Equity Award Plans

We have operated under our 2013 Equity Incentive Plan (“2013 Plan”) since our IPO in September 2013. Our 2013 Plan provides for the issuance of restricted stock and the granting of options, stock appreciation rights, performance shares, performance units and restricted stock units to our employees, officers, directors and consultants. Awards granted under the 2013 Plan vest over the periods determined by the Board of Directors or compensation committee of the Board of Directors, generally four years, and stock options granted under the 2013 Plan expire no more than ten years after the date of grant. In the case of an incentive stock option granted to an employee who at the time of grant owns stock representing more than 10% of the total combined voting power of all classes of stock, the exercise price shall be no less than 110% of the fair value per share on the date of grant, and the award shall expire five years from the date of grant. For options granted to any other employee, the per share exercise price shall be no less than 100% of the fair value per share on the date of grant. In the case of non-statutory stock options and options granted to consultants, the per share exercise price shall be no less than 100% of the fair value per share on the date of grant. Stock that is purchased prior to vesting is subject to our right of repurchase at any time following termination of the participant for so long as such stock remains unvested. As of December 31, 2015 and 2014, approximately 7.2 million and 13.3 million shares of our common stock were reserved for future grants under the 2013 Plan. As of January 1, 2016, an additional 8,082,165 shares of common stock became available for future grants under our 2013 Plan pursuant to provisions thereof that automatically increase the share reserve under such plan each year.

In August 2013, our Board of Directors adopted, and our stockholders approved, our Employee Stock Purchase Plan ("ESPP"), which became effective upon adoption. Our ESPP allows eligible employees to acquire shares of our common stock at 85% of the lower of the fair market value of our common stock on the first trading of each offering period or on the exercise date. Each offering period is approximately twelve months starting on the first trading date on or after May 15 and November 15 of each year. Participants may purchase shares of common stock through payroll deductions of up to 15% of their eligible compensation, subject to purchase limits of 3,000 shares for each normal purchase period or $25,000 worth of stock for each calendar year.

Our ESPP provides for annual increases in the number of shares available for issuance on the first day of each fiscal year equal to the lesser of: 1% of the outstanding shares of our common stock on the first day of such fiscal year; 3,700,000 shares; or such other amount as may be determined by our Board of Directors. As of December 31, 2015 and 2014, approximately 3.2 million and 2.7 million shares of common stock were available for future issuance under our ESPP, respectively. As of January 1, 2016, an additional 1,616,433 shares of common stock became available for future issuance under our ESPP pursuant to the provisions thereof that automatically increase the share reserve under such plan each year.

From time to time, we also grant restricted common stock or restricted stock awards outside of our equity incentive plans to certain employees in connection with acquisitions.

Stock-Based Compensation

We record stock-based compensation based on the fair value of stock options on grant date using the Black-Scholes option-pricing model. We determine the fair value of shares of common stock to be issued under the ESPP using the Black-Scholes option-pricing model. The fair value of restricted stock units and restricted stock awards equals the market value of the underlying stock on the date of grant. We granted performance-based restricted stock units and restricted stock awards to certain employees which vest upon the achievement of certain performance conditions, subject to the employees' continued service relationship with us. We assess the probability of vesting at each reporting period and adjust our compensation cost based on this probability assessment. We recognize such compensation expense on a straight-line basis over the service provider's requisite service period. We determined valuation assumptions as follows:

Fair Value of Common Stock

Prior to our IPO, the fair value of the common stock underlying the stock option awards was determined by our board of directors. Given the absence of a public trading market, our Board of Directors considered numerous objective and subjective factors to determine the fair value of our common stock at each meeting at which awards were approved. These factors included, but were not limited to (i) contemporaneous third-party valuations of common stock; (ii) the rights and preferences of convertible preferred stock relative to common stock; (iii) the lack of marketability of common stock; (iv) developments in the business; and (v) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions. After the completion of our IPO, we have been using the listed stock price on the date of grant as the fair value of our common stock.

Risk-Free Interest Rate

We base the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent expected term of the options for each option group.

Expected Term

The expected term represents the period that our stock-based awards are expected to be outstanding. We base the expected term assumption on our historical behavior combined with estimates of post-vesting holding periods.

Volatility

We determine the price volatility factor based on the historical volatilities of our peer group as we do not have sufficient trading history for our common stock.

Dividend Yield

The expected dividend assumption is based on our current expectations about our anticipated dividend policy.

The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine the fair value of our stock options granted:



	Year Ended December 31,
	2014	2013
Fair value of common stock	$27.89 - $75.87	$6.05 - $42.37
Risk-free interest rate	1.8% - 2.0%	0.6% - 2.1%
Expected term (in years)	6	4 - 6
Volatility	51% - 53%	46% - 54%
Dividend yield	—%	—%

No stock options were granted during the year ended December 31, 2015.

