Stockholders’ Equity

Common Stock

The holders of common stock are entitled to receive dividends whenever funds are legally available and when and if declared by the Board of Directors. We have never declared or paid dividends on our common stock.

Stock-based Compensation Plans

Our 2005 Incentive Plan, as amended, provides for the granting of incentive stock options, non-statutory stock options, restricted stock units, market stock units, stock appreciation rights, performance units and performance shares to employees, non-employee directors, and consultants. Shares granted on or after May 16, 2013 as an award of restricted stock, restricted stock unit, market stock units, performance share or performance unit ("full value awards") are counted against the authorized share reserve as one and nine-tenths (19/10) shares for every one (1) share subject to the award, and any shares canceled that were counted as one and nine-tenths against the plan reserve will be returned at the same ratio. Full value awards granted prior to May 16, 2013 were counted against the authorized share reserve as one and one half (1 1/2) share for every one (1) share subject to the award, and any shares canceled that were counted as one and one half against the plan reserve will be returned at this same ratio.

As of December 31, 2015, the 2005 Incentive Plan (as amended) has a total reserve of 23,283,379 shares for issuance of which 4,869,639 shares are available for issuance. No shares were added to the plan in 2015 or 2014. We issue new shares from our pool of authorized but unissued shares to satisfy the exercise and vesting obligations of our stock-based compensation plans.

Stock-based Compensation

Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and may be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation related to all of our stock-based awards and employee stock purchases for the year ended December 31, 2015, 2014 and 2013 is as follows (in thousands):



	For the Year Ended December 31,
	2015		2014		2013
Cost of net revenues	$	3,938	$	3,616	$	2,565
Selling, general and administrative	40,813		29,625		20,354
Research and development	8,192		6,582		3,519
Total stock-based compensation	$	52,943	$	39,823	$	26,438

Stock Options

We have not granted options since 2011, thus all options outstanding are fully vested. Activity for the year ended December 31, 2015, under the stock option plans are set forth below (in thousands, except years and per share amounts):



	Stock Options
	Number of Shares Underlying Stock Options		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years )	Aggregate Intrinsic Value
Outstanding as of December 31, 2014	668		15.57
Granted	—		—
Exercised	(172	)	16.82
Cancelled or expired	—		—
Outstanding as of December 31, 2015	496		$	15.14	2.05	$	25,163
Vested and expected to vest at December 31, 2015	496		$	15.14	2.05	$	25,163
Exercisable at December 31, 2015	496		$	15.14	2.05	$	25,163

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day in 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2015. This amount will fluctuate based on the fair market value of our stock. The total intrinsic value of stock options exercised for the year ended December 31, 2015, 2014 and 2013 was $7.4 million, $24.5 million and $46.7 million, respectively. The total fair value of the options vested during the year ended December 31, 2015, 2014 and 2013 was $0.1 million, $0.7 million, $3.7 million, respectively.

All compensation costs relating to stock options have been recognized as of December 31, 2015, the total recognized tax effect from exercised options was $0.5 million.

Restricted Stock Units

The fair value of nonvested restricted stock units (“RSUs”) is based on our closing stock price on the date of grant. A summary for the year ended December 31, 2015, is as follows (in thousands, except years and per share amounts):



	Shares Underlying RSUs		Weighted Average Grant Date Fair Value		Weighted Remaining Vesting Period (in years)	Aggregate Intrinsic Value
Nonvested as of December 31, 2014	2,124		$	42.08
Granted	843		57.78
Vested and released	(781	)	38.41
Forfeited	(107	)	49.42
Nonvested as of December 31, 2015	2,079		$	49.45	1.16	$	136,857

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (calculated by multiplying our closing stock price on the last trading day of 2015 by the number of nonvested RSUs) that would have been received by the unit holders had all RSUs been vested and released on December 31, 2015. This amount will fluctuate based on the fair market value of our stock. During 2015, of the 781,232 shares vested and released, 269,634 vested shares were withheld for employee minimum statutory tax obligations, resulting in a net issuance of 511,598 shares.

