The Company has three stock-based compensation plans (collectively, the Stock Plans)— 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 Company no longer grants any awards under the 2011 Stock Plan.

The purpose of these Stock Plans is to provide incentives to employees, directors and nonemployee consultants. 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.

The Compensation Committee has 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 pre-defined Company operational goals were 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.

The Company has 5,000,000 of authorized preferred stock issuable, and there is no preferred stock outstanding as of December 31, 2021 and December 31, 2020. Each share of common stock is entitled to one vote.

On November 21, 2019, in connection with the Avedro Merger, the Company granted the following awards (the 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 RSUs to members of 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 RSUs, which are subject to time-based vesting requirements. 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. The remaining value of the Replacement Awards of $26.0 million is being recognized as post-combination expense over the remaining requisite service period for the time-vesting awards, which as of December 31, 2021, the remaining unamortized balance is immaterial.

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 has a limited history as a publicly traded entity and a lack of robust Company-specific historical and implied volatility data. During the year ended December 31, 2021, the Company based the expected volatility on a weighted average of the historical volatility of its common stock and historical volatilities of a peer group of similar companies over the most recent period commensurate with the estimated expected term of the Company’s stock options. During the years ended December 31, 2020 and 2019, the expected volatility assumption was based on historical volatilities of a peer group of similar companies whose share prices were publicly available. The peer group was developed based on companies in the biotechnology industry.

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 2011 Stock Plan and 2015 Stock Plan:

(i)

Included in the outstanding balance at December 31, 2021 are 276 performance-based options.

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, 2021, December 31, 2020 and December 31, 2019 was $43.43, $12.85 and $32.07, respectively.

The total fair value of stock options that vested during the years ended December 31, 2021, December 31, 2020 and December 31, 2019 was $10.3 million, $20.3 million and $33.9 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,
	2021		2020		2019
Risk-free interest rate	0.98	%	0.71	%	2.17	%
Expected dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility	43.4	%	48.8	%	46.8	%
Expected term (in years)	5.71		6.01		6.01

As of January 1, 2022, the Company has reserved an aggregate of 18.1 million shares of common stock for issuance under the 2015 Stock Plan, and 3.2 million shares of common stock for issuance under the ESPP.

Restricted Stock Units

The following table summarizes the activity of unvested RSUs under the Stock Plans during the years ended December 31, 2021 and December 31, 2020:


			Weighted-
	Number of		average
	shares		grant date
	(in thousands)		fair value
Unvested at December 31, 2019	695		$	54.40
Granted	674			33.69
Vested	(310)			55.96
Canceled/forfeited	(71)			39.03
Unvested at December 31, 2020	988		$	40.82
Granted	683			58.20
Vested	(360)			41.12
Canceled/forfeited	(126)			52.93
Unvested at December 31, 2021	1,185	⁽ⁱ⁾	$	49.65

(i)

Included in the unvested balance at December 31, 2021 are 176 performance-based RSU awards.

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, 2021, December 31, 2020 and December 31, 2019 was $14.8 million, $17.3 million and $8.6 million, respectively.

All Share-Based Compensation Arrangements

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,
	2021		2020		2019

Cost of sales	$	1,739	$	2,440	$	1,127
Selling, general & administrative		21,665		32,072		31,801
Research and development		6,742		8,793		6,553
Total	$	30,146	$	43,305	$	39,481

(i)

Of the total stock-based compensation amount of $43.3 million as of December 31, 2020 above, $13.0 million related to the value attributable to the pre-combination services associated with Replacement Awards and a $(3.2) million fair value adjustment was recorded related to cash-settled stock options, and the remainder of the liability of $2.2 million related to the cash-settled options that was previously included in accrued liabilities was, as a result of the modification, reclassified to additional paid-in capital.

(ii)

Of the total stock-based compensation amount of $39.5 million as of December 31, 2019 above, $4.5 million related to the value attributable to the pre-combination services associated with Replacement Awards and $3.1 million relates to cash-settled stock options included in accrued liabilities within the consolidated balance sheet.

In the years ended December 31, 2021, December 31, 2020, and December 31, 2019, the related tax benefits were $12.3 million, $3.5 million and $4.6 million, respectively, relating to stock-based compensation.

At December 31, 2021, the total unamortized stock-based compensation expense was approximately $56.6 million. Of the approximately $56.6 million in unamortized stock-based compensation expense, $8.2 million was attributable to stock options and is to be recognized over the stock options’ remaining vesting terms of approximately 4.0 years (1.7 years on a weighted average basis). The remaining $48.4 million was attributable to RSUs and is to be recognized over the RSUs’ vesting terms of approximately 4.0 years (1.3 years on a weighted-average basis).

The total stock-based compensation cost capitalized in inventory was not material for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively.