EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION

Equity Award Plans

1995 Stock Plan

The 1995 Stock Plan provides for the grant of incentive stock options, non-statutory stock options and RSUs. Incentive stock options may be granted only to employees. All other awards may be granted to employees and consultants. Under the terms of the 1995 Stock Plan, no incentive stock option or non-statutory stock option may be granted in the ordinary course with a per share exercise price that is less than 100% of the fair value of the Company’s common stock on the date of grant. RSUs have no exercise price. Both options and RSUs vest over a period of time as determined by the Company’s Board of Directors (the “Board”), generally two to four years, and expire seven years from the date of grant. Grants of RSUs decrease the plan reserve by 1.5 shares for every unit or share granted, and any forfeitures of these awards due to their not vesting would increase the plan reserve by 1.5 shares for every unit or share forfeited. As of December 31, 2018, an aggregate of 9,915,865 shares of common stock were reserved for issuance under the 1995 Stock Plan, of which 3,819,736 shares remained available for grant.

2002 Director Plan

The 2002 Director Plan provides for the grant of non-statutory stock options and RSUs to non-employee directors of the Company. Under the terms of the 2002 Director Plan, no non-statutory stock option may be granted with a per share exercise price that is less than 100% of the fair value of the Company’s common stock on the date of grant. RSUs have no exercise price. Both options and RSUs vest over a period of time as determined by the Board, generally three years for the initial grant and one year for subsequent grants to a non-employee director, and expire seven years from the date of grant. Grants of RSUs decrease the plan reserve by 1.5 shares for every unit granted, and any forfeiture of these awards due to their not vesting would increase the plan reserve by 1.5 shares for every unit forfeited. The Company’s stockholders approved an amendment to the 2002 Director Stock Plan at the Company’s 2018 annual meeting of stockholders (“2018 Annual Meeting”) which increased the number of shares of common stock reserved for issuance under the 2002 Director Stock Plan by 400,000 shares. As of December 31, 2018, an aggregate of 947,536 shares of common stock were reserved for issuance under the 2002 Director Plan, of which 643,661 shares remained available for grant.

Employee Stock Purchase Plan

The 2002 Employee Stock Purchase Plan (“ESPP”) provides for the issuance of share purchase rights to employees of the Company. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. The ESPP enables employees to purchase shares at 85% of the fair market value of the Common Stock at the beginning or end of the offering period, whichever is lower. Offering periods generally begin on the first trading day on or after January 1 and July 1 of each year. Employees may participate through payroll deductions of 1% to 10% of their earnings. In the event that there are insufficient shares in the plan to fully fund the issuance, the available shares will be allocated across all participants based on their contributions relative to the total contributions received for the offering period. The Company’s stockholders approved an amendment to the ESPP at the 2018 Annual Meeting which increased the number of shares of common stock reserved for issuance under the ESPP by 1,300,000 shares. Under the ESPP, 1,132,438, 1,291,875 and 1,265,458 shares were issued during fiscal 2018, 2017 and 2016, respectively, representing $4.0 million, $4.4 million and $3.7 million in contributions. As of December 31, 2018, 1,282,358 shares were reserved for future purchases by eligible employees.

Stock Option Activities

The following table summarizes the Company’s stock option activities and related information during the year ended December 31, 2018 (in thousands, except per share amounts and terms):



	Stock Options Outstanding
	Number of Shares		Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Balance at December 31, 2017	3,880		$	6.04
Granted	—		—
Exercised	(239	)	3.79
Forfeited	(35	)	4.76
Canceled or expired	(538	)	8.75
Balance at December 31, 2018	3,068		5.76		2.3	$	1,148.7
As of December 31, 2018
Vested and expected to vest	3,067		$	5.76	2.3	$	1,147.7
Exercisable	2,994		$	5.78	2.3	$	1,082.0

Aggregate intrinsic value represents the difference between the exercise price of the stock options and the fair value of the Company’s common stock. The intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $0.3 million, $0.3 million and $0.1 million, respectively.

The Company realized no income tax benefit from stock option exercises for the years ended December 31, 2018, 2017 and 2016 due to recurring losses and valuation allowances.

