8. Stock Plans

(a) 2003 Stock Plan

During 2003, the Board of Directors adopted the 2003 Stock Plan (the “2003 Plan”), which allowed for the grant of both incentive stock options and non-qualified stock options and the direct award or sale of shares of the Company’s common stock (including restricted common stock) to officers, employees, directors, consultants and other key persons. In connection with the Company’s initial public offering, which was completed in November 2011, the Board of Directors determined not to grant any further awards under the 2003 Plan upon completion of the public offering. The 2011 Stock Option and Incentive Plan (the “2011 Plan”) replaced the 2003 Plan in November 2011. Under the 2003 Plan, incentive stock options could have been granted to employees with exercise prices of no less than the fair value of the common stock on the grant date, and non-qualified options could have been granted to employees, directors, or consultants at exercise prices of no less than 85% of the fair value of the common stock on the grant date, as determined by the Board of Directors. If, at the time the Company granted an option, the optionee directly or by attribution owned stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, the option price had to have been at least 110% of the fair value. Options granted under the 2003 Plan generally expire no later than ten years from the date of grant and, in general, vest four years from the date of grant.

(b) 2011 Stock Option and Incentive Plan

In September 2011, the Board of Directors adopted the 2011 Stock Option and Incentive Plan (the “2011 Plan”) which was subsequently approved by the Company’s stockholders. The 2011 Plan replaced the 2003 Plan and the Company no longer grants awards under the 2003 Plan. The Company initially reserved a total of 1,000,000 shares of common stock for issuance under the 2011 Plan. In addition, 955,568 reserved but unissued shares under the 2003 Stock Plan were added to the number of shares reserved for issuance under the 2011 Plan. The 2011 Plan also provided that the number of shares reserved and available for issuance under the plan would automatically increase each January 1, beginning in 2012 and ending in 2015, by 4% of the outstanding number of shares of common stock on the immediately preceding December 31. The last automatic increase occurred on January 1, 2015.

The 2011 Plan permits the granting of incentive stock options, non-qualified stock options, restricted stock units (RSUs), stock appreciation rights, restricted shares of common stock and performance share awards. The exercise price of stock options may not be less than 100% of the fair market value of the common stock on the date of grant. Options granted pursuant to the 2011 Plan generally expire no later than ten years from the date of grant. The Company also grants RSUs, which generally vest over either a four-year period with 25% vesting at the end of one year and the remainder vesting quarterly thereafter or they completely vest at the end of a three-year period. Additionally, from time to time the Company grants performance-based RSUs to its executives and employees.

In September 2011, the Board of Directors adopted the 2011 Employee Stock Purchase Plan (the “ESPP”) which was subsequently approved by the Company’s stockholders. The ESPP took effect on November 8, 2011, the effective date of the registration statement for the Company’s initial public offering. The ESPP permits eligible employees to acquire shares of the Company’s common stock by accumulating funds through periodic payroll deductions of up to 15% of base salary. Each offering period may run for no more than 24 months and consist of no more than five purchase periods. The purchase price for shares of the Company’s common stock purchased under the ESPP will be 85% of the lesser of the fair market value of the Company’s common stock on the first day of the offering period or the last trading day of the applicable purchase period within that offering period.

The Company initially reserved a total of 500,000 shares of common stock for future issuance under the ESPP. The number of shares reserved for issuance under the ESPP increases automatically on January 1 of each of the first eight years commencing in 2012 by the number of shares equal to 1% of the Company’s total outstanding shares as of the immediately preceding December 31. The Board of Directors or compensation committee may reduce the amount of the increase in any particular year. No more than 20,000,000 shares of common stock may be issued under the ESPP and no other shares may be added to the ESPP without the approval of the Company’s stockholders. On January 1, 2016, the share reserve under the 2011 Employee Stock Purchase Plan was automatically increased by 318,371 shares.

(d) Inducement Stock Option Plan and Agreement and Inducement Restricted Stock Unit Plan and Agreement

In August 2014 and August 2015, the Compensation Committee of the Board of Directors adopted an Inducement Stock Option Plan and Agreement (the “Inducement Option Plan”) and an Inducement Restricted Stock Unit Plan and Agreement (the “Inducement RSU Plan”), in each case created as employment inducement awards. In accordance with the terms of the Inducement Option Plans, the Company issued options to purchase up to 290,000 shares of the Company’s common stock at an exercise price equal to the fair market value of a share of the Company’s common stock on the dates of grant of the options. The options, which will have a ten-year term, will vest at the rate of 25% of the shares on each of the first anniversary of the vesting commencement date with an additional 6.25% of the shares subject to the option vesting each quarter thereafter so long as the participant has not been terminated. In accordance with the terms of the Inducement RSU Plans, the Company issued RSUs representing a total of 290,000 shares of the Company’s common stock. The RSUs, which will expire following settlement, will vest at the rate of 25% of the shares on each of the first anniversary of the vesting commencement date with an additional 6.25% of the shares subject to the RSU vesting each quarter thereafter so long as the participant has not been terminated.

(e) 2015 Equity Inducement Plan

In October 2015, the Board of Directors adopted the 2015 Equity Inducement Plan, a non-stockholder approved plan that provides for the granting of stock options and RSUs as employment inducement awards and in connection with acquisitions, subject to compliance with applicable securities laws and stock exchange requirements for such plans. The Company has reserved 100,000 shares of common stock for issuance under the 2015 Equity Inducement Plan. No awards have been made under the 2015 Equity Inducement Plan and the entire reserve remains available for grant. Under the terms of the 2015 Equity Inducement Plan, the exercise price of stock options may not be less than 100% of the fair market value of common stock on the date of grant and generally expire no later than ten years from the date of grant.

