	8.13
$8.39 - $ 8.58	627	6.01	$	8.57	627	$	8.57
$8.85 - $ 22.36	606	3.91	$	11.05	581	$	11.14
	4,298	3.94	$	7.29	4,219	$	7.28

Employee Stock Options

In February 2012, the Compensation Committee of the Company’s board of directors shortened the maximum term of future option grants under the 2007 Plan from 10 years to 7 years. The weighted-average remaining contractual term of options outstanding and exercisable was 3.9 years as of December 27, 2014. Total fair value of stock options granted to employees and directors that vested during 2014, 2013 and 2012 was approximately $0.8 million, $3.2 million and $10.0 million, respectively, based on the grant date fair value.

The estimated values of stock options, as well as assumptions used in calculating these values were based on estimates as follows (expense amounts in thousands):



	Years Ended
Employee and Director Stock Options	December 27, 2014	December 28, 2013	December 29, 2012
Volatility	52%	N/A	65% - 68%
Risk-free interest rate	1.3%	N/A	0.7% - 1.0%
Expected life	4.3 years	N/A	4.0 - 5.3 years
Estimated fair value	3.85	N/A	$3.75 - $3.76
Total stock-based compensation expense	$702	$2,792	$8,436

N/A Not applicable because the Company did not grant any options to employees for the period presented.

Employee Stock Purchase Plan

The fair value of the ESPP shares was estimated at the date of grant using the following assumptions:



	Years Ended
	December 27, 2014	December 28, 2013	December 29, 2012
Volatility	46% - 51%	46% - 49%	54% - 57%
Risk-free interest rate	0.02% - 0.11%	0.10% - 0.14%	0.16% - 0.17%
Expected life	0.3 - 0.5 years	0.5 years	0.5 years
Estimated fair value	$2.05 - $2.57	$1.87 - $3.00	$1.73 - $2.63

The Company’s ESPP activity for the following periods was as follows (in thousands):



	Years Ended
	December 27, 2014		December 28, 2013		December 29, 2012
Stock-based compensation expense	$	3,760	$	3,022	$	3,586
Employee contributions	$	10,728	$	8,559	$	9,030
Shares purchased	1,438		1,656		1,653

Restricted Stock Units

During 2014, 2013 and 2012, the Company granted RSUs to employees and members of the Company’s board of directors to receive an aggregate of 2.7 million, 3.6 million and 3.6 million shares of the Company’s common stock, respectively. The Company accounted for the fair value of the RSUs using the closing market price of the Company’s common stock on the date of grant. Amortization of stock-based compensation expense related to RSUs in 2014, 2013 and 2012 was approximately $21.6 million, $23.8 million and $27.9 million, respectively.

Performance Stock Units

Pursuant to the 2007 Plan, during 2014, the Company granted 0.4 million shares of PSUs to certain of the Company's executive officers. The number of shares to be issued upon vesting of PSUs range from 0 to 1.5 times the number of PSUs granted depending on the relative performance of the Company's common stock price compared to the IGN Index over the span of one, two and three years of total shareholder returns.

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these values were based on estimates as follows:



		Year Ended
		December 27, 2014
Infinera Volatility		49% - 50%
IGN Index Volatility		25%
Risk-free interest rate		0.66% - 0.71%
Correlation with IGN Index		0.60
Estimated fair value		$6.59 - $7.60

Pursuant to the 2007 Plan, during 2014, the Company granted 0.1 million shares of PSUs to several employees. These PSUs will only vest upon the achievement of certain specific performance criteria and are subject to each employee's continued service to the Company. If the specific performance metrics are not met within the time limits specified in the award agreements, the PSUs will be canceled.

Pursuant to the 2007 Plan, during 2013, the Company granted 0.6 million shares of PSUs to certain of its executive officers. The number of shares to be issued upon vesting of PSUs range from 0 to 1.5 times the number of PSUs granted depending on the relative performance of the Company’s common stock price compared to the NASDAQ Telecom Composite Index over the span of one, two and three years of total shareholder returns. If the specific performance metrics are not met within the time limits specified in the award agreements, the PSUs will be cancelled. During 2014, the Company released 0.3 million shares of PSUs based on a payout of 1.5 times of the target number of PSUs.

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these values were based on estimates as follows:



	Year Ended
	December 28, 2013
Infinera Volatility	55%
NASDAQ Telecom Composite Index Volatility	23%
Risk-free interest rate	0.42%
Correlation with NASDAQ Telecom Composite Index	0.56
Estimated fair value	$6.27 - $7.06

Pursuant to the 2007 Plan, during 2012, the Company granted 0.5 million shares of PSUs to certain of its executive officers. These PSUs will only vest upon the achievement of certain specific revenue and operating profit criteria and are subject to each named executive officer’s continued service to the Company. If the financial performance metrics are not met within the time limits specified in the award agreements, the PSUs will be canceled. During 2014, the Company did not release any shares subject to these PSUs.

During 2009, the Company granted PSUs primarily to members of the Company’s board of directors and executive officers. The number of shares to be issued upon vesting of PSUs range from 0.5 to 2.0 times the number of PSUs granted depending on the relative performance of the Company’s common stock price compared to the NASDAQ Composite Index over a three-year and four-year periods. If the specific performance metrics are not met within the time limits specified in the award agreements, the PSUs will be cancelled. During 2013, the Company released 0.5 million shares of these PSUs based on a payout of 0.5 of the target number of PSUs.

Amortization of stock-based compensation related to PSUs in 2014, 2013 and 2012 was approximately $2.2 million, $0.7 million and $3.3 million, respectively. Amortization of stock-based compensation in 2013 included $2.1 million of expense offset by a $1.4 million decrease in fair value for one award classified as a liability award, in accordance with ASC 718.

Common Stock Warrants

During 2013, warrants to purchase 92,592 shares of common stock were net exercised. The aggregate consideration for such exercises was approximately $0.5 million. As of December 27, 2014, there were no warrants of common stock outstanding.

Stock-based Compensation Expense

The following tables summarize the effects of stock-based compensation on the Company’s consolidated balance sheets and statements of operations for the periods presented (in thousands):



	Years Ended
	December 27, 2014		December 28, 2013		December 29, 2012
Stock-based compensation effects in inventory	$	3,088	$	3,189	$	4,891
Stock-based compensation effects in deferred inventory cost	$	13	$	15	$	42
Stock-based compensation effects in fixed assets	$	119	$	145	$	146



Stock-based compensation effects in net income (loss) before income taxes
Cost of revenue	$	1,921	$	1,871	$	2,710
Research and development	8,927		10,900		13,306
Sales and marketing	7,477		7,624		10,450
General and administrative	6,383		5,956		9,529
	24,708		26,351		35,995
Cost of revenue—amortization from balance sheet ⁽¹⁾	3,686		5,625		5,824
Total stock-based compensation expense	$	28,394	$	31,976	$	41,819


⁽¹⁾	Represents stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.