The Company has historically had various stock incentive plans and agreements that provide for the issuance of nonqualified and incentive stock options and restricted stock units as well as other equity awards. Such awards may be granted by the Company’s Board of Directors to certain of the Company’s employees, directors and consultants.

Options and restricted stock units granted to employees and non-employees under these plans expire no later than ten years from the date of grant and generally become exercisable over a four year period, under a graded-vesting methodology for stock options and annually on the anniversary grant date for restricted stock units, following the date of grant. The Company generally issues new shares upon the exercise of stock options or vesting of restricted stock units.

The 2019 Omnibus Incentive Plan (2019 Plan) was approved on May 1, 2019 and provides incentives through the grant of stock options, stock appreciation rights, restricted stock awards and restricted stock units. The exercise price of stock options granted under the 2019 Plan shall not be less than the fair market value of the Company’s common stock on the date of grant. The 2019 Plan replaced the 1992 Stock Option Plan, the 2001 Stock Option Plan, the Amended and Restated 2004 Equity Incentive Plan, the 2009 Second Amended and Restated Omnibus Incentive Plan and the 2017 Omnibus Incentive Plan (Prior Plans), and no new grants have been granted under the Prior Plans after approval. However, the expiration or forfeiture of options previously granted under the Prior Plans will increase the number of shares available for issuance under the 2019 Plan.

Employees are able to purchase stock under the Vericel Corporation Employee Stock Purchase Plan (ESPP). The ESPP allows for the issuance of an aggregate of 1,000,000 shares of common stock of which 595,799 have been issued since the inception of the benefit in 2015. Participation in this plan is available to substantially all employees. The ESPP is a compensatory plan accounted for under the expense recognition provisions of the share-based payment accounting standards. Compensation expense is recorded based on the fair market value of the purchase options at the grant date, which corresponds to the first day of each purchase period and is amortized over the purchase period. In January 2020, employees purchased 19,076 shares resulting in proceeds from the

sale of common stock of $0.2 million under the ESPP for the fourth quarter of 2019. The total share-based compensation expense for the ESPP for the years ended December 31, 2019, 2018, and 2017 was approximately $0.3 million, $0.3 million, and $0.2 million, respectively.

During the year ended December 31, 2019, the Company granted 2,033,760 service-based options to purchase common stock. The exercise price of the options is the fair market value per share of common stock on the grant date, generally vest over four years (other than 78,750 non-employee director options which vest over one year) and have a term of ten years. The Company issues new shares upon the exercise of stock options. The weighted average grant-date fair value of service-based options granted during the years ended December 31, 2019, 2018, and 2017 was $12.62, $6.96 and $1.99, respectively.

The net compensation costs recorded for the service-based stock options related to employees and directors (including the impact of forfeitures) for the years ended December 31, 2019, 2018, and 2017 were $11.8 million, $6.9 million and $2.5 million, respectively.

The fair value of each service-based stock option grant for the reported periods is estimated on the date of the grant using the Black-Scholes option-pricing model using the weighted average assumptions noted in the following table.



	Year Ended December 31,
Service-Based Stock Options	2019	2018	2017
Expected dividend rate	—%	—%	—%
Expected stock price volatility	77.9-85.5%	82.3 – 88.3%	79.7 – 88.2%
Risk-free interest rate	1.4-2.7%	2.4 – 3.1%	1.39 – 2.3%
Expected life (years)	5.3 - 6.3	5.3 - 6.3	5.5 - 6.3



Service-Based Stock Options	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (Thousands)
Outstanding at December 31, 2018	4,790,683		$	5.85	7.7	$	11,407
Granted	2,033,760		$	17.51
Exercised	(1,197,016	)	$	3.64
Expired	(36,561	)	$	26.16
Forfeited	(537,916	)	$	11.26
Outstanding at December 31, 2019	5,052,950		$	10.35	7.7	$	37,974
Exercisable at December 31, 2019	2,385,824		$	7.49	6.5	$	25,113

As of December 31, 2019, 4,700,318 shares are vested and expected to vest. As of December 31, 2019, there was approximately $16.6 million, of total unrecognized compensation cost related to non-vested service-based stock options granted under the 2019 Plan and the Prior Plans. That cost is expected to be recognized over a weighted-average period of 3.2 years.

The restricted stock units vest annually over four years in equal installments commencing on the first anniversary of the grant date (other than non-employee director options which vest over one year from the grant date). The Company issues new shares upon the vesting of restricted stock units. Restricted stock awards are recorded at fair value at the date of grant, which is based on the closing share price on the grant date. Compensation expense is recorded for restricted stock units that are expected to vest based on their fair value at grant date and is amortized over the expected vesting period.



Restricted Stock Units	Number of Restricted Stock Awards		Weighted Average Grant Date Fair Value		Weighted Average Term	Aggregate Intrinsic Value (Thousands)
Outstanding at December 31, 2018	—
Granted	186,922		$	17.71		$	3,310
Vested	—
Forfeited	(29,892	)	$	17.24
Unvested at December 31, 2019	157,030		$	17.80	1.6	$	2,732

The total grant-date fair value of restricted stock units granted in the year ended December 31, 2019 was $3.3 million. No restricted stock units were granted in 2018. The net compensation costs recorded for the service-based restricted stock units related to employees and directors (including the impact of forfeitures) for the year ended December 31, 2019 was $1.0 million.

At December 31, 2019, the total unrecognized compensation cost related to the restricted stock awards was $1.8 million and the weighted average period over which that cost is expected to be recognized was 3.1 years.

Non-cash stock-based compensation expense (employee stock purchase plan, service-based stock options and restricted stock units) included in cost of goods sold, research and development expenses and selling, general and administrative expenses is summarized in the following table:



	Years Ended December 31,
(in thousands)	2019		2018		2017
Cost of goods sold	$	2,029	$	1,015	$	428
Research and development	2,428		1,672		506
General, selling and administrative	8,722		4,536		1,746
Total non-cash stock-based compensation expense	$	13,179	$	7,223	$	2,680