CAPITAL STOCK

Stock Option Plans

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for options granted in the three months ended March 31, 2018 and 2017.



	Three Months Ended March 31,
	2018	2017
Risk-free interest rate	2.64%	1.87%
Expected lives	4.9 years	4.9 years
Expected volatility	40%	40%
Expected dividend yield	0%	0%

A summary of our stock option plans, excluding options to purchase fractional shares resulting from our December 2010 1-for-10 reverse stock split, is as follows:



	Three Months Ended March 31,				Year Ended December 31,
	2018				2017
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of period	630,847		$	29.312	829,617		$	23.203
Granted at market	130,000		$	69.770	27,050		$	99.087
Canceled	(18,706	)	$	52.131	(18,331	)	$	57.197
Exercised	(6,683	)	$	18.089	(207,489	)	$	11.520
Outstanding at end of period	735,458		$	35.985	630,847		$	29.312
Exercisable at end of period	470,717		$	19.584	456,802		$	18.316

The total estimated fair value of stock options granted during the three months ended March 31, 2018 and 2017 was computed to be approximately $3.5 million and $9 thousand, respectively. The amounts are amortized ratably over the vesting periods of the options. The weighted average estimated fair value of options granted during the three months ended March 31, 2018 and 2017 was computed to be approximately $26.69 and $30.20, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2018 and 2017 was $406 thousand and $6.3 million, respectively. The cash proceeds from options exercised during the three months ended March 31, 2018 and 2017 was $121 thousand and $554 thousand, respectively.

The following table summarizes information about stock options outstanding and exercisable at March 31, 2018:



	Options Outstanding				Options Exercisable
Exercise Prices	Number of Options Outstanding at March 31, 2018	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Number of Options Exercisable at March 31, 2018	Weighted Average Exercise Price
$ 4.40 - $ 6.90	94,451	2.40	$	5.382	94,451	$	5.382
$ 6.91 - $ 8.55	168,628	5.15	$	7.759	168,628	$	7.759
$ 8.56 - $39.56	143,957	6.57	$	22.445	125,721	$	22.747
$39.57 - $69.77	215,217	8.90	$	57.940	47,469	$	39.840
$69.78 - $108.25	113,205	8.57	$	79.042	34,448	$	76.947
$ 4.40 - $108.25	735,458	6.73	$	35.985	470,717	$	19.584

As of March 31, 2018, there was approximately $6.3 million in total unrecognized compensation cost related to outstanding stock options. That cost is expected to be recognized over a weighted average period of 2.23 years, with all cost to be recognized by the end of October 2021, assuming all options vest according to the vesting schedules in place at March 31, 2018. As of March 31, 2018, the aggregate intrinsic value of outstanding options was approximately $32.2 million and the aggregate intrinsic value of exercisable options was approximately $28.1 million.

Employee Stock Purchase Plan (the "ESPP")

For the three months ended March 31, 2018 and 2017, we issued 3,127 and 3,204 shares under the ESPP, respectively.

For the three months ended March 31, 2018 and 2017, we estimated the fair values of stock purchase rights granted under the ESPP using the Black-Scholes pricing model. The weighted average assumptions used for the periods presented were as follows:



	Three Months Ended March 31,
	2018	2017
Risk-free interest rate	1.03%	0.64%
Expected lives	1.2 years	1.2 years
Expected volatility	44%	45%
Expected dividend yield	0%	0%

For the three months ended March 31, 2018 and 2017, the weighted-average fair value of the purchase rights granted was $14.28 and $13.41 per share, respectively.

Restricted Stock Issuance

On March 26, 2014, we issued 110,000 shares to Mr. Wilson pursuant to an employment agreement between Mr. Wilson and the Company effective as of March 26, 2014 (the "Wilson Employment Agreement"). The shares were issued in four equal tranches and subject to time-based vesting and other provisions outlined in the Wilson Employment Agreement. On March 26, 2017, the final of these four equal tranches of 27,500 shares vested.

