NOTE 16. EMPLOYEE AND CONSULTANT EQUITY-BASED COMPENSATION

The Company has three equity based compensation plans, which are discussed below:

Non-Qualified Stock Option Plan

The Non-Qualified Stock Option Plan (the “Non-Qualified Plan”) was a stockholder-approved plan that provided for stock option grants to independent contractors, technical advisors and directors of the Company. The exercise price of each option, which has a maximum 10 year life, was established by the Company's Compensation Committee on the date of grant.

As of December 31, 2017, there were 280,000 options exercised under the Non-Qualified Plan and 0 that remain outstanding. The Non-Qualified Plan has been replaced by the 2012 Omnibus Equity Incentive Plan, so no further options are available for grant.

2004 Omnibus Stock Option Plan

In December 2004, the Company’s stockholders approved the Omnibus Stock Option Plan and reserved 500,000 shares of its authorized but unissued Common Stock for stock options to be granted to employees, independent contractors, technical advisors and directors of the Company. The authorized shares in this plan were increased by 5,000,000 shares to an aggregate amount of 5,500,000 upon stockholder approval during the fiscal year ended July 31, 2012.

As of December 31, 2018, there were 757,975 options exercised under the 2004 Omnibus Stock Option Plan and 3,182,025 that remain outstanding. The 2004 Omnibus Stock Option Plan has been replaced by the 2012 Omnibus Equity Incentive Plan, so no further options are available for grant.

2012 Omnibus Equity Incentive Plan

In December 2012, the Company’s stockholders approved the Company’s 2012 Omnibus Equity Incentive Plan to replace all prior plans (“Prior Plans”). The Prior Plans remain in effect until all awards granted under those plans have been exercised, forfeited, canceled, expired or otherwise terminated.

In connection with the approval of such plan, all stock options, totaling 1,677,500 formerly available for new awards under the Prior Plans were transferred to the 2012 Omnibus Equity Incentive Plan.

During the Company's Annual Meeting of Stockholders, stockholders approved amendments to the Company's 2012 Omnibus Equity Incentive Plan increasing the number of shares of Common Stock reserved and available for grant by 4,000,000 in May 2014 and 2,000,000 in May 2017 resulting in a total of 7,677,500 reserved shares.

Stock options granted under this plan vest either (i) upon achievement of a specified performance goal, (ii) immediately, (iii) one year after grant date, (iv) monthly over a one year period, (v) annually over a five year period, or (vi) 40% two years after grant date and the remaining 60% monthly over the next three years. The maximum term is ten years.

RSUs granted under this plan vest either (i) immediately, (ii) annually over a three year period, (iii) annually over a five year period, or (iv) 40% two years after grant date and the remaining 60% monthly over the next three years.

SGs granted under this plan vest immediately.

As of December 31, 2018, there were 879,608 options exercised as well as 42,161 RSUs and SGs issued under the 2012 Omnibus Equity Incentive Plan. There were 4,984,611 shares remaining outstanding, leaving 1,771,120 available for grant.

Combined Stock Option Plans

The following table summarizes option activity under all plans during the years ending December 31, 2018, and 2017 and shows the exercisable shares as of December 31, 2018:



Stock Option Activity
	Number of Shares		Weighted Average Exercise Price per Share
Options Outstanding January 1, 2017	6,857,124		$	7.72
Granted	1,208,542		23.84
Forfeited	(79,962	)	17.82
Exercised	(656,846	)	8.93
Expired	(727	)	24.45
Options Outstanding December 31, 2017	7,328,131		10.16
Granted	1,390,014		24.46
Forfeited	(230,779	)	21.47
Exercised	(357,373	)	10.49
Expired	(39,357	)	22.24
Options Outstanding December 31, 2018	8,090,636		12.22
Exercisable December 31, 2018	5,824,748		8.39

The cash received from the exercise of options during the year ending December 31, 2018 was $3.7 million and the tax benefit realized was $0 for the same period. Upon exercise, shares are issued from shares authorized and held in reserve. The intrinsic value of options exercised was $4.6 million, $12.1 million and $2.2 million for the years ending December 31, 2018, 2017 and 2016, respectively.

The total fair value of options vesting during the period was $13.4 million, $12.0 million, and $6.6 million for the years ending December 31, 2018, 2017 and 2016, respectively.

