STOCK PLANS AND SHARE BASED COMPENSATION:

Stock Plans

As of December 31, 2016, the Company had three stock-based compensation plans (the “Plans”) which are described below.

2007 Equity Incentive Plan

The 2007 Equity Incentive Plan (2007 Plan) was adopted by the board of directors on September 10, 2007, and approved by the stockholders on November 7, 2007, as an amendment and restatement of the 1997 Stock Option Plan (1997 Plan). The 2007 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit (RSU) awards, stock appreciation rights, performance-based (PSU) awards, long-term performance based (PRSU) awards and other stock awards to employees, directors and consultants. As of December 31, 2016, the total maximum remaining number of shares that may be issued under the 2007 Plan was 3.8 million shares, which includes 0.6 million options issued but not exercised and 1.9 million awards granted but unvested. As of December 31, 2016, 1.9 million shares of common stock remain available for future grant under the 2007 Plan. Pursuant to the 2007 Plan, the exercise price for incentive stock options and non-statutory stock options is generally at least 100% of the fair market value of the underlying shares on the date of grant. Options generally vest over 48 months measured from the date of grant. Options generally expire no later than ten years after the date of grant, subject to earlier termination upon an optionee’s cessation of employment or service.

Beginning January 27, 2009, grants pursuant to the Directors Equity Compensation Program (which was adopted by the board of directors on January 27, 2009) to non-employee directors have been made primarily under the 2007 Plan. The Directors Equity Compensation Program provides for grants to outside directors as follows: effective annually, upon the first trading day of July, each outside director would receive a grant of an equity award with an aggregate value of $100,000. At each outside director’s election, such award would consist entirely of RSUs or entirely of stock options. The quantity of options would be calculated by dividing $100,000 by the Black-Scholes value on the date of grant. The quantity of RSUs issued would be calculated by dividing $100,000 by the grant date fair value. Further, on the date of election of a new outside director, such new director would receive such grant as continuing outside directors receive on the first trading day of July; provided, however, that such grant is prorated for the portion of the year that such new outside director will serve until the next first trading day of July. The Directors Equity Compensation Program will remain in effect at the discretion of the board of directors or the compensation committee.

On July 28, 2009, the 2007 Plan was amended generally to prohibit outstanding options or stock appreciation rights from being canceled in exchange for cash without stockholder approval.

2016 Incentive Award Plan

The 2016 Incentive Award Plan (2016 Plan) was adopted by the board of directors on March 17, 2016 and approved by the stockholders on May 13, 2016. The Plan provides for the grant of RSU awards, PSU awards and PRSU awards. No other forms of equity-based awards, including stock options and stock appreciation rights, may be granted under the Plan. As of December 31, 2016, no awards have been issued and 1.5 million shares of common stock remain available for future grant under the 2016 Plan. The 2016 Plan also provides for performance-based cash awards that qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code.

1997 Employee Stock Purchase Plan

Under the 1997 Employee Stock Purchase Plan (Purchase Plan), eligible employees may apply accumulated payroll deductions, which may not exceed 15% of an employee’s compensation, to the purchase of shares of the Company’s common stock at periodic intervals. The purchase price of stock under the Purchase Plan is equal to 85% of the lower of (i) the fair market value of the Company’s common stock on the first day of each offering period, or (ii) the fair market value of the Company’s common stock on the purchase date (as defined in the Purchase Plan). Each offering period consists of one purchase period of approximately six months duration. An aggregate of 3.5 million shares of common stock were reserved for issuance to employees under the Purchase Plan. As of December 31, 2016, of the shares reserved for issuance, 2.9 million shares had been purchased and 0.6 million shares were reserved for future issuance under the Purchase Plan.

Shares Reserved

As of December 31, 2016, the Company had approximately 3.4 million shares of common stock reserved for future grant under all stock plans.

Stock-Based Compensation

The Company applies the provisions of ASC 718-10, Stock Compensation. Under the provisions of ASC 718-10, the Company recognizes the fair value of stock-based compensation in its financial statements over the requisite service period of the individual grants, which generally equals a four-year vesting period. The Company uses estimates of volatility, expected term, risk-free interest rate, dividend yield and forfeitures in determining the fair value of these awards and the amount of compensation expense to recognize. The Company uses the straight-line method to amortize all stock awards granted over the requisite service period of the award.

