Stock Plans | 9 Months Ended |
Sep. 30, 2014 |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' |
Stock Plans | ' |
10. Stock Plans |
(a) 2003 Stock Plan |
During 2003, the Board of Directors adopted the 2003 Stock Plan (the “2003 Plan”), which allows for the granting of both incentive stock options and non-qualified stock options and the direct award or sale of shares of the Company’s common stock (including restricted common stock) to officers, employees, directors, consultants and other key persons. Incentive stock options may be granted to employees with exercise prices of no less than the fair value of the common stock on the grant date, and non-qualified options may be granted to employees, directors, or consultants at exercise prices of no less than 85% of the fair value of the common stock on the grant date, as determined by the Board of Directors. If, at the time the Company grants an option, the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, the option price shall be at least 110% of the fair value. Options granted under the Plan generally expire no later than ten years and, in general, vest four years from the date of grant. |
(b) 2011 Stock Option and Incentive Plan |
In September 2011, the Board of Directors adopted the 2011 Stock Option and Incentive Plan (the “2011 Plan”) which was subsequently approved by the Company’s stockholders. The 2011 Plan replaces the 2003 Plan as the Board has decided not to grant any additional awards under that plan. The Company has reserved a total of 1,000,000 shares of common stock for issuance under the 2011 Plan. In addition, any reserved but unissued shares under the 2003 Stock Plan will be added to the number of shares reserved for issuance under the 2011 Plan. The 2011 Plan also provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning in 2012 and ending in 2015, by 4% of the outstanding number of shares of common stock on the immediately preceding December 31. The Board of Directors or compensation committee may reduce the amount of the increase in any particular year. As of December 31, 2013, there were 1,847,752 shares available for grant under the 2011 Plan. On January 1, 2014, the share reserve under the 2011 Plan was automatically increased by 1,008,260 shares. |
The 2011 Plan permits the granting of incentive stock options, non-qualified stock options, restricted stock units (RSUs), stock appreciation rights, restricted shares of common stock and performance share awards. The exercise price of stock options may not be less than the 100% of the fair market value of the common stock on the date of grant. Options granted pursuant to the 2011 Plan generally expire in no later than ten years. The Company began granting RSUs in February 2012, which generally vest over either a four-year period with 25% vesting at the end of one year and the remainder vesting quarterly thereafter or they completely vest at the end of a three-year period. Additionally, in conjunction with the Incapsula Acquisition, the Company granted performance-based restricted stock units to an employee of Incapsula for approximately 264,878 shares of Company common stock (Refer to Note 2). |
(c) 2011 Employee Stock Purchase Plan |
In September 2011, the Board of Directors adopted the 2011 Employee Stock Purchase Plan (the “ESPP”) which was subsequently approved by the Company’s stockholders. The ESPP took effect on the effective date of the registration statement for the Company’s IPO. The ESPP permits eligible employees to acquire shares of the Company’s common stock by accumulating funds through periodic payroll deductions of up to 15% of base salary. Each offering period may run for no more than 24 months and consist of no more than five purchase periods. The purchase price for shares of the Company’s common stock purchased under the ESPP will be 85% of the lesser of the fair market value of the Company’s common stock on the first day of the offering period or the last trading day of the applicable purchase period within that offering period. |
The Company has initially reserved a total of 500,000 shares of common stock for future issuance under the ESPP. The number of shares reserved for issuance under the ESPP will increase automatically on January 1 of each of the first eight years commencing in 2012 by the number of shares equal to 1% of the Company’s total outstanding shares as of the immediately preceding December 31. The Board of Directors or compensation committee may reduce the amount of the increase in any particular year. No more than 20,000,000 shares of common stock may be issued under the ESPP and no other shares may be added to the ESPP without the approval of the Company’s stockholders. On January 1, 2014, the share reserve under the 2011 Employee Stock Purchase Plan was automatically increased by 252,065 shares. |
(d) Incapsula 2010 Share Incentive Plan |
In March 2010, Incapsula’s board of directors adopted the Incapsula 2010 Share Incentive Plan (the “Incapsula Plan”), pursuant to which Incapsula may grant to its employees and service providers options to purchase shares of its common stock, restricted shares, or restricted share units. The total number of shares of common stock that may be granted under the Incapsula Plan shall not exceed 4,733,333 in the aggregate, subject to certain adjustments. |