The Company accounts for all option grants using the Black-Scholes option pricing model. The table below summarizes the inputs used to calculate the estimated fair value of options awarded for the years ended December 31:



Black-Scholes Assumptions for Options Granted
	2018			2017			2016
Expected term (in years)	6.01			6.23			6.43
Volatility	66		%	77		%	86		%
Expected dividends	—			—			—
Risk free interest rates	2.7		%	2.1		%	1.6		%
Estimated forfeitures	—		%	—		%	8.5		%
Weighted average fair value	$	14.87		$	16.24		$	10.35

In general, option awards have a requisite service period and unvested options are forfeited upon employee or consultant termination. In years prior to 2016, the Company estimated a forfeiture rate which was applied to outstanding options to determine options expected to be forfeited with the remaining outstanding options being those expected to vest. Effective January 2017, the Company implemented ASU 2016-09, Compensation-Stock Compensation (Topic 718); Improvements to Employee Share-Based Payment Accounting, and made a policy election to account for forfeitures as they occur.

The following table shows summary information for outstanding options and options that are exercisable (vested) as of December 31, 2018:



Stock Option Supplemental Information
	Options Outstanding		Options Exercisable
Number of options	8,090,636		5,824,748
Weighted average remaining contractual term (in years)	5.67		4.56
Weighted average exercise price	$	12.22	$	8.39
Weighted average fair value	$	8.44	$	5.92
Aggregate intrinsic value (in millions)	$	33.9	$	33.9

The aggregate intrinsic value in the table above represents the total pretax intrinsic value that would have been received by the option holders had all option holders exercised their options on that date. It is calculated as the difference between the Company’s closing stock price of $11.50 on the last trading day of 2018 and the exercise price multiplied by the number of shares for options where the exercise price is below the closing stock price. This amount changes based on the fair market value of the Company’s stock.

The following table summarizes RSU and SG activity during the years ending December 31, 2018 and 2017:



RSU and SG Activity
	Number of Shares		Weighted Average Grant Date Fair Value per Share
RSUs & SGs Outstanding January 1, 2017	40,250		$	20.91
Granted	1,911		22.40
Forfeited	—		—
Vested/released	(18,011	)	21.07
RSUs & SGs outstanding December 31, 2017	24,150		20.91
Granted	76,000		17.33
Forfeited	—		—
Vested/released	(24,150	)	16.58
RSUs & SGs outstanding December 31, 2018	76,000		18.70

The total fair value of RSUs and SGs vested and released during the period was $0.4 million, $0.4 million, and $0 for the years ending December 31, 2018, 2017 and 2016, respectively.

The Company records compensation cost based on the fair value of the award. The table below summarizes the weighted average fair value of RSUs and SGs awarded for the years ending December 31:



RSU and SG Grants
	2018		2017		2016
Weighted average fair value	$	17.33	$	22.40	$	—

The expense and tax benefits recognized on the Company’s consolidated statements of operations and comprehensive loss related to options for the years ending December 31 (in thousands):



Equity-Based Compensation Expenses and Tax Benefit (in thousands)
	2018		2017		2016
Cost of Sales	$	189	$	99	$	—
Research and development	4,760		3,738		1,585
Sales, general and administrative	9,473		10,096		7,190
Total equity-based compensation expense	$	14,422	$	13,933	$	8,775
Recognized tax benefit	$	—	$	—	$	—

As of December 31, 2018 and 2017, $0.1 million and $0.3 million of equity-based compensation expense was capitalized to inventory, respectively.

As of December 31, 2018 and 2017, $0.1 million and $48,000 of equity-based compensation expense was capitalized to property and equipment, respectively.

As of December 31, 2018, unrecognized equity-based compensation cost related to unvested stock options, and unvested RSUs was $18.0 million and $1.3 million, respectively. This is expected to be recognized over the years 2019 through 2023.

Included in the above-noted stock option grants and stock compensation expense are performance-based stock options which vest only upon the achievement of certain targets. Performance-based options are generally granted at-the-money, contingently vest over a period of 1 to 2 years, depending on the nature of the performance goal, and have contractual lives of 10 years. These options were valued in the same manner as the time-based options, with the assumption that performance goals will be achieved. The inputs for expected volatility, expected dividends, and risk-free rate used in estimating those options’ fair value are the same as the time-based options issued under the plan. The expected term for performance-based options granted in 2018 is 5 to 6 years. However, the Company only recognizes stock compensation expense to the extent that the targets are determined to be probable of being achieved, which triggers the vesting of the performance options. In August 2018, the Company granted 225,000 performance based-options to certain employees. The performance obligations were met for 50,000 options as of December 31, 2018 and no options were exercised during the year then ended. 175,000 options were outstanding as of December 31, 2018 for which the performance obligations had not been met. Of the options outstanding, no expense has been recorded for 150,000 options as achievement of the performance obligations were not probable as of December 31, 2018. The Company recognized $0.7 million of stock compensation expense for the year ended December 31, 2018, for performance-based stock options. No performance-based stock options were granted before 2018.