STOCK-BASED AWARDS

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. At December 31, 2016, 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.

Under the 2010 Plan, 2,545,059 shares remained available for issuance, at December 31, 2016.

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 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 2016, the Company granted 1,858,720 restricted stock units under the 2010 Plan, containing service conditions.

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 grant date fair value of the Company’s common stock when the performance goals are defined solely by reference to the Company’s own operations. The fair value of each performance unit and performance award that contain performance goals tied to performance of the Company’s common stock is estimated using a Monte-Carlo simulation. 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.

Employee Stock Purchase Plan

Under the Company’s 2010 Employee Stock Purchase Plan (“ESPP”) eligible employees are granted the right to purchase shares at the lower of 85% of the fair value of the stock at the time of grant or 85% of the fair value at the time of exercise. The right to purchase shares is granted twice yearly for six month offering periods in June and December and exercisable on or about the succeeding December and June, respectively, on each year. Under the ESPP, 2,662,513 shares remained available for issuance, at December 31, 2016. The Company recognized compensation expense related to the ESPP of $1.4 million and $0.9 million for the years ended December 31, 2016 and 2015, respectively.

Stock Options

The Company has granted stock options which vest upon meeting service conditions. 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, 2015	7,264		$	30.75	7.1	$	63,328
Granted	101		38.67
Exercised	(978	)	19.33
Forfeited	(346	)	43.17
Outstanding, December 31, 2016	6,041		32.01		6.2	74,989
Exercisable at December 31, 2016	4,899		29.76		5.9	71,182
Vested and expected to vest at December 31, 2016	5,999		$	31.95	6.2	$	74,816

The following table summarizes information about stock options, which contain only service conditions, under the Company’s equity incentive plans at December 31, 2016 (in thousands except term information):



	Options Outstanding at December 31, 2016		Options Exercisable at December 31, 2016
	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	194	2.3	194	2.3
$5.93 to $8.88	813	3.9	813	3.9
$12.54 to $15.41	168	4.7	168	4.7
$16.24 to $18.82	340	5.0	340	5.0
$20.85 to $23.94	618	5.4	618	5.4
$27.55 to $31.44	263	6.5	222	6.2
$31.64 to $36.15	922	7.7	554	7.2
$38.03 to $45.76	1,220	7.1	899	6.9
$46.20 to $56.05	1,503	7.1	1,091	7.1
	6,041	6.2	4,899	5.9

The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $18.2 million, $11.4 million, and $42.9 million, respectively. The total grant date fair value of stock options vested during the years ended December 31, 2016, 2015 and 2014 was $24.3 million, $32.3 million, and $27.6 million, respectively. The Company recognized compensation expense related to stock options of $23.0 million, $28.0 million, and $28.8 million for the years ended December 31, 2016, 2015, and 2014, respectively.

Unrecognized compensation expense relating to stock options was $19.9 million at December 31, 2016 which is expected to be recognized over a weighted-average period of 1.5 years.

The aggregate grant date fair value of stock options granted for the years ended December 31, 2016, 2015 and 2014 was $1.8 million, $8.4 million, and $48.0 million, respectively.

Restricted Stock Units

Restricted stock unit activity for the year ended December 31, 2016 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, 2015	2,460		$	34.71
Granted	1,859		37.49
Forfeited	(367	)	34.63
Vested	(698	)	34.50
Nonvested shares subject to restricted stock units outstanding at December 31, 2016	3,254		$	36.35

The Company recognized compensation expense related to restricted stock units of $31.9 million, $15.0 million and $5.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. Unrecognized compensation expense related to nonvested restricted stock units was $91.6 million at December 31, 2016, which is expected to be recognized as expense over the weighted-average period of 2.9 years.