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the years ended December 31, 2016, 2015 and 2014:



	Year Ended December 31,
(in thousands)	2016		2015		2014
Cost of revenues	$	1,148	$	933	$	879
Research and development	7,309		5,255		4,784
Sales and marketing	4,489		3,644		3,540
General and administrative	7,939		4,935		5,079
Total stock-based compensation expense	$	20,885	$	14,767	$	14,282

The following table summarizes total compensation expense related to unvested awards not yet recognized, net of expected forfeitures, and the weighted average period over which it is expected to be recognized as of December 31, 2016:



	Unrecognized Compensation Expense for Unvested Awards (in thousands)		Weighted Average Remaining Recognition Period (in years)
Long-term performance-based awards	$	2,562	1.52
Restricted stock units	21,930		2.27
Purchase plan	120		0.08
Total unrecognized compensation expense	$	24,612

Stock-based compensation expense in the year ended December 31, 2016, was approximately $20.9 million (comprising approximately $0.2 million related to stock options, $6.4 million related to performance-based awards, $13.0 million related to restricted stock units and $1.3 million related to the Company’s Purchase Plan).

Stock-based compensation expense in the year ended December 31, 2015, was approximately $14.8 million (comprising approximately $0.7 million related to stock options, $0.3 million related to performance-based awards, $12.7 million related to restricted stock units and $1.2 million related to the Company’s Purchase Plan).

Stock-based compensation expense in the year ended December 31, 2014, was approximately $14.3 million (comprising approximately $1.2 million related to stock options, $0.5 million related to long-term performance-based awards, $11.3 million related to restricted stock units and $1.3 million related to the Company’s Purchase Plan).

The Company did not grant stock options in the years ended December 31, 2016, 2015 and 2014, and therefore no fair-value assumptions are reported.

The fair value of employees’ stock purchase rights under the Purchase Plan was estimated using the Black-Scholes model with the following weighted-average assumptions used during the three years ended December 31, 2016, 2015 and 2014:



	Year Ended December 31,
	2016	2015	2014
Risk-free interest rates	0.44%	0.13%	0.05% - 0.07%
Expected volatility rates	32%	29%	30% - 48%
Expected dividend yield	0.96%	1.08%	0.66% - 0.85%
Expected term of purchase right (in years)	0.5	0.5	0.5
Weighted-average estimated fair value of purchase rights	$12.23	$10.18	$14.40

A summary of stock option activity under the Plans as of December 31, 2016, and activity during three years then ended, is presented below:



(shares and intrinsic value in thousands)	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2014	1,691		$	27.34
Granted	—		—
Exercised	(347	)	$	27.64
Forfeited or expired	—		—
Outstanding at December 31, 2014	1,344		$	27.27
Granted	—		—
Exercised	(311	)	$	26.11
Forfeited or expired	(3	)	$	37.97
Outstanding at December 31, 2015	1,030		$	27.58
Granted	—		—
Exercised	(333	)	$	25.41
Forfeited or expired	—		—
Outstanding at December 31, 2016	697		$	28.62	2.82	$	27,370
Exercisable at December 31, 2016	697		$	28.62	2.82	$	27,370
Vested and expected to vest at December 31, 2016	697		$	28.62	2.82	$	27,370

The total intrinsic value of options exercised during the year ended December 31, 2016, 2015 and 2014, was $11.5 million, $7.0 million and $9.9 million, respectively.

The following table summarizes the stock options outstanding at December 31, 2016:



	Options Outstanding				Options Exercisable
(shares in thousands) Range of Exercise Prices	Options Outstanding	Weighted Average Remaining Contractual Term (in years)	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price
$17.75 - $25.25	371	2.15	$	21.31	371	$	21.31
$25.48 - $42.88	326	3.58	$	36.94	326	$	36.94
	697	2.82	$	28.62	697	$	28.62

PSU Awards

Under the performance-based awards program, the Company grants awards in the performance year in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The number of shares that are released at the end of the performance year can range from zero to 200% of the target number depending on the Company’s performance. The performance metrics of this program are annual targets consisting of a combination of net revenue, non-GAAP operating earnings and strategic goals. Each performance-based award share granted from the 2007 Plan will reduce the number of shares available for issuance under the 2007 Plan by two shares. Each performance-based award share granted from the 2016 Plan will reduce the number of shares available for issuance under the 2016 Plan by one share.