The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine fair value of our common shares to be issued under the ESPP:



	Year Ended December 31,
	2015	2014	2013
Fair value of common stock	$19.10 - $35.16	$27.08 - $32.32	$20.00
Risk-free interest rate	0.09% - 0.50%	0.1%	0.1%
Expected term (in years)	0.5 - 1.0	0.5 - 1.0	0.7 - 1.2
Volatility	38% - 42%	35% - 45%	42% - 45%
Dividend yield	— %	— %	— %

Total stock-based compensation expense related to stock options, ESPP and restricted stock units and awards is included in the consolidated statements of operations as follows (in thousands):



	Year Ended December 31,
	2015		2014		2013
Cost of product revenue	$	1,588	$	888	$	469
Cost of subscription and services revenue	29,435		17,037		2,341
Research and development	68,329		28,968		6,958
Sales and marketing	73,286		66,773		10,748
General and administrative	49,793		38,186		8,342
Total	$	222,431	$	151,852	$	28,858

As of December 31, 2015, total compensation cost related to stock-based awards not yet recognized was $494.7 million, net of estimated forfeitures, which is expected to be amortized over the weighted-average remaining vesting period of approximately 3 years.

Stock Option Activity

A summary of the activity for our stock option changes during the reporting periods and a summary of information related to options vested and expected to vest and options exercisable are presented below (in thousands, except per share and contractual life amounts and years):



	Options Outstanding
	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Grant Date Fair Value		Weighted- Average Contractual Life (years)	Aggregate Intrinsic Value
Balance — December 31, 2012	17,336		$	0.98			8.3	$	77,250
Option granted	13,182		9.57		$	5.71
Options exercised	(6,222	)	0.88					41,599
Options canceled	(1,453	)	3.60
Options assumed in acquisition	4,579		5.93
Balance — December 31, 2013	27,422		$	5.82			8.3	$	1,036,224
Option granted	676		72.60		$	72.60
Options exercised	(7,642	)	2.97					271,236
Options canceled	(1,941	)	9.10
Options assumed in acquisition	63		20.60
Balance — December 31, 2014	18,578		$	9.13			7.4	$	445,636
Option granted	—		—		$	—
Options exercised	(5,856	)	4.97					211,854
Options cancelled	(1,228	)	14.57
Balance — December 31, 2015	11,494		$	10.67			6.9	$	149,157
Options vested and expected to vest — December 31, 2015	11,376		$	10.60			6.8	$	148,013
Options exercisable — December 31, 2015	7,226		$	8.89			6.6	$	102,036

In connection with our acquisition of Mandiant in December 2013, we assumed stock options covering an aggregate of 4.6 million shares of our common stock. At the date of the acquisition, 2.1 million of the stock options were vested and its fair value was recorded as part of the purchase consideration. The fair value related to the assumed 2.5 million unvested stock options are recognized as post-combination compensation costs and is being expensed ratably over the respective remaining service periods.

Restricted Common Stock, Restricted Stock Awards (“RSA”) and Restricted Stock Units (“RSU”) Activity

A summary of the activity for our restricted common stock, RSAs and RSUs during the reporting periods and a summary of information related to unvested restricted common stock, RSAs and RSUs and those expected to vest are presented below (in thousands, except per share data and years):



	Number of Shares		Weighted- Average Grant-Date Fair Value		Weighted- Average Contractual Life (years)	Aggregate Intrinsic Value
Unvested balance — December 31, 2012	3,009		$	2.20
Granted	1,949		31.59
Vested	(2,115	)	3.26
Canceled/forfeited	(262	)	6.73
Granted in connection with acquisitions	1,021		37.65
Unvested balance — December 31, 2013	3,602		$	27.20
Granted	6,734		42.12
Vested	(1,482	)	16.04
Canceled/forfeited	(809	)	40.93
Granted in connection with acquisitions	296		26.44
Unvested balance — December 31, 2014	8,341		$	39.57
Granted	16,876		32.25
Vested	(2,783	)	35.66
Canceled/forfeited	(2,380	)	41.11
Unvested balance — December 31, 2015	20,054		$	33.68	1.6	$	415,912
Expected to vest — December 31, 2015	18,822		$	33.78	1.6	390,359

During the years ended December 31, 2015, 2014 and 2013, we issued 5.3 million, 1.7 million, and 2.1 million shares, respectively, of restricted common stock, restricted stock awards or restricted stock units to certain employees which vest upon the achievement of certain performance conditions in addition to a continued service relationship with the Company.

During the year ended December 31, 2015, awards granted includes two cycles of annual refresh grants made to the general employee population.

In connection with our acquisition of Mandiant in December 2013, we issued 797,698 shares of our restricted stock at a value of $43.69 per share. These awards had the same terms and conditions as set forth in the original restricted stock award agreements, and vested over the weighted-average remaining vesting period of approximately two years.

In connection with our acquisition of nPulse in May 2014, we issued 295,681 restricted stock awards at a value of $26.44 per share. Of these awards, 54,319 were issued to former shareholders as purchase consideration, while the other 241,362 were issued into escrow for employees continuing service with the Company. The vesting of all these awards is over a period of approximately three and a half years from the acquisition date, subject to the achievement of specified performance milestones. For those issued to employees vesting is also contingent upon continued service with the Company. As such, compensation expense is being recorded over the requisite service period of three and half years. As of December 31, 2015, one milestone had been achieved, resulting in the vesting of 135,399 of these awards.