Restricted Stock Units (“RSUs”) Activities

The following table summarizes the Company’s RSUs activities and related information during the year ended December 31, 2018 (in thousands, except per share amounts and terms):



	Restricted Stock Units Outstanding
	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Balance at December 31, 2017	2,904		$	5.09
Granted	3,906		3.97
Vested	(3,177	)	4.91
Forfeited	(230	)	4.89
Balance at December 31, 2018	3,403		$	3.99

The estimated fair value of RSUs is based on the market price of the Company’s common stock on the grant date. The fair value of all restricted stock units vested during the years ended December 31, 2018, 2017 and 2016 was $15.6 million, $13.0 million and $9.7 million, respectively.

Performance- and Market-based awards

Starting 2015, the Company began to settle a portion of its incentive bonus payment to eligible employees by issuing PRSUs from the 1995 Stock Plan. The Company granted 1,443,168, 1,165,685 and 898,533 PRSUs to its employees during the years ended December 31, 2018, 2017 and 2016, respectively, of which 1,343,168, 1,165,685 and 610,579 PRSUs vested during the years ended December 31, 2018, 2017 and 2016, respectively, for the purpose of settling amounts earned under the Company’s incentive bonus plans. The vesting of the remaining PRSUs will be based on the achievement of certain financial and non-financial operating goals of the Company, subject to the Board’s approval. The stock-based compensation recognized for PRSUs were $6.1 million, $3.2 million and $2.8 million, for the years ended December 31, 2018, 2017 and 2016, respectively.

In 2017, the Company granted 344,500 MRSUs under the 1995 Stock Plan to its key executives and certain eligible employees that may vest during a three-year period as part of its long-term incentive program. In 2018, the Company granted 40,000 MRSUs that may vest during an eighteen-month period from the date of grant. The vesting conditions of these awards are based on the market value of the Company's common stock. The fair value of these shares was estimated using a Monte-Carlo simulation and the stock-based compensation recognized in 2018 and 2017 for these MRSUs was $0.2 million and $0.9 million, respectively. No MRSUs had vested as of December 31, 2018.

French Retirement Benefit Plan

Under French law, the Company’s subsidiaries in France, including the acquired TVN French Subsidiary, are obligated to make certain payments to their employees upon their retirement from the Company. These payments are based on the retiring employee’s salary for a number of months that varies according to the employee’s period of service and position. Salary used in the calculation is the employee’s average monthly salary for the twelve months prior to retirement. The payments are made in one lump-sum at the time of retirement. The French pension plan is unfunded and there are no contributions to the plan required by related laws or funding regulations. No required contributions are expected in fiscal 2019, but the Company, at its discretion, may make contributions to the defined benefit plan.

The company’s defined benefit pension obligations are measured as of December 31. The present value of these lump-sum payments is determined on an actuarial basis and the actuarial valuation takes into account the employees’ age and period of service with the Company, projected mortality rates, mobility rates, increases in salaries and a discount rate.

The Company’s pension obligations as of December 31, 2018 and December 31, 2017 and the changes to the Company’s pension obligations for each of those years were as follows (in thousands):



	December 31,
	2018			2017
Projected benefit obligation:
Balance at January 1	$	5,033		$	4,264
Service cost	243			259
Interest cost	74			71
Actuarial (gains) losses	(202		)	(528		)
Benefits paid	(13		)	—
Adjustment for prior year balance	—			343
Foreign currency translation adjustment	(254		)	624
Balance at December 31	$	4,881		$	5,033

Presented on the Consolidated Balance Sheets under:
Current portion (presented under “Accrued and other current liabilities”)	$	63		34
Long-term portion (presented under “Other non-current liabilities”)	$	4,818		4,999

The table below presents the components of net periodic benefit costs (in thousands):



	Year ended December 31,
	2018		2017
Service cost	$	243	$	259
Interest cost	74		71
Amortization of net actuarial loss (gain) ⁽¹⁾	—		—
Net periodic benefit cost included in operating loss	$	317	$	330

(1) The Company uses the allowable 10% corridor approach to determine the amount of actuarial gains or losses subject to amortization in pension cost. Gains or losses are amortized on a straight-line basis over the average future remaining service period of active plan participants.

