NOTE 14 – STOCK PLANS

2011 Employee Stock Purchase Plan

On September 7, 2011, the Company’s shareholders approved the 2011 Employee Stock Purchase Plan (the ESPP), under which 2,500,000 shares of the Company’s common stock have been reserved for issuance. The Company implemented the ESPP on March 1, 2012. Eligible employees may purchase shares of the Company’s common stock through regular payroll deductions of up to 20% of their eligible compensation. Under the terms of the offering under the ESPP, the number of shares of the Company’s common stock which a participant could purchase during any purchase period is limited to 2,000. In addition, the fair market value of shares purchased by an individual participant in the plan may not exceed $25,000 in any calendar year. The purchase price per share at which shares of common stock are sold on each purchase date during an offering period is determined by the Company’s Board of Directors as of the beginning of the offering period, but may not be less than 85% of the lesser of the fair market value per share of common stock on that purchase date or the fair market value per share of common stock on the first day of the offering period.

The offering periods run from March 1 through August 30 and from September 1 through February 28 of each year. During the fiscal year ended March 31, 2013, employees purchased 184,936 shares under the ESPP with a weighted average purchase price per share of $24.58. As of March 31, 2013, 2,315,064 shares were available for future issuance under the ESPP.

1999 Stock Option and Incentive Plan

In April 1999, NetScout adopted the 1999 Stock Option and Incentive Plan (1999 Stock Option Plan). The 1999 Stock Option Plan, which was replaced by the 2007 Equity Incentive Plan effective September 12, 2007, provided for the grant of share-based awards to employees, officers and directors, consultants or advisors. Under the 1999 Stock Option Plan, NetScout could grant options that were intended to qualify as incentive stock options, options not intended to qualify as incentive stock options, restricted stock and other share-based awards. Incentive stock options could be granted only to employees of NetScout. As of March 31, 2013, options to purchase an aggregate of 154,000 shares of common stock at a weighted average exercise price of $6.63 per share were outstanding under the 1999 Stock Option Plan. No additional grants can be made under the 1999 Stock Option Plan.

2007 Equity Incentive Plan

In September 2007, the 2007 Equity Incentive Plan (2007 Plan), replaced the 1999 Stock Option Plan. The 2007 Plan permits the granting of stock options, restricted stock and restricted stock units, collectively referred to as “share-based awards.” Periodically, the Company grants share-based awards to employees and officers of the Company and its subsidiaries. The Company accounts for these share-based awards in accordance with GAAP, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to its employees and directors. Share-based award grants are generally measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company’s common stock. Such value is recognized as a cost of revenue or an operating expense over the corresponding vesting period. On September 7, 2011, the Company’s stockholders approved an amendment and restatement of the 2007 Equity Incentive Plan (the Amended 2007 Plan) to increase the shares of common stock reserved for issuance by 8,000,000 shares. A total of 13,000,000 shares are reserved for issuance under the Amended 2007 Plan. In addition, any shares not delivered to a participant because an award is exercised through a reduction of shares subject to the award (cashless exercise) will not be available for issuance under the Amended 2007 Plan and any shares reacquired by the Company to cover withholding taxes upon exercise of a stock option or stock appreciation right or as consideration for the exercise of a stock option or stock appreciation right will not become available for issuance under the Amended 2007 Plan. Shares withheld to cover tax liabilities of restricted stock unit grants will be restored to the available reserve on the 2 for 1 amount. Furthermore, the share reserve under the Amended 2007 Plan is reduced one share for each share of common stock issued pursuant to a stock option or stock appreciation right and two shares for each share of common stock issued pursuant to restricted stock, restricted stock units, performance stock awards, or other stock awards granted under the Amended 2007 Plan on or after March 31, 2011. As of March 31, 2013, an aggregate of 1,871,148 equity awards were outstanding under the Amended 2007 Plan.

The 2007 Plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee operates under guidelines established by the Board of Directors. The Compensation Committee had the authority to select the employees and consultants to whom awards are granted (except for directors and executive officers) and determine the terms of each award, including the number of shares of common stock subject to the award.

Share-based awards generally vest over four years. The exercise price of incentive stock options shall not be less than 100% of the fair market value of the common stock at the date of grant (110% for incentive stock options granted to holders of more than 10% of the voting stock of NetScout). The term of options granted cannot exceed ten years (five years for incentive stock options granted to holders of more than 10% of the voting stock of NetScout).

Based on historical experience, the Company assumed an annualized forfeiture rate of 0% for awards granted to its directors during fiscal years 2013, 2012 and 2011, and an annualized forfeiture rate of 10% for awards granted to its senior executives and remaining employees during fiscal years 2013, 2012 and 2011.

The following is a summary of share-based compensation expense including restricted stock units and employee stock purchases made under our employee stock purchase plan (ESPP) based on estimated fair values within the applicable cost and expense lines identified below (in thousands):


	Year Ended March 31,
	2013		2012		2011
Cost of product revenue	$	235	$	192	$	134
Cost of service revenue		342		227		218
Research and development		2,944		2,486		1,651
Sales and marketing		3,035		3,052		2,527
General and administrative		3,024		2,745		1,909

	$	9,580	$	8,702	$	6,439

Transactions under the 1999 Stock Option Plan and the 2007 Equity Incentive Plan during the fiscal years ended March 31, 2013, 2012 and 2011 are summarized as follows:


	Stock Options					Restricted Stock Units
	Number of Shares			Weighted Average Exercise Price		Number of Awards			Weighted Average Fair Value
Outstanding – March 31, 2010		813,741		$	7.60		1,112,376		$	9.96
Granted		0			0		928,596			13.67
Exercised (Options)/Issued (RSU’s)		(450,432	)		7.50		(504,393	)		10.81
Canceled		(37,790	)		19.42		(117,720	)		9.87

Outstanding – March 31, 2011		325,519		$	6.35		1,418,859		$	12.35
Granted		0			0		1,071,131			13.36
Exercised (Options)/Issued (RSU’s)		(84,502	)		5.58		(659,350	)		11.26
Canceled		(125	)		5.26		(75,315	)		13.60

Outstanding – March 31, 2012		240,892		$	6.63		1,755,325		$	13.33
Granted		0			0		764,893			24.19
Exercised (Options)/Issued (RSU’s)		(86,892	)		6.62		(549,932	)		12.52
Canceled		0			0		(99,460	)		16.10

Outstanding – March 31, 2013		154,000		$	6.63		1,871,148		$	17.85

As of March 31, 2013, there were 7,602,328 shares of common stock available for grant under the 2007 Plan.

Shares issued upon exercise of options are issued from new shares of the Company. The Company does not currently expect to repurchase shares from any source to satisfy its obligations under the 2007 Plan.

The aggregate intrinsic values of stock options and restricted stock units as of March 31, 2013, 2012 and 2011 were as follows (in thousands):


	Year Ended March 31,
	2013		2012		2011
Total intrinsic value of stock options exercised	$	2,763	$	3,303	$	6,825
Total fair value of restricted stock unit awards vested	$	46,007	$	35,645	$	38,763

As of March 31, 2013, there was no unrecognized compensation cost related to stock options.

As of March 31, 2013, the total unrecognized compensation cost related to restricted stock unit awards was $8.7 million, which is expected to be amortized over a weighted-average period of 1.8 years.