STOCK OPTION PLANS

1999 and 2009 Plans

In November 1999, the Company adopted the 1999 Stock Plan (“1999 Plan”) as amended. In January 2009, the Company adopted the 2009 Plan (“2009 Plan”) as amended. Stock options granted under the 1999 and 2009 Plans may be incentive stock options or non-statutory stock options. Incentive stock options may only be granted to employees. Stock purchase rights may also be granted under the 1999 and 2009 Plans. The Board of Directors determines the period over which stock options become exercisable. However, except in specific cases of stock options granted to officers, directors and consultants, stock options become exercisable at a rate of not less than 20% per year over five years from the date the stock options are granted. Options granted under the 1999 and 2009 Plans expire ten years after the grant date and generally vest one-fourth on the first anniversary of the grant and ratably thereafter for the following thirty-six months. The exercise price of incentive stock options and non-statutory stock options cannot be less than 100% and 85%, respectively, of the fair market value per share of the Company’s common stock on the grant date as determined by the Company’s Board of Directors. If an individual owns stock representing more than 10% of the outstanding shares, the price of each incentive stock option or non-statutory stock option share must be at least 110% of fair market value, as determined by the Board of Directors. The term of the stock options is ten years except for incentive stock options granted to an individual who owns stock representing more than 10% of the outstanding shares, in which case the term of the stock options is 5 years. The Company may also grant options that are immediately exercisable upon the Board of Directors’ approval.

At December 31, 2013, no shares are issuable under the 1999 and 2009 Plans.

2010 Plan

In March 2011, upon the completion of the Company’s IPO, the Company adopted the 2010 Plan and determined that it will no longer grant any additional awards under the 1999 Plan and the 2009 Plan. However, the 1999 Plan and the 2009 Plan continue to govern the terms and conditions of the outstanding awards previously granted under each respective plan. Upon the adoption of the 2010 Plan, the maximum aggregate number of shares issuable thereunder was 3,680,480 shares, plus (i) any shares subject to stock options or similar awards granted under the 1999 Plan or 2009 Plan prior to March 16, 2011 that expire or otherwise terminate without having been exercised in full and (ii) shares issued pursuant to awards granted under the 1999 Plan and 2009 Plan that are forfeited to or repurchased by the Company after March 16, 2011, with the maximum number of shares to be added to the 2010 Plan from the 1999 Plan and 2009 Plan equal to 5,614,369 shares of common stock. In addition, the number of shares available for issuance under the 2010 Plan will be annually increased on the first day of each fiscal year beginning with 2012, by an amount equal to the lesser of 5,500,000 shares, 4.5% of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year, or such other amount as the Company’s Board of Directors determines.

Shares issued pursuant to awards under the 2010 Plan that are repurchased by the Company or that expire or are forfeited, as well as shares used to pay the exercise price of an award or to satisfy the minimum tax withholding obligations related to an award, will become available for future grant or sale under the 2010 Plan. In addition, to the extent that an award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance under the 2010 Plan.

The 2010 Plan permits the grant of incentive stock options to employees and the grant of non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the Company’s employees, directors and consultants.

Stock Options

The exercise price of stock options granted under the 2010 Plan must equal at least the fair market value of the Company’s common stock on the date of grant. The term of an incentive stock option may not exceed ten years; provided, however, that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of the Company’s stock, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of the Company’s common stock on the grant date.

Restricted Stock Awards

The Company may grant restricted stock under the 2010 Plan. Restricted stock awards are grants of shares of the Company’s common stock that are subject to various restrictions, including restrictions on transferability and forfeiture provisions. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the Board of Directors provides otherwise. Shares of restricted stock that do not vest for any reason will be forfeited by the recipient and will revert to the Company. The fair value of each share of restricted stock granted is equal to the grant date fair market value of the Company’s common stock.

Restricted Stock Units

The Company may also grant restricted stock units under the 2010 Plan. The fair value of each restricted stock unit granted is equal to the grant date fair market value of the Company’s common stock. The payment of restricted stock units may be in the form of cash, shares, or in a combination thereof, as determined by the Board of Directors. During 2013, the Company granted 172,465 time based restricted stock units under the 2010 Plan.

Stock Appreciation Rights

The Company may also grant stock appreciation rights under the 2010 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the price of the Company’s common stock between the date of grant and the exercise date. The payment of stock appreciation rights may be in the form of cash, shares, or in a combination thereof, as determined by the Board of Directors. As of December 31, 2013, no stock appreciation rights had been granted under the 2010 Plan.

Performance Units/Performance Shares

The Company may also grant performance units and performance shares under the 2010 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals for a predetermined period, established by the Board of Directors, are achieved or the awards otherwise vest. The fair value of each performance unit and performance share awarded is equal to the fair market value of the Company’s common stock at the close of the applicable performance period. The payment of performance units and performance shares may be in the form of cash, shares, or a combination thereof, as determined by the Board of Directors.

Under the 2010 Plan, 2,015,533 shares remained available for issuance, at December 31, 2013.

