STOCKHOLDERS’ EQUITY

Stock-Based Compensation Plans

Our stock-based compensation plans include the 2000 Stock Option Plan (the “2000 Plan”), the 2008 Stock Plan (the “2008 Plan”), the 2009 Equity Incentive Plan (the “2009 Plan”), and the ESPP.

2000 Stock Plan—During 2000, we adopted the 2000 Plan, which includes both incentive and non-statutory stock options. Under the 2000 Plan, we may grant options to purchase up to 21,500,000 shares of common stock to employees, directors and other service providers at prices not less than the fair market value at date of grant for incentive stock options and not less than 85% of fair market value for non-statutory options. Options granted to a person who, at the time of the grant, owns more than 10% of the voting power of all classes of stock shall be at no less than 110% of the fair market value and expire five years from the date of grant. All other options generally have a contractual term of 10 years. Options generally vest over four years.

2008 Stock Plan—On January 28, 2008, our board of directors approved the 2008 Plan and French Sub-Plan, which includes both incentive and non-statutory stock options. The maximum aggregate number of shares which may be subject to options and sold under the 2008 Plan and the French Sub-Plan is 5,000,000 shares, plus any shares that, as of the date of stockholder approval of the 2008 Plan, have been reserved but not issued under the 2000 Plan or shares subject to stock options or similar awards granted under the 2000 Plan that expire or otherwise terminate without having been exercised in full or that are forfeited to or repurchased by us.

Under the 2008 Plan and the French Sub-Plan, we may grant options to employees, directors and other service providers. In the case of an incentive stock option granted to an employee, who at the time of grant, owns stock representing more than 10% of the total combined voting power of all classes of stock, the exercise price shall be no less than 110% of the fair market value per share on the date of grant and expire five years from the date of grant, and options granted to any other employee, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. In the case of a nonstatutory stock option and options granted to other service providers, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant.

2009 Equity Incentive Plan—On November 17, 2009, our board of directors approved the 2009 Plan and French Sub-Plan, which includes awards of stock options, stock appreciation rights, restricted stock, RSUs, and PSUs or performance shares. The maximum aggregate number of shares that may be issued under the 2009 Plan is 9,000,000 shares, plus any shares subject to stock options or similar awards granted under the 2008 Plan and the 2000 Plan that expire or otherwise terminate without having been exercised in full and shares issued pursuant to awards granted under the 2008 Plan and the 2000 Plan that are forfeited to or repurchased by us, with the maximum number of shares to be added to the 2009 Plan pursuant to such terminations, forfeitures and repurchases not to exceed 21,000,000 shares. The shares may be authorized, but unissued or reacquired common stock. The number of shares available for issuance under the 2009 Plan will be increased on the first day of each fiscal year beginning with fiscal 2011, in an amount equal to the lesser of (i) 7,000,000 shares, (ii) five percent (5%) of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by our board of directors. Under the 2009 Plan and the French Sub-Plan, we may grant awards to employees, directors and other service providers. In the case of an incentive stock option granted to an employee who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock, the exercise price shall be no less than 110% of the fair market value per share on the date of grant and expire five years from the date of grant, and options granted to any other employee, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. In the case of a non statutory stock option and options granted to other service providers, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. Options granted to individuals owning less than 10% of the total combined voting power of all classes of stock generally have a contractual term of seven years and options generally vest over four years.

As of December 31, 2013, a total of 47,131,910 shares were authorized and available for issuance under the 2000 Plan, 2008 Plan and 2009 Plan.

Employee Stock Purchase Plan—In June 2011, our stockholders approved the ESPP. The purpose of the ESPP is to provide eligible employees with the opportunity to purchase common stock through regular, systematic payroll deductions, up to a maximum of 15% of employees’ compensation for each purchase period at purchase prices equal to 85% of the lesser of the fair market value of our common stock at the first trading date of the applicable offering period or the purchase date. As of December 31, 2013, 6,750,770 shares were authorized and available for issuance under the ESPP.

Employee Stock Options

In determining the fair value of our employee stock options, we use the Black-Scholes option pricing model, which employs the following assumptions.

Valuation method—We estimate the fair value of stock options granted.

Expected Term—The expected term represents the period that our stock-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the stock option awards granted, we have based our expected term on the simplified method, which is calculated as the average weighted vesting period and contractual life.

Expected Volatility—The computation of expected volatility for the periods presented includes the historical and implied stock volatility of comparable companies from a representative peer group selected based on industry and market capitalization data and our weighted historical volatility following our initial public offering in November 2009.

Fair Value of Common Stock—The fair value of our common stock is the closing sales price of the common stock (or the closing bid, if no sales were reported) on the effective on the date of grant.

Risk-Free Interest Rate—We base the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

Expected Dividend—The expected dividend weighted-average assumption is zero.

The following table summarizes the weighted-average assumptions relating to our employee stock options:



	Fiscal Year
	2013	2012	2011
Expected term in years	4.6	4.6	4.1 – 4.6
Volatility (%)	45 – 48	46 – 52	40 – 57
Risk-free interest rate (%)	1.2	0.7 – 0.9	0.6 – 2.0
Dividend rate (%)	—	—	—

The following table summarizes the stock option activity and related information for the periods presented below (in 000’s, except per share amounts, exercise prices and contractual life):



	Options Outstanding
	Number of Shares		Weighted- Average Exercise Price ($)	Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value ($)
Balance—December 31, 2010	22,489		4.21
Granted	6,526		21.05
Forfeited	(1,397	)	11.79
Exercised	(6,229	)	3.21
Balance—December 31, 2011	21,389		9.14
Granted	3,401		26.38
Forfeited	(1,441	)	19.31
Exercised	(4,778	)	5.69
Balance—December 31, 2012	18,571		12.40
Granted	258		20.89
Forfeited	(820	)	22.14
Exercised	(2,488	)	5.18
Balance—December 31, 2013	15,521		13.18
Options vested and expected to vest—December 31, 2013	15,496		13.17	3.24	120,178
Options exercisable—December 31, 2013	12,084		10.52	2.82	118,226

The aggregate intrinsic value represents the pre-tax difference between the exercise price of stock options and the quoted market price of our common stock on December 31, 2013, for all in-the-money options. As of December 31, 2013, total compensation expense related to unvested stock options granted to employees but not yet recognized was $39.5 million, net of estimated forfeitures. This expense is expected to be amortized on a straight-line basis over a weighted-average period of 1.8 years.

Additional information related to our stock options is summarized below ($ amounts in 000's, except per share amounts):



	Fiscal Year
	2013	2012	2011
Weighted-average fair value per share granted	8.42	11.13	8.10
Intrinsic value of options exercised	41,484	92,323	113,590
Fair value of options vested	26,411	25,350	11,800

The following table summarizes information about outstanding and exercisable stock options as of December 31, 2013, as follows (in 000’s, except per share amounts, exercise prices and contractual life):



	Options Outstanding			Options Exercisable
Range of Exercise Prices ($)	Number Outstanding	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price ($)	Number Exercisable	Weighted- Average Exercise Price ($)
0.48–1.20	1,331	1.75	0.97	1,331	0.97
3.74–4.65	4,902	1.66	3.75	4,902	3.75
5.50–6.25	152	2.71	5.64	152	5.64
8.43–8.99	1,636	3.16	8.55	1,486	8.53
15.28–19.94	382	4.15	15.88	231	15.28
20.13–24.92	4,835	4.41	21.32	2,902	21.20
26.70–26.70	2,283	5.01	26.70	1,080	26.70
	15,521			12,084

Restricted Stock Units

The following table summarizes the activity and related information for RSUs for the periods presented below (in 000’s, except per share amounts):



	Restricted Stock Units Outstanding
	Number of Shares		Weighted-Average Grant-Date-Fair Value per Share ($)
Balance—December 31, 2011	—		—
Granted	873		23.79
Forfeited	(43	)	24.76
Vested	—		—
Balance—December 31, 2012	830		23.73
Granted	4,104		21.75
Forfeited	(507	)	21.48
Vested	(228	)	23.89
Balance—December 31, 2013	4,199		22.00
RSUs expected to vest—December 31, 2013	3,898		22.02

As of December 31, 2013, total compensation expense related to unvested RSUs that were granted to employees and non-employees under the 2009 Plan, but not yet recognized, was $82.6 million, net of estimated forfeitures. This expense is expected to be amortized on a straight-line basis over a weighted-average vesting period of 2.99 years.

