The Company has 5,000,000 of authorized preferred stock issuable, and there is no preferred stock outstanding as of December 31, 2019 and December 31, 2018. Each share of common stock is entitled to one vote.

The Company has four stock based compensation plans (collectively, the Stock Plans)—the 2001 Stock Option Plan (the 2001 Stock Plan), the 2011 Stock Plan (the 2011 Stock Plan), the 2015 Omnibus Incentive Compensation Plan (the 2015 Stock Plan) and the ESPP. The 2015 Stock Plan permits grants of RSU awards.

The purpose of these plans is to provide incentives to employees, directors and nonemployee consultants. The Company no longer grants any awards under the 2001 Stock Plan and the 2011 Stock Plan. The maximum term of any stock options granted under the Stock Plans is 10 years. For employees and nonemployees, stock options generally vest 25% on the first anniversary of the original vesting date, with the balance vesting monthly or annually over the remaining three years. Stock options are granted at exercise prices at least equal to the fair value of the underlying stock at the date of the grant. For employees and nonemployees, generally, RSU awards vest 25% on each of the first, second, third and fourth anniversaries of the grant date and in certain cases, vest one year after grant date.

In 2019, the Compensation Committee approved the grant of performance-based equity awards (PBEAs) to the Company’s named executive officers and certain other employees pursuant to the 2015 Stock Plan. These PBEAs will only vest upon the Compensation Committee’s determination that a pre-defined Company operational goal was satisfied.

The ESPP permits eligible employees to purchase shares of the Company’s common stock, using contributions via payroll deductions of up to 15% of their earnings, at a price per share equal to 85% of the lower of the stock’s fair market value on the offering date or purchase date. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

On November 21, 2019, in connection with the Avedro Merger, the Company granted the following Replacement Awards to employees of Avedro: (i) approximately 0.2 million cash-settled stock options to certain executives, which became fully vested on December 31, 2019, (ii) approximately 0.1 million stock options and approximately 5,500 restricted stock units to Avedro’s board of directors, which were granted with no post-combination vesting requirements, and (iii) approximately 0.7 million stock options and approximately 0.1 million restricted stock units, which are time-vesting. Approximately $30.8 million of the fair value of the Replacement Awards was attributable to pre-combination service and was included in the purchase price of Avedro (see Note 6, Business Combinations). The remaining value of the Replacement Awards of $26.0 million will be recognized as post-combination expense over the remaining requisite service period for the time-vesting awards ($3.1 million and $1.5 million related to the cash-settled stock options granted to certain executives and awards granted to the Avedro board of directors, respectively, was recognized in post-combination expense during the period from November 21, 2019 to December 31, 2019).

As of January 1, 2020, the Company has reserved an aggregate of 13.5 million shares of common stock for issuance under the 2015 Stock Plan, and 1.8 million shares of common stock for issuance under the ESPP.

The Company accounts for the measurement and recognition of compensation expense for all share-based awards made to the Company’s employees and nonemployees based on the estimated fair value of the awards.

The fair value of RSU awards made to employees and nonemployees is equal to the closing market price of the Company’s common stock price on the grant date.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options and look back options included as part of the ESPP. The determination of fair value using the Black-Scholes option-pricing model is affected by the estimated fair market value per share of the Company’s common stock as well as assumptions regarding a number of highly complex and subjective variables, including expected stock price volatility, risk-free interest rate, expected dividends and expected option life and generally requires significant management judgment to determine.

Risk-free interest rate. The risk-free interest rate is equal to the U.S. Treasury Note interest rate for the comparable term for the expected option life as of the valuation date. If the expected option life is between the U.S. Treasury Note rates of two published terms, then the risk-free interest rate is based on the straight-line interpolation between the U.S. Treasury Note rates of the two published terms as of the valuation date.

Expected dividend yield. The expected dividend yield is based on the Company’s history and expectation of dividend payouts. The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future.

Expected volatility. The Company only recently began to have publicly traded equity and has a limited operating history and a lack of Company-specific historical and implied volatility data, and therefore has estimated its stock price volatility based upon an index of the historical volatilities of a group of comparable publicly-traded medical device peer companies. The historical volatility data was computed using the historical daily closing prices for the selected peer companies’ shares during the equivalent period of the calculated expected term of the Company’s stock options. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Expected term. The Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term, and therefore it uses the simplified method for estimating the expected term of stock option grants. Under this approach, the weighted-average expected term is presumed to be the average of the vesting term and the contractual term of the option.

Fair value of common stock. The Company has used the daily market prices in the determination of the fair value of its common stock.

Forfeiture rate. The Company reduces share-based compensation expense for estimated forfeitures. Forfeitures are estimated at the time of grant based on historical experience, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The following table summarizes stock option activity under the 2001 Stock Plan, 2011 Stock Plan and 2015 Stock Plan:

Intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that had exercise prices that were lower than the fair value per share of the common stock on the date of exercise.

