Stockholders' Equity

Summary of Stock-Based Compensation Expense

As of June 30, 2017, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 6,937,078 shares are available for issuance.

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 three and six months ended June 30, 2017 and 2016 is as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of net revenues	$	768	$	932	$	1,693	$	1,893
Selling, general and administrative	11,218		10,843		22,934		20,677
Research and development	2,259		1,924		4,430		3,653
Total stock-based compensation	$	14,245	$	13,699	$	29,057	$	26,223

Stock Options

We have not granted options since 2011 and all outstanding options were fully vested and associated stock-based compensation expenses were recognized as of December 31, 2015. Activity for the six months ended June 30, 2017 under the stock option plans is set forth below (in thousands, except years and per share amounts):



	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, 2016	222		$	14.90
Exercised	(101	)	16.53
Cancelled or expired	(4	)	18.16
Outstanding as of June 30, 2017	117		$	13.39	1.17	$	16,049
Vested and expected to vest at June 30, 2017	117		$	13.39	1.17	$	16,049
Exercisable at June 30, 2017	117		$	13.39	1.17	$	16,049

Restricted Stock Units (“RSUs”)

The fair value of nonvested RSUs is based on our closing stock price on the date of grant. A summary for the six months ended June 30, 2017 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, 2016	1,789		$	58.39
Granted	422		106.12
Vested and released	(761	)	53.18
Forfeited	(46	)	64.34
Nonvested as of June 30, 2017	1,404		75.37		1.54	$	210,814

As of June 30, 2017, we expect to recognize $82.5 million of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of 2.5 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. 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 200% of the MSUs initially granted.

The following table summarizes the MSU performance for the six months ended June 30, 2017 (in thousands, except years):



	Number of Shares Underlying MSUs		Weighted Average Grant Date Fair Value		Weighted Average Remaining Vesting Period (in years)	Aggregate Intrinsic Value
Nonvested as of December 31, 2016	520		$	60.49
Granted	201		88.80
Vested and released	(283	)	53.11
Forfeited	(10	)	64.50
Nonvested as of June 30, 2017	428		78.53		1.47	$	64,266

As of June 30, 2017, we expect to recognize $17.1 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.5 years.

Employee Stock Purchase Plan ("ESPP")

In May 2010, our shareholders approved the 2010 Employee Stock Purchase Plan ("2010 Purchase Plan") which will continue until terminated by either the Board of Directors or its administrator. The maximum number of shares available for purchase under the 2010 Purchase Plan is 2,400,000 shares. As of June 30, 2017, 821,770 shares remain available for future issuance.

The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:



	Six Months Ended June 30,
	2017			2016
Expected term (in years)	1.2			1.3
Expected volatility	26.1		%	33.7		%
Risk-free interest rate	0.9		%	0.8		%
Expected dividends	—			—
Weighted average fair value at grant date	$	26.09		$	19.96

As of June 30, 2017, there was $2.8 million of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of 0.7 year.