In November 2013, the board of directors of Incapsula approved the grant of restricted stock units for 7,095,461 shares of Incapsula’s common stock (“Incapsula RSUs”). As part of the Incapsula Acquisition, the Incapsula RSUs were assumed and replaced by RSUs for Company Common Stock issued to continuing employees of Incapsula . The Incapsula RSU’s vest according to performance-based vesting terms tied to 2014 revenue for Incapsula and Incapsula-related products and services, which were converted into approximately 198,825 shares of Company Common Stock at the same exchange ratio applicable to the Incapsula Acquisition. In addition to performance conditions, the awards are dependent on future market price of Imperva’s common stock, which is deemed a market condition under ASC 718. At each reporting date, the Company assesses progress towards the 2014 Incapsula and Incapsula-related product and service revenue performance conditions and adjusts the number of vested fair value of awards and stock-based compensation expense accordingly. |
The following table summarizes option activity under the Incapsula Plan and related information for the nine months ended September 30, 2014: |
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| | Shares | | | Number of | | | Number of | | | Weighted | |
Available for | Performance- | Stock Options | Average |
Grant | based | Outstanding | Exercise Price |
| Restricted | | |
| Share Units | | |
| Outstanding | | |
Outstanding - January 1, 2014 | | | 89,687 | | | | 7,095,461 | | | | 1,806,500 | | | $ | 0.47 | |
Granted | | | (95,000 | ) | | | — | | | | 95,000 | | | | 1.25 | |
Exercised | | | 0 | | | | — | | | | — | | | | — | |
Forfeited | | | 15,213 | | | | (12,713 | ) | | | (2,500 | ) | | | 1.25 | |
Transferred to Imperva 2011 stock option plan | | | (9,900 | ) | | | (7,082,748 | ) | | | (1,899,000 | ) | | | 0.16 | |
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Outstanding - September 30, 2014 | | | — | | | | — | | | | — | | | $ | — | |
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The options outstanding and performance restricted share units under the Incapsula 2010 Share Incentive Plan were assumed as part of the Incapsula Acquisition and are equivalent to 247,184 shares of Company common stock on an as-converted basis. The Company does not intend to grant any additional shares under the Incapsula 2010 Share Incentive Plan. |
(e) Stock Compensation Expense |
The Company recognized stock-based compensation expense under the 2011 Stock Option and Incentive Plan, 2003 Stock Plan, 2011 Employee Stock Purchase Plan, the Incapsula 2010 Share Incentive Plan, and the Skyfence 2013 Share Incentive Plan (collectively “the Plans”) in the condensed consolidated statements of operations as follows (in thousands): |
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| | For the three months ended | | | For the nine months ended | |
September 30, | September 30, |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Cost of revenues | | $ | 569 | | | $ | 254 | | | $ | 1,472 | | | $ | 722 | |
Research and development | | | 2,353 | | | | 747 | | | | 6,335 | | | | 2,133 | |
Sales and marketing | | | 3,730 | | | | 1,620 | | | | 9,369 | | | | 4,596 | |
General and administrative | | | 4,123 | | | | 792 | | | | 8,930 | | | | 2,407 | |
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Total stock-based compensation expense | | $ | 10,775 | | | $ | 3,413 | | | $ | 26,106 | | | $ | 9,858 | |
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The fair value of stock option grants for the three months and nine months ended September 30, 2014 and 2013 was estimated using the following weighted average assumptions: |
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| | For the three months ended | | | For the nine months ended | |
September 30, | September 30, |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Stock option grants: | | | | | | | | | | | | | | | | |
Dividend rate | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % |
Risk-free interest rate | | | 2 | % | | | 1.8 | % | | | 1.9 | % | | | 1.2 | % |
Expected term (in years) | | | 6.1 | | | | 6.1 | | | | 6.1 | | | | 6.1 | |
Expected volatility | | | 51 | % | | | 47 | % | | | 45 | % | | | 46 | % |
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ESPP grants: | | | | | | | | | | | | | | | | |
Dividend rate | | | — | | | | — | | | | 0 | % | | | 0 | % |
Risk-free interest rate | | | — | | | | — | | | | 0.1 | % | | | 0.1 | % |
Expected term (in years) | | | — | | | | — | | | | 0.5 | | | | 0.5 | |
Expected volatility | | | — | | | | — | | | | 57 | % | | | 31 | % |
The fair value of the RSUs is determined using the closing price of the Company’s common stock on the date of the grant. Compensation is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures. |
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The following table summarizes option activity under the Plans and related information: |
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| | Options Outstanding | | | Weighted Average | | | Aggregate | |
Remaining | Intrinsic Value |
Contractual Life | (in thousands) |
| | Number of | | | Weighted | | | (in years) | | |
Shares | Average Exercise | | |
| Price | | |
