Stockholders’ Equity

Stock Option Exchange

On April 13, 2017, the Company filed its definitive proxy statement, submitting to stockholders a proposal for a stock option exchange program (the “Program”). The Program would allow the Company employees, including its executive officers other than its President, Chief Executive Officer, and Chairman, Chief Technology Officer, and Chief Financial Officer (“Eligible Employees”), to exchange out-of-the-money or “underwater” options to purchase shares of the Company’s Class A common stock or Class B common stock currently held by such Eligible Employees for a lesser number of restricted stock units (“RSUs”) that may be settled for shares of its Class A common stock, (“New RSUs”), under the Company’s 2015 Equity Incentive Plan (the “2015 Plan”). Each New RSU represents an unfunded right to receive one share of the Company’s Class A common stock on a date in the future, which generally is the date on which the New RSU will vest. Eligible Employees participating in the Program would receive one New RSU for every two “out-of-the-money” options that they exchange. The New RSUs would generally vest over the remaining vesting period of the exchanged option (subject to a one-year minimum vesting period). None of the members of the Company’s board of directors were eligible to participate in the Program. On May 25, 2017, the Company’s stockholders approved the Program at the 2017 Annual Meeting of Stockholders. The Company subsequently commenced the Program by filing a tender offer statement on Schedule TO with the SEC on June 21, 2017. The Program expired on July 19, 2017. A total of 3.7 million “underwater” stock options were tendered by the Eligible Employees, representing approximately 85% of the stock options eligible for exchange. On July 20, 2017, the Company granted an aggregate of 1.8 million New RSUs under the 2015 Plan in exchange for the “underwater” stock options tendered. The completion of the Program resulted in total incremental unrecognized stock-based compensation expense of $8.5 million, to be recognized over the greater of one year or the remaining vesting service period of the tendered stock options.

Equity Incentive Plans

In May 2015, the Company’s board of directors and stockholders adopted and approved the 2015 Plan. The 2015 Plan became effective on June 16, 2015 and serves as the successor to the Amended and Restated 2007 Stock Plan (the “2007 Plan”). The Company ceased granting awards under the 2007 Plan, and any outstanding stock options and RSUs granted under the 2007 Plan would remain subject to the terms of the 2007 Plan. As of September 30, 2017, 14.8 million shares of Class A common stock were reserved and available for future issuance under the 2015 Plan.

Stock Options

Stock option activity under the equity incentive plans was as follows:



	Stock Options Outstanding
	Number of Shares Subject to Stock Options		Weighted– Average Exercise Price		Aggregate Intrinsic Value ⁽¹⁾
	(in thousands)				(in thousands)
Balance—December 31, 2016	34,454		$	3.85
Granted	1,150		5.63
Exercised	(6,634	)	1.15
Forfeited or canceled	(6,775	)	9.59
Balance—September 30, 2017	22,195		2.99		$	93,199

Stock options exercisable—September 30, 2017	16,455		2.42		77,220
Stock options vested and expected to vest—September 30, 2017	22,084		2.99		92,872

⁽¹⁾ The aggregate intrinsic values of stock options outstanding, exercisable, vested and expected to vest as of September 30, 2017 were calculated as the difference between the exercise price of the stock options and the fair value of the Class A common stock of $6.96 as of September 30, 2017.

Restricted Stock Units

RSU activity under the equity incentive plans was as follows:



	RSUs Outstanding		Weighted- Average Grant Date Fair Value
	(in thousands)
Unvested balance—December 31, 2016	11,578		$	16.85
Granted	14,499		6.55
Vested	(4,673	)	12.81
Forfeited or canceled	(3,909	)	12.94
Unvested balance—September 30, 2017	17,495		10.27

Employee Stock Purchase Plan

In May 2015, the Company’s board of directors adopted the 2015 Employee Stock Purchase Plan (the “2015 ESPP”), which became effective on June 17, 2015. A total of 3.8 million shares of Class A common stock were initially reserved for issuance under the 2015 ESPP. The 2015 ESPP allows eligible employees to purchase shares of the Company’s Class A common stock through payroll deductions at a price per share equal to 85% of the lesser of the fair market value of the Company’s Class A common stock (i) on the first trading day of the applicable offering period and (2) the last trading day of each purchase period in the applicable offering period. Except for the initial offering period, the 2015 ESPP provides for 6-month offering periods beginning in May and November of each year. The initial offering period began June 17, 2015 and ended in May 2016.

Warrant

On July 10, 2017, the Company issued a warrant to purchase 0.5 million shares of Class A common stock. The warrant is exercisable based on service and performance-based conditions and has an exercise price of $5.23 per share and a contractual term of ten years. As of September 30, 2017, 0.5 million warrants were outstanding.

Stock-Based Compensation Expense

Total stock-based compensation expense recognized was as follows (in thousands):



	Three Months Ended				Nine Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016

Cost of revenue	$	1,379	$	1,014	$	2,889	$	3,407
Research and development	12,947		12,314		40,280		34,432
Sales and marketing	3,679		3,030		11,301		8,492
General and administrative	4,792		3,647		12,786		11,844
Total stock-based compensation expense	$	22,797	$	20,005	$	67,256	$	58,175

As of September 30, 2017, the total unrecognized stock-based compensation expense related to unvested stock options and RSUs was $179.9 million, which the Company expects to recognize over an estimated weighted average period of 2.2 years.