Stock Options

The Company has granted stock options which vest upon meeting service conditions and or performance conditions. Information with respect to stock options which contain performance conditions is discussed separately below. The following table summarizes the stock option activity which contain only service conditions, under the Company’s 1999, 2009 and 2010 Plans (in thousands, except per share and term information):



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding, December 31, 2012	6,610		$	12.49	8.2	$	112,899
Granted	2,394		43.32
Exercised	(1,566	)	8.58
Forfeited	(311	)	27.00
Outstanding, December 31, 2013	7,127		23.07		8.1	215,549
Exercisable at December 31, 2013	2,890		10.46		7.0	123,833
Vested and expected to vest at December 31, 2013	7,022		$	22.91	8.1	$	213,492

The following table summarizes information about stock options, which contain only service conditions, under the Company’s equity incentive plans at December 31, 2013 (in thousands except term information):



	Options Outstanding at December 31, 2013		Options Exercisable at December 31, 2013
	Number of Options	Weighted Average Remaining Contractual Term (in years)	Number of Options	Weighted Average Remaining Contractual Term (in years)
Range of Exercise Prices
$0.34 to $1.65	841	5.6	800	5.5
$5.93 to $8.88	1,219	6.9	866	6.9
$12.54 to $15.41	596	7.7	289	7.7
$16.24 to $18.82	732	8.0	458	8.0
$20.85 to $23.94	1,095	8.4	366	8.4
$27.75 to $31.44	394	8.9	104	8.8
$33.34 to $36.15	609	9.2	4	9.2
$40.03 to $45.76	895	9.5	2	9.8
$50.42 to $52.72	746	9.7	1	9.9
	7,127	8.1	2,890	7.0

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $57.7 million, $23.9 million, and $19.5 million, respectively. The Company recognized compensation expense related to stock options which contain only service conditions of $17.2 million, $10.3 million, and $3.8 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Unrecognized compensation expense relating to stock options which contain only service conditions was $59.6 million at December 31, 2013 which is expected to be recognized over a weighted-average period of 2.7 years.

The aggregate grant date fair value of stock options which contain only service conditions granted for the years ended December 31, 2013, 2012 and 2011 was $51.5 million, $28.4 million, and $11.9 million, respectively.

Restricted Stock Awards

On December 1, 2011, the Company granted fully vested restricted stock awards for an aggregate of 7,500 shares of common stock with an aggregate grant date fair value of $0.1 million, which was recognized as compensation expense in 2011.

In connection with the acquisition of Sonar, the Company issued 31,164 restricted shares of its common stock, valued at approximately $0.7 million, to certain Sonar shareholders who also became employees of the company post-acquisition. The vesting of the restricted shares is subject to continued employment, and the fair value of the restricted shares is recognized as a post-acquisition compensation expense over the 2 year vesting period (see Note 3). As of December 31, 2013, 18,698 shares were vested.

Restricted Stock Units

Restricted stock unit activity for the year ended December 31, 2013 under the Company’s equity incentive plans is summarized as follows (shares in thousands):



	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested shares subject to restricted stock units outstanding at December 31, 2012	425		$	14.37
Granted	173		42.90
Forfeited	(2	)	40.03
Vested	(214	)	13.15
Nonvested shares subject to restricted stock units outstanding at December 31, 2013	382		$	27.81

The Company recognized compensation expense related to restricted stock units of $3.4 million, $1.7 million and $0.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. Unrecognized compensation expense related to nonvested restricted stock units was $8.7 million at December 31, 2013, which is expected to be recognized as expense over the weighted-average period of 2.3 years.

Performance Based Options and Units

During 2012, the Company granted performance-based stock options and restricted stock units to certain employees. The number of awards that the employees may earn is based upon (a) a subsidiary of the Company meeting certain predetermined contracted monthly recurring revenue targets by December 31, 2015, and (b) whether the employee continues to provide service through each measurement date, as defined in the agreement applicable to the award. The awards vest generally over a four year period and have a term of 10 years. The stock options have an exercise price of $27.75 per share. The Company estimated the grant date fair value for each target level at the grant date and is recognizing stock-based compensation over the vesting period using a graded vesting model based upon the target that is probable of being achieved. Achievement of the probable target would result in stock options to purchase 53,714 shares of common stock and 12,892 restricted units vesting. The maximum number of stock options and restricted stock units that may vest should the maximum target level become probable would be 179,047 and 43,066, respectively. The Company may be required to adjust compensation cost in the future to the extent that another target level becomes probable.

The Company recognized compensation expense related to performance based awards of $0.3 million and $0.4 million for the years ended December 31, 2013 and 2012. Unrecognized compensation expense related to nonvested performance based options and restricted stock units was $0.4 million at December 31, 2013, based on the probable performance target at that date, which is expected to be recognized as expense over the weighted-average period of 2.0 years.

Stock-Based Compensation

Stock-based compensation expense related to stock options, restricted stock units and restricted stock awards is included in the following line items in the accompanying Consolidated Statement of Operations for the years ended December 31, 2013, 2012, and 2011 (in thousands):



	Years Ended December 31,
	2013		2012		2011
Cost of revenue	$	2,207	$	1,660	$	581
Sales and marketing	9,866		3,982		1,121
Research and development	2,052		949		755
General and administrative	6,715		5,616		2,045
Total	$	20,840	$	12,207	$	4,502

In certain instances the Company is responsible for payroll taxes related to stock options exercised or the underlying shares sold by its employees. The Company accrues its obligations at the time of the exercise of the stock options or the sale of the underlying shares.