Balances - January 1, 2014 | | | 1,675,506 | | | $ | 23.78 | | | | 8.01 | | | $ | 40,813 | |
Granted | | | 1,076,327 | | | | 42.37 | | | | | | | | | |
Exercised or released | | | (311,650 | ) | | | 10.6 | | | | | | | | | |
Cancelled or forfeited | | | (213,947 | ) | | | 34.81 | | | | | | | | | |
Options assumed in acquisitions | | | 72,607 | | | | 14.14 | | | | | | | | | |
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Balances - September 30, 2014 | | | 2,298,843 | | | $ | 32.89 | | | | 8.27 | | | $ | 11,299 | |
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Options exercisable | | | 672,910 | | | $ | 21.19 | | | | 6.75 | | | $ | 6,887 | |
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RSU Activity |
A summary of RSU activity under the Plans for the nine months ended September 30, 2014, is as follows: |
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| | Number of | | | Weighted- | | | | | | | | | |
Restricted | Average Grant | | | | | | | | |
Stock Units | Date Fair Value | | | | | | | | |
Outstanding | | | | | | | | | |
Unvested - January 1, 2014 | | | 1,044,651 | | | $ | 31.64 | | | | | | | | | |
Granted | | | 1,186,560 | | | | 42.58 | | | | | | | | | |
Granted, performance RSUs | | | 96,446 | | | | 32.07 | | | | | | | | | |
Released | | | (187,595 | ) | | | 34.73 | | | | | | | | | |
Cancelled or expired | | | (197,992 | ) | | | 39.38 | | | | | | | | | |
RSUs assumed in acquisitions | | | 204,466 | | | | 61.4 | | | | | | | | | |
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Unvested - September 30, 2014 | | | 2,146,536 | | | $ | 39.56 | | | | | | | | | |
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The aggregate intrinsic value of options exercised under the Plans was $10.7 million for the nine months ended September 30, 2014. The aggregate intrinsic value is calculated as the difference between the per-share exercise price and the market value of the Company’s common stock for each share subject to an option multiplied by the number of shares subject to options. As reported in the Wall Street Journal, the market value as of September 30, 2014 was $28.73 per share. As of September 30, 2014, total compensation cost related to unvested stock-based awards granted to employees under the Plans, but not yet recognized, was $94.3 million, net of estimated forfeitures. As of September 30, 2014, this cost will be amortized to expense over a weighted-average remaining period of 3.1 years, and will be adjusted for subsequent changes in estimated forfeitures. Future stock-based award grants will increase the amount of compensation expense to be recorded in these periods. |
There was no capitalized stock-based compensation cost tax benefits during the nine months ended September 30, 2014 and 2013. |
(f) Common Stock Subject to Repurchase |
Pursuant to restricted stock agreements with the Company’s former CEO, the Company has the right, but not the obligation, to repurchase the unvested shares of common stock upon termination of employment at the original purchase price per share. The repurchase rights with respect to the common stock lapse over the vesting period, which ranges from 48 months to 60 months. The amounts received in exchange for these shares have been included in other liabilities in the accompanying condensed consolidated balance sheet and are reclassified to equity as the shares vest. The Company granted 843,819 shares of restricted common stock with a weighted-average grant date fair value per share of $1.94 during the year ended December 31, 2010. There were no grants of shares of restricted common stock during the nine months ended September 30, 2014 and the year ended December 31, 2013. As of September 30, 2014, 210,954 shares of restricted common stock held by the Company’s former CEO were unvested and subject to repurchase by the Company. |
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In connection with the acquisition of Skyfence in the first quarter of 2014, the Company issued 532,262 shares of the Company’s common stock with a fair value per share of $59.08 which are subject to forfeiture based upon time-based vesting and continuing employment over the term of the corresponding four-year service period. None of these shares were vested as of September 30, 2014. |
(g) Early Exercise of Stock Options |
In 2010 and 2011, the Company’s board of directors allowed for the early exercise of stock options granted to certain members of the Company’s board of directors. The amounts received in exchange for these shares have been included in other liabilities in the accompanying condensed consolidated balance sheet and are reclassified to equity as the shares vest. As of September 30, 2014, 9,167 shares were unvested. |
(h) Equity Awards Issued in Acquisitions |
In connection with the Skyfence and Incapsula acquisitions, the Company assumed stock options covering an aggregate of 72,607 shares of its common stock (in addition to the Incapsula RSUs discussed above). At the date of the acquisition, vested stock options and the associated fair value was recorded as part of the purchase consideration. The fair value related to the assumed unvested stock options are recognized as post-combination compensation costs and is being recorded as post-combination compensation expense ratably over the respective remaining service periods. |