On March 17, 2015, the Company issued unvested shares to certain Executive Officers related to performance-based restricted stock grants (the "Performance Grants"). The Company issued 52,956 shares under the Performance Grants. The Performance Grants have met the underlying performance condition based on the Company's 2015 financial performance and vested on March 17, 2018, subject to other vesting provisions in the underlying restricted stock grant agreement. Of the shares issued, 52,956 vested, 0 were forfeited, and 14,334 were withheld for tax.

On March 2, 2016, the Company issued 15,000 unvested shares to certain Executive Officers related to performance-based restricted stock grants as part of the Company’s 2016 Management Incentive Plan (the "2016 MIP Grants"). Of the shares issued, 14,629 vested, 371 were forfeited, and 4,133 were withheld for tax. The 2016 MIP Grants vested during the three months ended March 31, 2017.

On May 1, 2017, the Company issued 2,720 shares of our Common Stock to the Company's non-employee directors. These grants were to vest (the "Vesting Time") in full on the latter of (i) the one year anniversary of the date of grant and (ii) the Company’s Annual Meeting of Stockholders for the year following the year of grant for the award (the "Vesting Meeting"), subject to (i) the non-employee director's continued service to the Company through the Vesting Time, unless the non-employee director’s current term expires at the Vesting Meeting in which case vesting is subject to the non-employee director’s service to the Vesting Meeting and (ii) the non-employee director not engaging in “competition”, as defined in a restricted stock grant agreement executed by the non-employee director, to the Vesting Time. Of these shares, all vested on May 3, 2018.

On May 31, 2017, the Company issued 23,700 unvested performance-based restricted stock shares to certain key employees. The vesting of these shares is subject to the achievement of certain Company performance and market conditions that must be met on or before May 30, 2024.

On June 15, 2017, the Company issued 6,594 unvested restricted shares to certain Executive Officers related to performance-based restricted stock grants as part of the Company’s 2017 Management Incentive Plan (the "2017 MIP Grants"). As of December 31, 2017, all shares were forfeited and no compensation expense was recorded for the year ended December 31, 2017.

On March 7, 2018, the Company issued 128,500 shares of performance-based restricted common stock and stock options with 130,000 underlying shares of common stock under the 1997 Plan, including 118,500 shares of performance-based restricted common stock and stock options with 120,000 underlying shares of common stock granted to Company Executive Officers. The vesting of the performance-based restricted shares is subject to the achievement of certain Company performance and market conditions and, in some instances, a service period requirement. The shares are to be forfeited if the applicable performance or market condition is not met by the date in each fiscal year that the Company's independent registered public accountants issue their financial report on the Company's prior fiscal year financial statements in 2025 or March 31, 2025, respectively, with the exception of 27,539 shares of restricted common stock with vesting tied to the Company's stock outperforming the S&P 500 Index over a two or four year time period, which will be forfeited if not achieved at the specified time. The stock options are to vest annually in three approximately equal tranches and immediately upon a change in control.

As of March 31, 2018, there was approximately $4.1 million of total unrecognized compensation cost related to restricted stock. The Company expects to recognize this expense over a weighted average period of 2.3 years.

Restrictions on the transfer of Company stock

The Company's Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), places restrictions (the "Transfer Restrictions") on the transfer of the Company's stock that could adversely affect the Company's ability to utilize its domestic Federal Net Operating Loss Position. In particular, the Transfer Restrictions prevent the transfer of shares without the approval of the Company's Board of Directors if, as a consequence of such transfer, an individual, entity or groups of individuals or entities would become a 5-percent holder under Section 382 of the Internal Revenue Code of 1986, as amended, and the related Treasury regulations, and also prevents any existing 5-percent holder from increasing his or her ownership position in the Company without the approval of the Company's Board of Directors. Any transfer of shares in violation of the Transfer Restrictions (a "Transfer Violation") shall be void ab initio under the Certificate of Incorporation, and the Company's Board of Directors has procedures under the Certificate of Incorporation to remedy a Transfer Violation, including requiring the shares causing such Transfer Violation to be sold and any profit resulting from such sale to be transferred to a charitable entity chosen by the Company's Board of Directors in specified circumstances.