Stock-based Compensation

Summary of stock-based compensation expense

As of March 31, 2014, we had a total reserve of 23,283,379 shares for issuance, plus up to an aggregate of 5,000,000 shares that would have been returned to our 2001 Stock Incentive Plan as a result of termination of options on or after March 28, 2005.

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 months ended March 31, 2014 and 2013 is as follows (in thousands):



	Three Months Ended March 31,
	2014		2013
Cost of net revenues	$	844	$	580
Sales and marketing	2,667		1,011
General and administrative	4,050		3,927
Research and development	1,571		892
Total stock-based compensation	$	9,132	$	6,410

Options

Activity for the three month period ended March 31, 2014 under the stock option plans is 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	Aggregate Intrinsic Value
					(in years )
Outstanding as of December 31, 2013	1,321
Granted	—
Exercised	(472	)
Cancelled or expired	(1	)
Outstanding as of March 31, 2014	848		$	15.47	3.56	$	30,814
Vested and expected to vest at March 31, 2014	846		$	15.46	3.56	$	30,755
Exercisable at March 31, 2014	783		$	14.96	3.53	$	28,857

There were no stock options granted during the three months ended March 31, 2014 and 2013.

As of March 31, 2014, the total unamortized compensation cost related to stock options, net of estimated forfeitures, is $0.6 million, which we expect to recognize over a weighted average period of 1.0 year.

Restricted Stock Units (“RSU”)

A summary of the RSU activity for the three months ended March 31, 2014 is as follows (in thousands, except years):



	Number of Shares Underlying RSU		Weighted Remaining Vesting Period	Aggregate Intrinsic Value
			(in years)
Nonvested as of December 31, 2013	2,044
Granted	894
Vested and released	(470	)
Forfeited	(49	)
Nonvested as of March 31, 2014	2,419		1.89	$	125,272

As of March 31, 2014, the total unamortized compensation cost related to RSU, net of estimated forfeitures, was $81.7 million, which we expect to recognize over a weighted average period of 2.9 years.

We have granted market-performance based restricted stock units (“MSU”) 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 MSU 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 MSU initially granted.

The following table summarizes the MSU activity for the three months ended March 31, 2014 (in thousands, except years):



	Number of Shares Underlying MSU		Weighted Average Remaining Vesting Period	Aggregate Intrinsic Value
			(in years )
Nonvested as of December 31, 2013	307
Granted	243
Vested and released	(53	)
Forfeited	—
Nonvested as of March 31, 2014	497		2.13	$	25,766

As of March 31, 2014, the total unamortized compensation costs related to the MSU, net of estimated forfeitures, was $14.1 million, which we expect to recognize over a weighted average period of 2.1 years.

Employee Stock Purchase Plan ("ESPP")

In May 2010, our stockholders 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 March 31, 2014, there remains 1,475,372 shares available for purchase under the 2010 Purchase Plan.

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:



	Three Months Ended March 31,
	2014			2013
Employee Stock Purchase Plan:
Expected term (in years)	1.2			1.2
Expected volatility	42.3		%	46.7		%
Risk-free interest rate	0.2		%	0.2		%
Expected dividends	—			—
Weighted average fair value at grant date	$	17.97		$	11.17

As of March 31, 2014, the total unamortized compensation cost related to employee purchases we expect to recognize was $2.1 million over a weighted average period of 0.7 year.