During the year ended December 31, 2016, the Company issued approximately 101,000 PSUs to employees and executives. As the net revenue, non-GAAP operating income and strategic goals are considered performance conditions, expense associated with these awards, net of estimated forfeitures, is recognized over the service period based on an assessment of the achievement of the performance targets. The fair value of these PSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

A summary of PSU awards outstanding as of December 31, 2016, and activity during the three years then ended is presented below:



(shares and intrinsic value in thousands)	Shares		Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2014	100		$	38.48
Granted	83		$	53.93
Vested	(83	)	$	38.48
Forfeited or canceled	(100	)	$	51.30
Outstanding at December 31, 2014	—		—
Granted	89		$	52.36
Vested	—		—
Forfeited or canceled	(78	)	$	52.35
Outstanding at December 31, 2015	11		$	52.35
Granted	101		$	46.26
Vested	(11	)	$	52.35
Forfeited or canceled	(2	)	$	46.87
Outstanding at December 31, 2016	99		$	46.25	0	$	6,714
Outstanding and expected to vest at December 31, 2016	99				0	$	6,714

The grant date fair value of PSU awards released, which were fully vested, in the year ended December 31, 2016 was approximately $0.6 million. There were no PSU awards released in the year ended December 31, 2015 (as the Company did not reach its minimum performance goals established for the 2014 PSUs). The grant date fair value of PSU awards released, which were fully vested, in the year ended December 31, 2014 was approximately $3.2 million.

PRSU Awards (Long-term Performance Based)

The Company's PRSU program provides for the issuance of PRSUs which will vest based on the Company's performance measured against the PRSU Plan's established revenue targets. The PRSUs were granted in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus the Company’s performance goals, and may range from zero to 200% of the target number. The performance goals for PRSUs granted in fiscal 2016, 2015 and 2014 were based on the Company’s annual revenue growth over the respective three-year performance period. Each PRSU granted from the 2007 Plan will reduce the number of shares available for issuance under the 2007 Plan by two shares. Each PRSU granted from the 2016 Plan will reduce the number of shares available for issuance under the 2016 Plan by one share.

Recipients of a PRSU award generally must remain employed by the Company on a continuous basis through the end of the applicable three-year performance period in order to receive shares subject to that award. Expenses associated with these awards, net of estimated forfeitures, are recorded throughout the year depending on the number of shares expected to vest based on progress toward the performance target. The fair value of PRSU awards is determined using the fair value of the Company’s common stock on the grant date, reduced by the discounted present value of dividends expected to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

A summary of PRSU awards outstanding as of December 31, 2016, and activity during the three years then ended is presented below:



(shares and intrinsic value in thousands)	Shares		Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2014	—		—
Granted	61		$	55.51
Vested	—		—
Forfeited or canceled	—		—
Outstanding at December 31, 2014	61		$	55.51
Granted	72		$	52.47
Vested	—		—
Forfeited or canceled	(4	)	$	57.76
Outstanding at December 31, 2015	129		$	53.75
Granted	78		$	43.26
Vested	—		—
Forfeited or canceled	(57	)	$	55.35
Outstanding at December 31, 2016	150		$	47.65	1.52	$	10,177
Outstanding and expected to vest at December 31, 2016	113				1.51	$	7,659

RSU Awards

The Company grants restricted stock units to employees under the 2007 Plan and 2016 Plan. RSUs granted to employees typically vest ratably over a four-year period, and are converted into shares of the Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the Company over that period. The fair value of RSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. Compensation expense is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures. Each RSU award granted from the 2007 Plan will reduce the number of shares available for issuance under the 2007 Plan by two shares. Each RSU award granted from the 2016 Plan will reduce the number of shares available for issuance under the 2016 Plan by one share.

A summary of RSUs outstanding as of December 31, 2016, and activity during the three years then ended, is as follows:



(shares and intrinsic value in thousands)	Shares		Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2014	714		$	38.97
Granted	281		$	51.12
Vested	(267	)	$	38.57
Forfeited	(36	)	$	42.74
Outstanding at December 31, 2014	692		$	43.86
Granted	319		$	49.75
Vested	(267	)	$	42.49
Forfeited	(63	)	$	45.71
Outstanding at December 31, 2015	681		$	46.98
Granted	331		$	46.70
Vested	(270	)	$	45.13
Forfeited	(24	)	$	47.21
Outstanding at December 31, 2016	718		$	47.54	1.25	$	48,684
Outstanding and expected to vest at December 31, 2016	674				1.19	$	45,711

The grant date fair value of RSUs vested in the years ended December 31, 2016, 2015 and 2014, was approximately $12.2 million, $11.3 million and $10.3 million, respectively.