10. Share Based Awards

2008 Plan

The 2008 Stock Plan, or 2008 Plan, which expired on June 12, 2014, provided for the grant of incentive and nonstatutory stock options to employees, nonemployee directors and consultants of the Company. Options granted under the 2008 Plan generally become exercisable within three to four years following the date of grant and expire 10 years from the date of grant.

Our 2008 Plan was terminated following the date our 2014 Equity Incentive Plan, or the 2014 Plan, became effective. Any outstanding stock awards under our 2008 Plan will continue to be governed by the terms of our 2008 Plan and applicable award agreements.

2014 Equity Incentive Plan

Our 2014 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code, or the Code, to our employees and our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation to our employees, directors and consultants. Additionally, our 2014 Plan provides for the grant of performance cash awards to our employees, directors and consultants.

The initial number of shares of our common stock available to be issued under our 2014 Plan was 8,142,857, which number of shares will be increased by any shares subject to stock options or other stock awards granted under the 2008 Plan that would have otherwise returned to our 2008 Plan (such as upon the expiration or termination of a stock award prior to vesting), not to exceed 16,312,202.

The number of shares of our common stock reserved for issuance under our 2014 Plan automatically increase on January 1 of each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. On January 1, 2020, we increased the number of shares of common stock reserved for issuance under our 2014 Plan by 5,636,269 shares, which was 5% of the total number of shares of capital stock outstanding at December 31, 2019.

Amended and Restated 2015 Inducement Plan

On December 20, 2015, our board of directors adopted our 2015 Inducement Plan, or the Inducement Plan, to reserve 1,600,000 shares of our common stock to be used exclusively for grants of awards to individuals that were not previously employees or directors of the Company. The terms and conditions of the Inducement Plan are substantially similar to our stockholder-approved 2014 Plan. On January 5, 2016 our board of directors approved the amendment and restatement of the Inducement Plan to increase the share reserve under the 2015 Inducement Plan to 1,970,000 shares of our common stock. As of December 31, 2019 there were 734,376 options and restricted stock units outstanding under the Amended and Restated 2015 Inducement Plan.

2014 Employee Stock Purchase Plan

The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. The ESPP permits eligible employees to purchase our common stock through payroll deductions, which may not exceed 15% of the employee’s base compensation. Stock may be purchased under the plan at a price equal to 85% of the fair market value of our common stock on either the first day of the offering or the last day of the applicable purchase period, whichever is lower.

As of December 31, 2019 and 2018, 378,525 and 364,762 shares of common stock were available for future issuance under our ESPP, respectively. The number of shares of our common stock reserved for issuance under our ESPP increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; (ii) 2,142,857 shares of common stock; or (iii) such lesser number as determined by our board of directors. Shares subject to purchase rights granted under our ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under our ESPP. On January 1, 2020, we increased the number of shares available for issuance under the ESPP by 1,127,253 shares, which was 1% of the total number of shares of common stock outstanding at December 31, 2019.

Restricted Stock Units

In 2014 we began granting restricted stock units under our 2014 Plan. For stock-based compensation expense, we measure the value of the restricted stock units based on the fair value of our common stock on the date of grant. Our restricted stock unit grants are subject to service conditions and we expense the fair value of those shares on a straight-line basis over their vesting periods.

Our restricted stock unit activity for 2017, 2018 and 2019 was as follows:


	Restricted Stock Units
		Weighted-
		Average
	Number of	Grant Date
	Shares	Fair Value
Unvested, December 31, 2016	10,474,975	$	4.45
Granted	11,017,278		5.04
Vested	(5,964,422)		4.70
Cancelled/Forfeited	(2,621,801)		5.01
Unvested, December 31, 2017	12,906,030	$	4.72
Granted	10,224,832		4.63
Vested	(7,032,521)		4.88
Cancelled/Forfeited	(3,794,428)		4.48
Unvested, December 31, 2018	12,303,913	$	4.63
Granted	10,403,571		5.45
Vested	(7,406,628)		4.75
Cancelled/Forfeited	(2,661,790)		4.79
Unvested, December 31, 2019	12,639,066	$	5.20

Bonus Plans

In 2016, our compensation committee approved the 2016 Executive Bonus Plan and 2016 Non-Executive Bonus Plan, or collectively, the 2016 Bonus Plans, each effective as of January 1, 2016, which provided for the issuance of shares of unrestricted common stock to employees based on meeting certain Company metrics. We issued 1,010,550 shares of unrestricted common stock in the first quarter of 2017, after withholding 677,547 shares to cover employee payroll taxes which we paid in cash totaling $3.1 million.

