Shutterfly 2012 Annual Report Download - page 83

guidance that addresses accounting for contingencies. In such cases, the Company accrues for the amount,
or if a range, the Company accrues the low end of the range as a component of legal expense. The
Company monitors developments in these legal matters that could affect the estimate the Company had
previously accrued. There are no amounts accrued which the Company believes would be material to its
financial position and results of operations.
Note 6 — Stock-Based Compensation
1999 Stock Plan
In September 1999, the Company adopted the 1999 Stock Plan (the ‘‘1999 Plan’’). Under the 1999
Plan, the Company issued shares of common stock and options to purchase common stock to employees,
directors and consultants. Options granted under the Plan were incentive stock options or non-qualified
stock options. Incentive stock options (‘‘ISO’’) were granted only to Company employees, which includes
officers and directors of the Company. Non-qualified stock options (‘‘NSO’’) and stock purchase rights
were able to be granted to employees and consultants. Options under the Plan were to be granted at prices
not less than 85% of the deemed fair value of the shares on the date of the grant as determined by the
Company’s Board of Directors (‘‘the Board’’), provided, however, that (i) the exercise price of an ISO and
NSO was not less than 100% and 85% of the deemed fair value of the shares on the date of grant,
respectively, and (ii) the exercise price of an ISO and NSO granted to a 10% stockholder was not less than
110% of the deemed fair value of the shares on the date of grant. The Board determined the period over
which options became exercisable. The term of the options was to be no longer than five years for ISOs for
which the grantee owns greater than 10% of the voting power of all classes of stock and no longer than ten
years for all other options. Options granted under the 1999 Plan generally vested over four years. The
Board of Directors determined that no further grants of awards under the 1999 Plan would be made after
the Company’s IPO.
2006 Equity Incentive Plan
In June 2006, the Board adopted, and in September 2006 the Company’s stockholders approved, the
2006 Equity Incentive Plan (the ‘‘2006 Plan’’), and all shares of common stock available for grant under the
1999 Plan transferred to the 2006 Plan. The 2006 Plan provides for the grant of ISOs to employees
(including officers and directors who are also employees) of the Company or of a parent or subsidiary of
the Company, and for the grant of all other types of awards to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any parent or subsidiary of the Company,
provided such consultants, independent contractors and advisors render bona-fide services not in
connection with the offer and sale of securities in a capital-raising transaction. Other types of awards under
the 2006 Plan include NSOs, restricted stock awards, stock bonus awards, restricted stock units, and
performance shares.
Options issued under the 2006 Plan are generally for periods not to exceed 10 years and are issued at
the fair value of the shares of common stock on the date of grant as determined by the Board. The fair
value of the Company’s common stock is determined by the last sale price of such stock on the NASDAQ
Global Select Market. Options issued under the 2006 Plan typically vest with respect to 25% of the shares
one year after the options’ vesting commencement date, and the remainder ratably on a monthly basis over
the following three years.
The 2006 Plan provides for automatic replenishments on January 1 of 2011, 2012, and 2013 of 3.5%,
3.3%, and 3.1%, respectively of the number of shares of the Company’s common stock issued and
outstanding on the December 31 immediately prior to the date of increase.
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