The total intrinsic value of RSUs vested and released during 2015, 2014 and 2013 was $45.9 million, $38.9 million and $20.3 million, respectively. The total fair value RSUs vested during the year ended December 31, 2015, 2014 and 2013 was $30.0 million, $22.0 million, $13.2 million, respectively. As of December 31, 2015, there was $65.2 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs, and these costs are expected to be recognized over a weighted average period of 2.0 years.

On an annual basis, we grant market-performance based restricted stock units (“MSUs”) to our executive officers. Each MSU represents the right to one share of Align’s common stock and will be issued through our amended 2005 Incentive Plan. The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of the NASDAQ Composite Index over the vesting period, generally two to three years, up to 150% of the MSUs initially granted.

The following table summarizes the MSU performance as of December 31, 2015:



	Number of Shares Underlying MSUs (in thousands)		Weighted Average Grant Date Fair Value	Weighted Average Remaining Vesting Period (in years )	Aggregate Intrinsic Value (in thousands)
Nonvested as of December 31, 2014	498		42.00
Granted	289		55.92
Vested and released	(162	)	30.28
Forfeited	(14	)	53.69
Nonvested as of December 31, 2015	611		51.41	1.30	$	40,244

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (calculated by multiplying our closing stock price on the last trading day of 2015 by the number of non-vested MSUs) that would have been received by the unit holders had all MSUs been vested and released on December 31, 2015. This amount will fluctuate based on the fair market value of our stock. During 2015, of the 161,502 shares vested and released 83,842 shares were withheld for tax payments, resulting in a net issuance of 77,660 shares.

The total intrinsic value of MSUs vested and released during 2015, 2014 and 2013 was $9.2 million, $2.9 million and $3.2 million. The total fair value MSUs vested during the year ended December 31, 2015, 2014 and 2013 was $4.9 million, $1.2 million and $1.5 million, respectively. As of December 31, 2015, we expect to recognize $14.0 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.3 years.

The fair value of the MSUs is estimated at the grant date using a Monte Carlo simulation that includes factors for market conditions. The following weighted-average assumptions used in the Monte Carlo simulation were as follows:



	Year Ended December 31,
	2015			2014			2013
Expected term (in years)	3			3			3
Expected volatility	36.9		%	46.0		%	47.0		%
Risk-free interest rate	1.0		%	0.7		%	0.4		%
Expected dividends	—			—			—
Weighted average fair value per share at grant date	$	61.73		$	50.46		$	35.49

Total payments to tax authorities for payroll taxes related to RSUs, including MSUs, that vested during the period, were $20.7 million, $7.6 million and $4.4 million in 2015, 2014 and 2013, respectively, reflected as a financing activity in the Consolidated Statements of Cash Flows.

Employee Stock Purchase Plan

In May 2010, our shareholders approved the 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”), replacing our 2001 Employee Stock Purchase Plan, which consists of consecutive overlapping twenty-four month offering periods with four six-month purchase periods in each offering period. Employees purchase shares at 85% of the fair market value of the common stock at either the beginning of the offering period or the end of the purchase period, whichever is lower. The 2010 Purchase Plan will continue until terminated by either the Board or its administrator. The maximum number of shares available for issuance under the 2010 Purchase Plan is 2,400,000 shares. During the year ended December 31, 2015, 2014 and 2013, we issued 230,078, 247,343, and 288,675 shares, respectively, at average prices of $36.66, $29.24 and $21.96, respectively. As of December 31, 2015, 1,133,749 shares remain available for future issuance.

The fair value of the option component of the Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:



	Year Ended December 31,
	2015			2014			2013
Employee Stock Purchase Plan:
Expected term (in years)	1.2			1.2			1.2
Expected volatility	31.1		%	38.8		%	44.9		%
Risk-free interest rate	0.3		%	0.2		%	0.2		%
Expected dividends	—			—			—
Weighted average fair value at grant date	$	16.19		$	17.15		$	11.69

We recognized stock-based compensation expense of $4.1 million, $2.6 million, $3.4 million related to our employee stock purchase plans for the year ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, there was $1.9 million of total unamortized compensation costs related to employee stock purchases. These costs are expected to be recognized over a weighted average period of 0.5 years.