The weighted average estimated grant date fair value per share of stock options granted during the years ended December 31, 2019, December 31, 2018 and December 31, 2017 was $32.07, $14.98 and $20.62, respectively.

The total fair value of stock options that vested during the years ended December 31, 2019, December 31, 2018 and December 31, 2017 was $33.9 million, $24.2 million and $12.9 million, respectively.

The fair value of each option award is estimated on the date of grant using a Black-Sholes option pricing model applying the assumptions noted in the following table. The weighted average assumptions used to estimate the fair value of options granted to employees and non-employees were as follows:


	Year ended
	December 31,
	2019		2018		2017
Risk-free interest rate	2.17	%	2.67	%	2.13	%
Expected dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility	46.8	%	44.9	%	46.5	%
Expected term (in years)	6.01		6.10		6.04

The following table summarizes the activity of unvested RSUs under the Stock Plans during the years ended December 31, 2019 and December 31, 2018:


		Weighted-
	Number of	average
	shares	grant date
	(in thousands)	fair value
Unvested at December 31, 2017	173	$	39.10
Granted	419		33.64
Vested	(41)		39.36
Canceled/forfeited	(19)		33.67
Unvested at December 31, 2018	532	$	35.17
Granted	323		69.76
Replacement Awards	102		63.07
Vested	(237)		36.54
Canceled/forfeited	(25)		44.59
Unvested at December 31, 2019	695	$	54.40

The total fair value of RSUs made to employees and nonemployees is equal to the closing market price of the Company’s common stock on the grant date. The total fair value of RSUs that vested during the years ended December 31, 2019 and December 31, 2018 was $8.6 million and $1.6 million, respectively. No restricted stock units vested during the year ended December 31, 2017.

The following table summarizes the activity of cash-settled stock options during the years ended December 31, 2019 and December 31, 2018:


	Number of			Weighted-
	shares	Weighted-		average	Aggregate
	underlying	average		remaining	intrinsic
	options	exercise price		contractual	value (in
	(in thousands)	per share		life (in years)	thousands)
Outstanding at December 31, 2018	—	$	—	—	$	—
Replacement Awards	230		25.89
Exercised	—		—			—
Canceled/forfeited/expired	—		—
Outstanding at December 31, 2019	230	$	25.89	0.5	$	6,572
Exercisable at December 31, 2019	230	$	25.89	0.5	$	6,572

The fair value of cash-settled stock options is based on the Black-Scholes option valuation model utilizing the Company’s stock price, the cash-settled options’ remaining term of 0.5 years, expected stock price volatility of 44.25%, and the risk-free interest rate of 1.6% as of the measurement date. The changes in the fair value are reflected in compensation expense within selling, general and administrative expense on the consolidated income statement.

The cash-settled stock options granted to certain Avedro executives are included in accrued liabilities on the Company’s consolidated balance sheet and are recorded at fair value each reporting period with changes in fair value reflected in earnings. The cash-settled stock options were fully vested as of December 31, 2019 and have a contractual term that ends on June 30, 2020.

The following table summarizes the allocation of stock-based compensation related to stock options and RSUs and includes Replacement Awards, as well as cash-settled stock options in the accompanying consolidated statements of operations (in thousands):


	Year ended
	December 31,
	2019		2018		2017

Cost of sales	$	1,127	$	703	$	597
Selling, general & administrative		31,801		19,816		13,006
Research and development		6,553		5,185		3,989
Total	$	39,481	$	25,704	$	17,592

(i)

Of the total amount, $3.1 million relates to cash-settled stock options included in accrued liabilities within the consolidated balance sheet as of December 31, 2019.

In the years ended December 31, 2019, December 31, 2018, and December 31, 2017, the related tax benefits were $4.6 million, $10.5 million and $5.4 million, respectively, relating to stock-based compensation.

At December 31, 2019, the total unamortized stock-based compensation expense was approximately $65.3 million. Of the approximately $65.3 million in unamortized stock-based compensation expense, $36.7 million was attributable to stock options and is to be recognized over the stock options’ remaining vesting terms of approximately 4.0 years (2.1 years on a weighted average basis). The remaining $28.6 million was attributable to RSUs and is to be recognized over the restricted stock units’ vesting terms of approximately 4.0 years (1.5 years on a weighted-average basis). The cash-settled stock options were fully expensed as of December 31, 2019.

The total stock-based compensation cost capitalized in inventory was not material for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively.

Common Stock Reserved for Future Issuance

Common stock reserved for issuance is as follows (in thousands):


		As of
		December 31,
		2019

Stock options issued and outstanding—2001 Plan		413
Stock options issued and outstanding—2011 Plan		1,384
Stock options issued and outstanding—2015 Plan		4,786
Employee stock purchase plan		1,341
Authorized for future stock awards or option grants		5,405
		13,329