RSUs settle into shares of common stock upon vesting. RSUs that were previously granted began vesting in fiscal 2013. Upon the vesting of the RSUs, we net-settled the RSUs and withheld a portion of the shares to satisfy minimum statutory employee withholding taxes. Total payment for the employees’ tax obligations to the taxing authorities is reflected as a financing activity within the consolidated statements of cash flows. These net settlements had the effect of share repurchases by us as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to us.

The following summarizes the number and value of the shares withheld for employee taxes for fiscal 2013 (in 000’s):



Shares withheld for taxes	70
Amount withheld for taxes ($)	1,452

Performance Stock Units

During fiscal 2013, we granted PSUs to certain of our executive officers. Based on the achievement of the market-based vesting conditions during the performance period, the final settlement of the PSUs will range between 0% and 150% of the target shares underlying the PSUs based on a specified objective formula approved by our Compensation Committee. The PSUs entitle our executive officers to receive a number of shares of our common stock based on the performance of our stock price over a two- or three-year period as compared to the NASDAQ Composite index for the same periods.

The following table summarizes the weighted-average assumptions relating to our PSUs for fiscal 2013:



Expected term in years	2.97
Volatility (%)	50.11
Risk-free interest rate (%)	0.67
Dividend rate (%)	—

We granted 180,000 PSUs during fiscal 2013 to our executive officers, of which 50,000 shares were forfeited during fiscal 2013. The PSUs had a grant date fair value of $22.06 per share, and are included in the aforementioned activity for RSUs.

As of December 31, 2013, total compensation expense related to unvested PSUs that were granted to certain of our executive officers, but not yet recognized, was $2.4 million, net of estimated forfeitures. This expense is expected to be amortized on a straight-line basis over a weighted-average vesting period of 2.59 years.

Shares Reserved for Future Issuances

The following table presents the common stock reserved for future issuance (in 000’s):



	December 31, 2013
Outstanding stock options and RSUs	19,720
Reserved for future stock option, RSU and other equity award grants	27,412
Reserved for future ESPP issuances	6,751
Total common stock reserved for future issuances	53,883

Employee Stock Purchase Plan

In determining the fair value of our ESPP, we use the Black-Scholes option pricing model that employs the following weighted-average assumptions:



	Fiscal Year
	2013	2012	2011
Expected term in years	0.5	0.5	0.5
Volatility (%)	44.0	53.7	59.9
Risk-free interest rate (%)	0.12	0.12	0.07
Dividend rate (%)	—	—	—

Additional information related to the ESPP is provided below (in 000's, except per share amounts):



	Fiscal Year
	2013	2012	2011
Weighted-average fair value per share granted ($)	6.11	7.06	6.56
Shares issued under the ESPP	672	577	—
Weighted-average price per share issued ($)	18.88	18.90	—

Stock-based Compensation Expense

Stock-based compensation expense is included in costs and expenses as follows ($ amounts in 000’s):



	Fiscal Year
	2013	2012	2011
Cost of product revenue	383	333	183
Cost of services revenue	4,841	3,736	1,790
Research and development	13,271	9,226	4,691
Sales and marketing	19,526	12,793	9,325
General and administrative	6,450	4,602	3,026
Total stock-based compensation expense	44,471	30,690	19,015

The following table summarizes stock-based compensation expense by award type ($ amounts in 000’s)



	Fiscal Year
	2013	2012	2011
Stock options	20,806	24,506	17,416
RSUs	18,968	1,714	—
ESPP	4,697	4,470	1,599
Total stock-based compensation expense	44,471	30,690	19,015

Total income tax benefit associated with stock-based compensation that is recognized in the consolidated statements of operations is as follows ($ amounts in 000’s):



	Fiscal Year
	2013	2012	2011
Income tax benefit associated with stock-based compensation	8,331	5,870	3,822

Share Repurchase Program

On December 6, 2013, our Board of Directors authorized a Share Repurchase Program (“the Program”) to repurchase up to $200.0 million of our outstanding common stock through December 31, 2014. Under the Program, share repurchases may be made by us from time to time in privately negotiated transactions or in open market transactions. The Program does not require us to purchase a minimum number of shares, and may be suspended, modified or discontinued at any time without prior notice. In December 2013, we repurchased 2.1 million shares of common stock under the Program in open market transactions for an aggregate purchase price of $38.9 million. The share repurchases were financed by available cash balances and cash from operations. As of December 31, 2013, $161.1 million remains available for future share repurchases under the Program.