In April 2017, the Compensation Committee of our board of directors approved the 2017 Executive Bonus Plan and 2017 Non-executive Bonus Plan, or collectively, the 2017 Bonus Plans. The 2017 Bonus Plans provided for the issuance of shares of unrestricted common stock to employees based on achievement of certain 2017 Company metrics. We issued 1,220,822 shares of unrestricted common stock in the first quarter of 2018, after withholding 752,564 shares to cover employee payroll taxes which we paid in cash totaling $3.7 million.

In March 2018, the Compensation Committee of our board of directors approved the 2018 Non-executive Bonus Plan and in April 2018, the Compensation Committee of our board of directors approved the 2018 Executive Bonus Plan, or collectively, the 2018 Bonus Plans. The 2018 Bonus Plans provided for the issuance of shares of unrestricted common stock to employees based on the achievement of certain 2018 Company metrics. We issued 1,338,220 shares of unrestricted common stock in the first quarter of 2019, after withholding 832,635 shares to cover employee payroll taxes which we paid in cash totaling $4.1 million.

In March 2019, the Compensation Committee of our board of directors approved the 2019 Non-Executive Bonus Plan and the 2019 Executive Bonus Plan, or collectively, the 2019 Bonus Plans. The 2019 Bonus Plans provided for the issuance of shares of unrestricted common stock to employees based on the achievement of certain 2019 Company metrics. We issued 1,061,165 shares of unrestricted common stock in the first quarter of 2020, after withholding 669,517 shares to cover employee payroll taxes which we paid in cash totaling $2.9 million.

Shares issued under the aforementioned Bonus Plans are issued from our 2014 Plan and reduce the 2014 Plan shares available for issuance.

We record stock-based compensation expense related to the Bonus Plans over the service period of eligible employees based on forecasted performance relative to the Company metrics. To the extent that updated estimates of bonus expense differ from original estimates, the cumulative effect on current and prior periods of those changes is recorded in the period those estimates are revised.

In 2017, we recorded $7.7 million of stock-based compensation expense under the 2017 Bonus Plans and $1.7 million under the 2016 Bonus Plans. In 2018, we recorded $9.4 million of stock-based compensation expense under the 2018 Bonus Plans and $1.9 million under the 2017 Bonus Plans. In 2019, we recorded $6.9 million of stock-based compensation expense under the 2019 Bonus Plans and $1.1 million under the 2018 Bonus Plans.

Stock Options

Stock option activity under the 2008 Plan, 2014 Plan and the 2015 Inducement Plan in 2017, 2018 and 2019 was as follows:


		Options Outstanding
						Weighted-
	Number of					Average	Aggregate
	Shares		Weighted-			Remaining	Intrinsic
	Available	Number of	Average		Contractual		Value
	for Issuance	Shares	Exercise Price			Term (Years)	(In thousands)
Balance—December 31, 2016	4,199,415	9,835,992	$	4.39		6.23	$	5,734
Authorized	4,453,425	—
Stock options granted	(300,000)	300,000		4.20
Issuance of shares under 2016 Bonus Plans	(1,688,097)	—
Shares withheld from net settlement of restricted stock units	677,547	—
Restricted stock units granted	(9,329,181)	—
Exercised	—	(1,172,409)		2.80
Stock options canceled	1,225,087	(1,225,087)		6.24
Restricted stock units canceled	2,621,801	—
Balance—December 31, 2017	1,859,997	7,738,496	$	4.34		3.96	$	4,897
Authorized	4,860,197	—
Stock options granted	(400,000)	400,000		4.71
Issuance of shares under 2017 Bonus Plans	(1,974,771)	—
Shares withheld from net settlement of restricted stock units	1,294,360	—
Restricted stock units granted	(8,250,061)	—
Exercised	—	(2,488,544)		2.62
Stock options canceled	1,153,395	(1,153,395)		5.49
Restricted stock units canceled	3,794,428	—
Balance—December 31, 2018	2,337,545	4,496,557	$	5.02		4.98	$	2,446
Authorized	5,310,327	—
Stock options granted	(125,000)	125,000		4.52
Issuance of shares under 2018 Bonus Plans	(2,170,855)	—
Shares withheld from net settlement of restricted stock units	1,147,904	—
Restricted stock units granted	(8,232,716)	—
Exercised	—	(1,349,694)		4.09
Stock options canceled	372,886	(372,886)		7.07
Restricted stock units canceled	2,661,790	—
Balance—December 31, 2019	1,301,881	2,898,977	$	5.17		4.89	$	1,556
Vested and exercisable—December 31, 2019		2,410,434	$	5.32		4.17	$	1,353
Vested and expected to vest(1)—December 31, 2019		2,823,917	$	5.19		4.79	$	1,530

(1)

Options expected to vest are net of an estimated forfeiture rate.