The following assumptions were used in determining the Company’s pension obligation:



	December 31,
	2018		2017
Discount rate	1.7	%	1.5	%
Mobility rate	6.0	%	6.0	%
Salary progression rate	2.0	%	2.0	%

The Company evaluates the discount rate assumption annually. The discount rate is determined using the average yields on high-quality fixed-income securities that have maturities consistent with the timing of benefit payments.

The Company also evaluates other assumptions related to demographic factors, such as retirement age, mortality rates and turnover periodically, updating them to reflect experience and expectations for the future. The mortality assumption related to the Company’s defined benefit pension plan used the most current mortality tables published by the French National Institute of Statistics and Economic Studies.

As of December 31, 2018, future benefits expected to be paid in each of the next five years, and in the aggregate for the five year period thereafter are as follows (in thousands):



Years ending December 31,
2019	$	63
2020	—
2021	41
2022	80
2023	479
2024 - 2028	2,626
	$	3,289

401(k) Plan

The Company has a retirement/savings plan for its U.S. employees, which qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code. This plan allows participants to contribute up to the applicable Internal Revenue Code limitations under the plan. The Company can make discretionary contributions to the plan of 25% of the first 4% contributed by eligible participants, up to a maximum contribution per participant of $1,000 per year. The Company’s contributions to the plan were $0.3 million, $0.3 million and $0.4 million for fiscal 2018, 2017 and 2016, respectively.

Stock-based Compensation

The following table summarizes stock-based compensation expense for all plans (in thousands):



	Year ended December 31,
	2018		2017		2016
Stock-based compensation in:
Cost of revenue	$	1,953	$	2,370	$	1,554
Research and development expense	5,192		5,313		3,711
Selling, general and administrative expense	10,144		8,927		7,795
Total stock-based compensation in operating expense	15,336		14,240		11,506
Total stock-based compensation recognized in net loss	$	17,289	$	16,610	$	13,060

As of December 31, 2018, total unrecognized stock-based compensation cost related to unvested stock options and RSUs was $0.1 million and $8.5 million, respectively, and is expected to be recognized over a weighted-average period of 0.3 years and 1.5 years, respectively.

Valuation Assumptions

The Company estimates the fair value of employee stock options and stock purchase rights under the ESPP using a Black-Scholes option valuation model. The value of the stock purchase rights under the ESPP consists of: (1) the 15% discount on the purchase of the stock; (2) 85% of the fair value of the call option; and (3) 15% of the fair value of the put option. The call option and put option were valued using the Black-Scholes option pricing model. At the date of grant, the Company estimated the fair value of each stock option grant and stock purchase right granted under the ESPP using the following weighted average assumptions:



	Employee Stock Options				ESPP
	2017		2016		2018		2017		2016
Expected term (in years)	4.30		4.30		0.50		0.50		0.50
Volatility	42	%	36	%	55	%	48	%	70	%
Risk-free interest rate	1.8	%	1.4	%	1.9	%	1.2	%	0.6	%
Expected dividends	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%

The expected term of the employee stock option represents the weighted-average period that the stock options are expected to remain outstanding. The computation of expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The expected term of the stock purchase right under ESPP represents the period of time from the beginning of the offering period to the purchase date. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility. The risk-free interest rate that the Company uses in the Black-Scholes option valuation model is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term. The Company has not paid and does not plan to pay any cash dividends in the foreseeable future.

There were no stock options granted during the year ended December 31, 2018. The weighted-average fair value per share of stock options granted for the years ended December 31, 2017 and 2016 was $1.85 and $0.99, respectively.

The fair value of stock options vested during the years ended December 31, 2018, 2017 and 2016 was $0.7 million, $1.7 million and $2.3 million, respectively.

The estimated weighted-average fair value per share of stock purchase rights under the ESPP, granted for the years ended December 31, 2018, 2017 and 2016 was $1.33, $1.50 and $1.04, respectively.