Stock-Based Awards and Stock-Based Compensation

Stock Option Plans

2011 Plan

Our 2011 Equity Incentive Plan (the “2011 Plan”) provides our board of directors with broad discretion in creating employee equity incentives. Unless otherwise provided in the 2011 Plan document, the compensation committee, in its discretion, determines the stock option exercise prices, which may not be less than the fair value of our common stock at the date of grant, vesting periods, and expiration periods, which are a maximum of ten years from the date of grant.

The 2011 Plan replaced two previous plans. Awards that were outstanding upon termination of the previous plans remained outstanding pursuant to their original terms and awards subsequently terminated return to the pool of shares available for grant under the 2011 Plan.

The 2011 Plan allows for grants of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance shares and performance stock units ("PSUs"). Generally, all stock option grants are issued under an option agreement that provides, among other things, that the option grant vests over a four-year period while RSU and PSU agreements vest between one and four years.

The number of shares available for issuance under the 2011 Plan increases on the first business day of each year in an amount equal to the lesser of (i) 5,000,000 shares; (ii) 3.9% of the outstanding shares on the last day of the immediately preceding year; or (iii) such number of shares as determined by the board of directors.

2015 Employee Stock Purchase Plan

In May 2015, our stockholders approved the adoption of the ESPP, pursuant to which 2,000,000 shares of common stock have been reserved for issuance to participating employees. Eligible employees may elect to contribute up to 15% of their base salary during each pay period, up to $25,000 in a calendar year, for the purchase of up to 3,000 shares during a purchase period. The ESPP provides for separate overlapping 12 month offering periods starting every six months. Each offering has two purchase dates occurring every six months on designated dates. The offerings under the ESPP commence on May 15 and November 15 of each calendar year, beginning in May 2016. Any eligible employee may participate in only one offering period at a time and may purchase shares only through payroll deductions permitted under the ESPP. At the end of each six-month period, the purchase price is determined and the accumulated funds are used to automatically purchase shares of common stock. The purchase price per shares is equal to 85 percent of the lower of the fair market value of the common stock on the first day of the offering period or the date of purchase.

The first purchase period of the ESPP will be in May 2016 and, therefore, no shares were issued pursuant to the ESPP in the year ended December 31, 2015.

Stock Option Activity

Certain information regarding stock option activity and stock options outstanding as of December 31, 2015 was as follows:



	Shares Available for Grant		Outstanding Stock Options		Weighted average exercise price		Weighted average remaining life (in years)	Aggregate intrinsic value (in thousands)
Balances, December 31, 2014	3,389,132		7,329,575		$	5.97
Additional shares reserved	2,870,538
Stock options granted	(2,440,695	)	2,440,695		5.37
Forfeited – stock options	1,703,380		(1,703,380	)	9.73
Exercised – stock options exercised			(1,089,933	)	1.22
Granted – RSUs	(3,914,358	)
Forfeited – RSUs	1,574,637
Forfeited – PSUs	250,000
Vested RSUs adjusted for taxes	209,532
Balances, December 31, 2015	3,642,166		6,976,957		$	5.59	5.55	$	6,878
Exercisable at December 31, 2015			4,633,363		$	5.48	3.65	$	6,876
Vested and expected to vest			6,744,707		$	5.58	5.39	$	6,878

On January 1, 2016, an additional 2,979,417 shares were reserved for future awards under the 2011 Plan.

Restricted Stock Activity

Restricted stock results from the grant of PSUs and RSUs. The shares of restricted stock vest over the period specified in the related PSU and RSU agreements.

Restricted stock activity was as follows:



	Number of shares		Weighted average grant date fair value
Balances, December 31, 2014	4,043,912		$	11.21
Granted RSUs	3,914,358		5.39
Vested RSUs	(1,635,341	)	10.82
Forfeited RSUs	(1,574,637	)	9.72
Forfeited PSUs	(250,000	)	8.12
Balances, December 31, 2015	4,498,292		6.98

All shares to be issued upon the exercise of stock options and the vesting of RSUs will come from newly issued shares.

Stock-Based Compensation

The fair value of the stock-based options granted to employees was estimated using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:



	Year Ended December 31,
	2015		2014		2013
Expected term (in years)	6.0		6.0		5.9
Risk-free interest rate	1.75	%	1.83	%	1.09	%
Volatility	50.62	%	50.43	%	52.17	%
Dividend yield	—	%	—	%	—	%

The following weighted average assumptions were used to estimate the fair value of ESPP shares in the periods presented:



	Year Ended December 31,
	2015		2014		2013
Expected term (in years)	0.7		0		0
Risk-free interest rate	0.41	%	—	%	—	%
Volatility	36.20	%	—	%	—	%
Dividend yield	—	%	—	%	—	%

The expected terms of options granted were calculated using the simplified method, which defines the expected term as the average of the contractual term and the vesting period. We elected to use the simplified method due to a lack of term length data since we completed our initial public offering in December 2011 and our stock options meet the criteria of “plain-vanilla.” Estimated volatility incorporates a calculated volatility derived from the historical closing prices of common shares of our stock as well as similar entities whose share prices are publicly available for the expected term of the option. The risk-free interest rate is based on the U.S. Treasury constant maturities in effect at the time of grant for the expected term of the option. We use historical data to estimate the number of future stock option forfeitures.

The expected term for the ESPP is the weighted average length of the purchase periods. We utilize our historical volatility over the estimated expected term as the expected volatility.

Certain information regarding our stock-based compensation was as follows (in thousands, except per share data):



	Year Ended December 31,
	2015		2014		2013
Weighted average per share grant date fair value of stock options granted	$	2.65	$	3.68	$	7.57
Weighted average per share grant date fair value of ESPP purchase rights	$	1.32	$	—	$	—
Total intrinsic value of stock options exercised	$	4,444	$	12,573	$	36,367
Total fair value of restricted stock and stock options vested	$	19,320	$	38,071	$	21,045

Stock-based compensation was included in our Consolidated Statements of Operations as follows (in thousands):



	Year Ended December 31,
	2015		2014		2013
Cost of revenues	$	3,029	$	4,276	$	3,450
Research and development	7,078		10,642		14,133
Sales and marketing	3,775		10,852		10,614
General and administrative	6,423		7,138		6,557
Total	$	20,305	$	32,908	$	34,754
Stock-based compensation related to non-employee awards (included in total stock-based compensation above)	$	—	$	41	$	488
Stock-based compensation capitalized related to the development of internal-use software	$	—	$	1,370	$	—

There were no grants of stock-based awards to non-employees in 2015, 2014 or 2013. Vesting of shares granted to non-employees was contingent on the individual continuing to provide service. Expense for these awards was calculated using the Black-Scholes-Merton option-pricing model. These awards are equity classified and were marked to market each period with the change in fair value recorded in earnings. At December 31, 2015, there were no options exercisable for shares of our common stock by non-employees.

As of December 31, 2015, we had unrecognized compensation related to all stock-based awards of $32.9 million, which will be recognized over the weighted average remaining vesting period of 2.9 years.