(f) Incapsula 2010 Share Incentive Plan

In March 2010, Incapsula’s board of directors adopted the Incapsula 2010 Share Incentive Plan (the “Incapsula Plan”), pursuant to which Incapsula was able to grant to its employees and service providers options to purchase shares of its common stock, restricted shares, or RSUs. As of November 2013, the total number of shares of common stock that could have been granted under the Incapsula Plan was not to exceed 10,263,211 shares in the aggregate, subject to certain adjustments.

In November 2013, the board of directors of Incapsula approved the grant of RSUs for 7,095,461 shares of Incapsula’s common stock (“Incapsula RSUs”). As part of the Incapsula acquisition, the Incapsula RSUs were assumed and replaced by performance-based RSUs for Company Common Stock to be issued to continuing employees of Incapsula. The Incapsula RSUs were earned upon Incapsula’s achievement of revenue targets for Incapsula and Incapsula-related products and services for fiscal year 2014 and were converted into approximately 198,825 shares of Company Common Stock at the same exchange ratio applicable to the shares of Incapsula common stock acquired in the acquisition. In addition to performance conditions, the awards were dependent on the market price of Imperva’s common stock during February 2014, which was deemed a market condition under ASC 718.

The outstanding options and RSUs under the Incapsula 2010 Stock Incentive Plan were assumed as part of the Incapsula acquisition and are equivalent to 247,184 shares of Company common stock on an as-converted basis. The Company does not intend to grant any additional shares under the Incapsula 2010 Stock Incentive Plan.

Option Activity

The following table summarizes option activity under the Plans and related information:

	Options Outstanding					Weighted- Average Remaining
	Number of Shares			Weighted Average Exercise Price		Contractual Term (in years)		Aggregate Intrinsic Value (in thousands) (1)
Balances - January 1, 2016		1,949,089		$	39.27		8.09	$	47,480
Granted		48,260		$	53.59
Exercised or released		(19,474	)	$	30.29
Cancelled or forfeited		(41,422	)	$	43.68
Balances - March 31, 2016		1,936,453		$	39.62		7.86	$	25,732
Vested and expected to vest - March 31, 2016		1,729,309		$	38.72		7.78	$	24,226
Exercisable - March 31, 2016		784,409		$	32.48		6.94	$	14,863

(1)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $50.50 of the Company’s common stock on March 31, 2016.

RSU Activity

The following table summarizes RSU activity under the Plans and related information:

	Number of Restricted Stock Units Outstanding			Weighted- Average Grant Date Fair Value
Unvested - January 1, 2016		1,898,025		$	49.53
Granted		704,760		$	51.32
Granted, performance RSUs		273,900		$	51.55
Released		(261,627	)	$	41.73
Cancelled or expired		(61,460	)	$	47.19
Unvested - March 31, 2016		2,553,598		$	51.09

The aggregate intrinsic value of options exercised under the Plans was $0.3 million for the three months ended March 31, 2016. The aggregate intrinsic value is calculated as the difference between the fair market value of the Company’s common stock on the date of the exercise and the exercise price of each option multiplied by the number of options exercised. As of March 31, 2016, total compensation cost related to unvested stock-based awards granted to employees under the Plans, but not yet recognized, was $115.8 million, net of estimated forfeitures. As of March 31, 2016, this cost will be amortized to expense over a weighted-average remaining period of 2.7 years, and will be adjusted for subsequent changes in estimated forfeitures. Future stock-based award grants will increase the amount of compensation expense to be recorded in these periods.

There was no capitalized stock-based compensation expense during the three months ended March 31, 2016 and 2015. Recognized stock-based compensation tax deficiencies (benefits) during the three months ended March 31, 2016 and 2015 was $4,000 and ($43,000), respectively.

(g) Stock Compensation Expense

The Company recognized stock-based compensation expense under the 2011 Stock Option and Incentive Plan, 2003 Stock Plan, Inducement Plans, 2011 Employee Stock Purchase Plan, and the Incapsula 2010 Share Incentive Plan in the condensed consolidated statements of operations as follows (in thousands):

	For the three months ended March 31
	2016		2015
Cost of revenue	$	1,393	$	914
Research and development		4,249		3,328
Sales and marketing		5,094		4,465
General and administrative		4,919		3,839
Total stock-based compensation expense	$	15,655	$	12,546

The fair value of stock option grants for the three months ended March 31, 2016 and 2015 was estimated using the following weighted average assumptions:

	For the three months ended March 31
	2016			2015
Stock option grants:
Dividend rate		0	%		0	%
Risk-free interest rate		1.5	%		1.7	%
Expected term (in years)		6.1			6.1
Expected volatility		58	%		50	%

The fair value of the RSUs is determined using the closing price of the Company’s common stock on the date of the grant. Compensation is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures.

(h) Common Stock Subject to Repurchase

In connection with the acquisition of Skyfence in the first quarter of 2014, the Company issued 532,262 shares of the Company’s common stock with a fair value per share of $59.08 which are subject to forfeiture based upon time-based vesting and continuing employment over the term of the corresponding four-year service period. 236,537 shares were fully vested as of March 31, 2016.

(i) Follow-On Public Offering

In March 2015, the Company completed a follow-on public offering whereby the Company sold 3,450,000 shares of common stock at a price of $39.00 per share, for aggregate net proceeds of $127.9 million, after deducting underwriting discounts, commissions and other offering costs of approximately $6.7 million.