Additional information regarding options outstanding at December 31, 2019 is as follows:


	Options Outstanding				Options Exercisable
		Weighted-
		Average
		Remaining	Weighted-			Weighted-
	Number of	Contractual	Average		Number of	Average
Range of exercises	Shares	Term (Years)	Exercise Price		Shares	Exercise Price
$0.55 — $3.85	753,487	3.85	$	3.18	646,194	$	3.09
$4.06 — $4.66	650,522	5.58		4.48	450,522		4.44
$4.70— $5.77	694,723	5.54		5.32	513,473		5.53
$6.20 — $8.39	590,810	4.83		6.76	590,810		6.76
$8.80 — $12.05	209,435	4.39		9.54	209,435		9.54
Outstanding at December 31, 2019	2,898,977	4.89	$	5.17	2,410,434	$	5.32

The aggregate pretax intrinsic value of vested options exercised in 2019, 2018 and 2017 was $3.0 million, $5.7 million and $2.3 million, respectively. The intrinsic value is the difference between the estimated fair value of the Company’s common stock at the date of exercise and the exercise price for in-the-money options. The weighted-average grant-date fair value of options granted in 2019, 2018 and 2017 was $2.28, $2.43 and $1.74 per share, respectively.

Our stock-based compensation expense was recorded in the following cost and expense categories (in thousands):


	Year ended December 31,
	2019		2018		2017
Cost of revenue	$	5,095	$	5,006	$	3,772
Research and development		14,610		15,981		14,520
Sales and marketing		8,663		9,464		8,659
General and administrative		7,436		7,985		6,780
Total	$	35,804	$	38,436	$	33,731

Determining Fair Value of Stock Options and ESPP

The fair value of each grant of stock options was determined by us using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.

Expected Term—The expected term of stock options represents the weighted-average period the stock options are expected to be outstanding. For option grants that are considered to be “plain vanilla”, we have opted to use the simplified method for estimating the expected term as provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of time-to-vesting and the contractual life of the options. For ESPP, the expected term is based on the offering period and purchase periods within the offering period.

Expected Volatility—When we did not have a sufficient trading history for our common stock, the expected stock price volatility assumption was determined by examining the historical volatilities of a group of industry peers. As more historical data for our common stock became available, we began to use our own historical stock price volatility to determine expected stock price volatility.

Risk-Free Interest Rate—The risk free rate assumption was based on the U.S. Treasury instruments with terms that were consistent with the expected term of our stock options and ESPP.

Expected Dividend—The expected dividend assumption was based on our history and expectation of dividend payouts.

Forfeiture Rate—Forfeitures were estimated based on historical experience.

Fair Value of Common Stock—Since our IPO, the fair value of our common stock has been determined based on the closing price of our common stock on the Nasdaq Global Select Market.

We used the Black-Scholes Model to estimate the fair value of our stock options granted to employees with the following weighted-average assumptions:


	Year ended December 31,
	2019	2018	2017
Expected dividend yield	—	—	—
Risk-free interest rate	2.5%	2.7%	2.1%
Expected volatility	50%	51%	40%
Expected life (in years)	6.1	6.1	6.1

We used the Black-Scholes model to estimate the fair value of our Employee Stock Purchase Plan awards with the following assumptions:


	Year ended December 31,
	2019	2018	2017
Expected dividend yield	—	—	—
Risk-free interest rate	1.5% - 2.5%	1.8% - 2.6%	0.9% - 1.3%
Expected volatility	39% - 45%	34% - 54%	34% - 54%
Expected life (in years)	0.5 - 2.0	0.5 - 2.0	0.5 - 2.0

As required by Topic 718 Compensation—Stock Compensation, we estimate expected forfeitures and recognize compensation costs only for those equity awards expected to vest. Our stock options granted are typically granted with vesting terms of 48 months.

The following table summarizes our unrecognized stock-based compensation expense as of December 31, 2019 net of estimated forfeitures:


	Unrecognized		Remaining
	Stock-based		Weighted-Average
	Compensation		Recognition
	Expense		Period
	(in millions)		(in years)
Stock options	$	0.8	2.5
Restricted stock units		48.2	2.8
ESPP		1.5	1.4
Total	$	50.5