Performance-Based Restricted Stock Units

In July 2014, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved the issuance of performance-based restricted stock units to an executive officer of the Company. The number of shares of the Company’s common stock issuable upon the vesting of this performance-based restricted stock award is based upon (a) the performance of the Company’s stock price relative to a certain independent market index and (b) the recipient continuing to provide service through the end of the three year term of the award. Achievement of the maximum performance level would result in the issuance of 60,900 shares. The Company used a Monte Carlo simulation to estimate the fair value of this award which factors in the probability of the award vesting. The grant date fair value of the award was $1.8 million, which will be recognized ratably over the three year term of the award.

In December 2014, the Compensation Committee approved the issuance of performance-based restricted stock units to certain executives of the Company. The number of shares of the Company’s common stock issuable upon the vesting of these performance-based restricted stock unit awards is based upon (a) the performance of the Company’s stock price relative to a certain independent market index, (b) the achievement of the Company’s revenue guidance for each of fiscal year 2015 and 2016 and (c) the recipient continuing to provide services to the Company through the end of the three year term of the award. The Company finalizes its revenue guidance in February of each year, thus a grant date was established in February of 2015 and February of 2016 for each of the two tranches of the award related to that year’s revenue guidance. Each tranche is treated as a separate grant and recognized from the date the revenue guidance is determined over the remaining portion of the original three year term of the award. Achievement of the maximum performance level would result in the issuance of an aggregate of 1,070,000 shares.

The Company used a Monte Carlo simulation to estimate the fair value of each tranche of the awards for which a grant date has been established. The valuation factors in the probability of achieving the performance of the Company’s stock price relative to the market index. The aggregate grant date fair value of the first half of the above awards was $9.9 million, which was subsequently decreased to $5.0 million based on the Company’s performance in relation to the revenue guidance for fiscal year 2015. The decrease in value was a result of the maximum level of shares decreasing from an aggregate of 1,070,000 shares to an aggregate of 802,500 shares, representing a decrease from 535,000 shares to 267,500 shares for the first half of the awards and the maximum level achievable of 535,000 shares remaining for the second half of the awards. During the twelve months ended December 31, 2016, the Company determined that the aggregate grant date fair value of the second half of the awards was $3.6 million, was subsequently decreased to zero based on the Company’s performance in relation to the revenue guidance for fiscal year 2016. The decrease in value was a result of the probability of eligible shares decreasing from an aggregate of 535,000 shares to an aggregate of zero shares for the seconds half of the awards. Additionally, during the twelve months ended December 31, 2016, an aggregate of 30,000 shares were forfeited as a result of the retirement of an executive officer of the Company.

In July 2016, the Compensation Committee approved the issuance of additional performance-based restricted stock units to certain executives of the Company. The number of shares of the Company’s common stock issuable upon the vesting of these performance-based restricted stock unit awards is based upon (a) the Company meeting certain revenue and cash flow targets through December 31, 2018 and (b) the recipient continuing to provide services to the Company through the end of June 2019. Achievement of the maximum performance level would result in the issuance of 499,800 shares. The total amount of compensation expense recognized will be based on the number of estimated eligible shares, which will be evaluated each reporting period and determined by the Company’s actual and projected revenue and cash flow performance. These awards have a grant date fair value of $38.67 per share and the total compensation expense will be recognized over the three year vesting term of the awards.

The Company recognized compensation expense related to all performance-based awards in the aggregate amount of $2.6 million, $1.9 million and $0.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. Unrecognized compensation expense related to unvested performance-based restricted stock units was $3.3 million at December 31, 2016, based on the probable performance target at that date, which is expected to be recognized as expense over the weighted-average period of 1.5 years.

Stock-Based Compensation

Stock-based compensation expense related to stock options, restricted stock units, the ESPP and performance-based restricted stock units is included in the following line items in the accompanying Consolidated Statement of Operations for the years ended December 31, 2016, 2015, and 2014 (in thousands):



	Years Ended December 31,
	2016		2015		2014
Cost of revenue	$	4,732	$	3,887	$	2,669
Sales and marketing	25,642		23,604		18,364
Research and development	7,586		6,010		3,551
General and administrative	16,739		9,580		9,096
Total	$	54,699	$	43,081	$	33,680

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.