The fair value of each option and ESPP award is estimated on the grant date using the Black-Scholes valuation model and the assumptions noted in the following table. The expected lives of options granted were calculated using the simplified method allowed by the Staff Accounting Bulletin No. 107, Share-Based Payment. The risk-free rates were based on the U.S Treasury rates in effect during the corresponding period of grant. The expected volatility was based on the historical volatility of the Company’s stock price. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

	Three Months Ended		Nine Months Ended
	September 28, 2019	September 29, 2018	September 28, 2019	September 29, 2018
Employee Stock Purchase Plan:
Expected life	0.5 years	0.5 years	0.5	0.5 years
Volatility	44.4%	52.5%	41.3% - 44.4%	39.1%
Risk free interest rate	2.10%	2.14%	2.10% - 2.51%	1.86%
Dividends	—	—	—	—

No stock options were awarded during the nine months ended September 28, 2019 and September 29, 2018.

A summary of activity of stock options during the nine months ended September 28, 2019 is as follows:

	Number of Shares Outstanding (Options)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in Thousands)
Options
Outstanding at December 29, 2018		83,394		$	15.80		1.19	$	988
Exercised		(71,365	)		15.72
Cancelled		(25	)		14.95
Outstanding at September 28, 2019		12,004			16.27		0.80		198
Exercisable at September 28, 2019		12,004		$	16.27		0.80	$	198

The aggregate intrinsic value in the above table represents the total pretax intrinsic value, based on the Company’s closing stock price of $32.38 and $27.65 as of September 28, 2019 and December 29, 2018, respectively, the last trading day of each period, which would have been received by the option holders had all option holders exercised their options as of such date.

Time-based RSUs are valued using the market value of the Company’s common stock on the date of grant, assuming no expectation of dividends paid.

A summary of activity for RSUs during the nine months ended September 28, 2019 is as follows:

Summary of activity for RSUs	Number of RSUs			Weighted Average Fair Value
Outstanding RSUs as of December 29, 2018		769,003		$	31.39
Granted		352,337			28.63
Released		(322,915	)		28.86
Cancelled		(57,907	)		32.37
Outstanding RSUs as of September 28, 2019		740,518		$	31.10

In addition to granting RSUs that vest on the passage of time only, the Company granted PSUs to certain executives. The PSUs vest in three tranches over one, two and three years based on the relative performance of the Company’s stock during those periods, compared to a peer group over the same period. If target stock price performance is achieved, 66.7% of the shares of the Company’s stock subject to the PSUs will vest and up to a maximum of 100% of the shares subject to the PSUs will vest if the maximum stock price performance is achieved for each tranche.

A summary of activity for PSUs for the nine months ended September 28, 2019 is as follows:

Summary of activity for PSUs	Number of PSUs			Weighted Average Fair Value
Outstanding PSUs as of December 29, 2018		112,163		$	22.37
Granted		43,429			19.09
Released		(16,066	)		25.09
Cancelled		(1,138	)		26.75
Outstanding PSUs as of September 28, 2019		138,388		$	20.99

The preceding table reflects the maximum awards that can be achieved upon full vesting.

On the date of grant, the Company estimated the fair value of PSUs using a Monte Carlo simulation model. The assumptions for the valuation of PSUs are summarized as follows:

	2019 Award		2018 Award
Grant Date Fair Value Per Share	$13.12-$23.75		$20.73-$25.18
Weighted-average assumptions/inputs:
Expected Dividend		—		—
Range of risk-free interest rates	2.45%		2.39%-2.63%
Range of expected volatilities for peer group	22%-63%		22%-66%

Stock-based compensation expense for all share-based payment awards made to the Company’s employees and directors pursuant to the employee stock option and employee stock purchase plans by function were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Cost of products	$	326	$	224	$	858	$	455
Cost of service		235		223		629		564
Research and development		813		744		2,324		1,727
Selling		834		779		2,378		2,049
General and administrative		1,191		1,242		3,524		3,434
Total stock-based compensation expense related to employee stock options and employee stock purchases	$	3,399	$	3,212	$	9,713	$	8,229