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, 2019 and 2018.



	Three Months Ended March 31,
	2019	2018
Risk-free interest rate	2.45%	2.64%
Expected lives	4.7 years	4.9 years
Expected volatility	39%	40%
Expected dividend yield	0%	0%

A summary of our stock option plans is as follows:



	Three Months Ended March 31,				Year Ended December 31,
	2019				2018
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of period	620,553		$	40.741	630,847		$	29.312
Granted at market	1,200		$	98.970	153,700		$	75.244
Forfeited	—		$	—	(18,978	)	$	53.010
Expired	—		$	—	(896	)	$	25.740
Exercised	(122,895	)	$	17.013	(144,120	)	$	65.414
Outstanding at end of period	498,858		$	46.727	620,553		$	40.741
Exercisable at end of period	319,523		$	31.026	386,176		$	21.214

The total estimated fair value of stock options granted during the three months ended March 31, 2019 and 2018 was computed to be approximately $43 thousand and $3.5 million, 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, 2019 and 2018 was computed to be approximately $36.18 and $26.69, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2019 and 2018 was $9.9 million and $406 thousand, respectively. The cash proceeds from options exercised during the three months ended March 31, 2019 and 2018 was $84 thousand and $121 thousand, respectively.

The following table summarizes information about stock options outstanding and exercisable at March 31, 2019:



	Options Outstanding				Options Exercisable
Exercise Prices	Number of Options Outstanding at March 31, 2019	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Number of Options Exercisable at March 31, 2019	Weighted Average Exercise Price
$ 4.50 - $ 7.36	101,502	3.65	$	6.807	101,502	$	6.807
$ 7.37 - $ 32.21	94,485	5.05	$	15.917	93,758	$	15.793
$ 32.22 - $ 62.50	61,104	6.84	$	39.783	44,672	$	39.693
$ 62.51 - $ 69.77	130,000	8.93	$	69.770	43,337	$	69.770
$ 69.78 - $ 108.25	111,767	8.20	$	86.020	36,254	$	81.236
$ 4.50 - $ 108.25	498,858	6.70	$	46.727	319,523	$	31.026

As of March 31, 2019, there was approximately $4.7 million in total unrecognized compensation cost related to outstanding stock options. That cost is expected to be recognized over a weighted average period of 1.62 years, with all cost to be recognized by the end of February 2023, assuming all options vest according to the vesting schedules in place at March 31, 2019. As of March 31, 2019, the aggregate intrinsic value of outstanding options was approximately $20.0 million and the aggregate intrinsic value of exercisable options was approximately $17.4 million.

The Company issues new shares upon share option exercise, which may be netted or withheld to meet strike price or related tax obligations.

Employee Stock Purchase Plan (the "ESPP")

For the three months ended March 31, 2019 and 2018, we issued 2,583 and 3,127 shares under the ESPP, respectively.

For the three months ended March 31, 2019 and 2018, 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,
	2019	2018
Risk-free interest rate	2.35%	1.03%
Expected lives	1.1 years	1.2 years
Expected volatility	40%	44%
Expected dividend yield	0%	0%

For the three months ended March 31, 2019 and 2018, the weighted-average fair value of the purchase rights granted was $18.97 and $14.28 per share, respectively.

Restricted Stock Issuance

We have granted non-vested restricted stock awards (“restricted stock”) to management and non-employee directors pursuant to the 1997 Plan. The restricted stock awards have varying vesting periods, but generally become fully vested between one and four years after the grant date, depending on the specific award, performance targets met for performance-based awards granted to management, and vesting periods for time based awards. Management performance-based awards are granted at the target amount of shares that may be earned. We valued the restricted stock awards related to service and/or company performance targets based on grant date fair value and expense over the period when achievement of those conditions is deemed probable. For restricted stock awards related to market conditions, we utilize a Monte Carlo simulation model to estimate grant date fair value and expense over the requisite period. We recognize forfeitures as they occur. There were no modifications that affected our accounting for restricted stock awards in the three months ended March 31, 2019 or 2018.

The following table summarizes restricted stock transactions for the three months ended March 31, 2019:



	RSAs	Weighted-Average Grant Date Fair Value Per Award
Non-vested as of December 31, 2018	259,430	$	74.26
Granted	117	77.52
Vested	—	—
Forfeited	—	—
Non-vested as of March 31, 2019	259,547	$	74.26

The weighted average grant date fair value of awards granted was $77.52 and $62.73 for the three months ended March 31, 2019 and 2018, respectively. Fair value of restricted stock vested was $0.0 and $4.2 million for the three months ended March 31, 2019 and 2018, respectively.

As of March 31, 2019, there was approximately $2.5 million of total unrecognized compensation cost related to restricted stock with market and time vesting conditions. The Company expects to recognize this expense over a weighted average period of 1.4 years. As of March 31, 2019, we reviewed each of the underlying corporate performance targets and determined that approximately 167,000 of shares of common stock were related to company performance targets in which we did not deem achievement probable. No compensation expense had been recorded at any period prior to March 31, 2019.

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.