CAPITAL STOCK

Stock Plans

We have two stock option plans which authorize granting of stock options, restricted and stock purchase rights to our employees, officers, directors and consultants. In 1997, the board of directors adopted the 1997 Stock Incentive Plan (the "1997 Plan") and terminated two prior stock plans. All shares that remained available for grant under the terminated plans were incorporated into the 1997 Plan, including shares subsequently canceled under prior plans. In May 2012, the stockholders approved an amendment to the 1997 Plan allowing for an increase of 250,000 shares and an annual increase through 2016 based on the number of non-employee directors serving as of our Annual Meeting of Stockholders, subject to a maximum of 45,000 shares per year. In May 2016, the stockholders approved a further amendment to the 1997 Plan to authorize an additional 500,000 shares to be available for issuance thereunder. In May 2018, the stockholders approved a further amendment to the 1997 Plan to authorize an additional 250,000 shares to be available for issuance thereunder. In December 2018, the Company's Board of Directors amended the 1997 Plan and renamed it the "Stock Incentive Plan". In May 2003, the stockholders approved a new plan, the 2003 Equity Incentive Plan (the "2003 Plan"), which allows for the granting of stock options/restricted stock for up to 239,050 shares of the Company's common stock. The number of shares reserved for issuance under both plans as of December 31, 2019 was 85,850.

Stock Options

The stock options granted by the Board of Directors may be either incentive stock options ("ISOs") or non-qualified stock options ("NQs"). The exercise price for options under all of the plans may be no less than 100% of the fair value of the underlying common stock. Options granted will expire no later than the tenth anniversary subsequent to the date of grant or three months following termination of employment, except in cases of death or disability, in which case the options will remain exercisable for up to twelve months. Under the terms of the Stock Incentive Plan, in the event we are sold or merged, outstanding options will either be assumed by the surviving corporation or vest immediately.

There are four key inputs to the Black-Scholes model which we use to estimate the fair value for options which we issue: expected term, expected volatility, risk-free interest rate and expected dividends, all of which require us to make estimates. Our estimates for these inputs may not be indicative of actual future performance and changes to any of these inputs can have a material impact on the resulting estimated fair value calculated for the option. Our expected term input was estimated based on our historical experience for time from option grant to option exercise for all employees in 2019, 2018 and 2017. We treated all employees in one grouping in all three years. Our expected volatility input was estimated based on our historical stock price volatility in 2019, 2018 and 2017. Our risk-free interest rate input was determined based on the U.S. Treasury yield curve at the time of option issuance in 2019, 2018 and 2017. Our expected dividends inputs were zero in all periods as we did not anticipate paying dividends in the foreseeable future. We recognize forfeitures as they occur.

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 2019, 2018 and 2017 for the year ended December 31, 2019.



	2019	2018	2017
Risk-free interest rate	1.62%	2.66%	1.76%
Expected lives	4.7 years	4.9 years	4.8 years
Expected volatility	40%	40%	41%
Expected dividend yield	0%	0%	0%

A summary of our stock option plans is as follows:



	Year Ended December 31,
	2019
	Options		Weighted Average Exercise Price
Outstanding at beginning of period	620,553		$	40.741
Granted at market	88,200		$	84.234
Forfeited	(1,353	)	$	98.660
Expired	(716	)	$	98.660
Exercised	(170,369	)	$	18.125
Outstanding at end of period	536,315		$	54.855
Exercisable at end of period	315,964		$	37.644

The total estimated fair value of stock options granted was computed to be approximately $2.6 million, $4.4 million and $1.0 million during the years ended December 31, 2019, 2018 and 2017, respectively. The amounts are amortized ratably over the vesting periods of the options. The weighted average estimated fair value of options granted was computed to be approximately $29.89, $28.81 and $37.35 during the years ended December 31, 2019, 2018 and 2017, respectively. The total intrinsic value of options exercised was $12.8 million, $10.5 million and $17.7 million during the years ended December 31, 2019, 2018 and 2017, respectively. The cash proceeds from options exercised were $1.0 million, $3.2 million and $1.8 million during the years ended December 31, 2019, 2018 and 2017, respectively.

The following table summarizes information about stock options outstanding and exercisable at December 31, 2019.



	Options Outstanding				Options Exercisable
Exercise Prices	Number of Options Outstanding at December 31, 2019	Weighted Average Remaining Contractual Life in Years	Weighted Average Outstanding Price		Number of Options Exercisable at December 31, 2019	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price
$4.96 - $7.36	85,552	3.18	$	7.043	85,552	3.18	$	7.043
$7.37 - $32.21	74,668	4.25	$	15.697	74,668	4.25	$	15.697
$32.22 - $62.50	52,939	6.07	$	39.800	52,771	6.07	$	39.752
$62.51 - $69.77	128,333	8.18	$	69.770	41,670	8.18	$	69.770
$69.78 - $108.25	194,823	8.46	$	85.125	61,303	7.18	$	83.428
$4.96 - $108.25	536,315	6.73	$	54.855	315,964	5.35	$	37.644

As of December 31, 2019, there was approximately $5.1 million of total unrecognized compensation cost related to outstanding stock options. That cost is expected to be recognized over a weighted-average period of 1.54 years with all cost to be recognized by the end of November 2022, assuming all options vest according to the vesting schedules in place at December 31, 2019. As of December 31, 2019, the aggregate intrinsic value of outstanding options was approximately $22.3 million and the aggregate intrinsic value of exercisable options was approximately $18.5 million.

Employee Stock Purchase Plan

Under the 1997 Employee Stock Purchase Plan (the "ESPP"), we are authorized to issue up to 450,000 shares of common stock to our employees, of which 440,427 had been issued as of December 31, 2019. On May 5, 2015, our shareholders approved the amendment and restatement of the ESPP, including a 75,000 share increase to 450,000 total shares authorized under the ESPP as well as changes discussed below as compared to the ESPP prior to the amendment and restatement. Employees who are expected to work at least 20 hours per week and 5 months per year are eligible to participate and can choose to have up to 10% of their compensation withheld to purchase our stock under the ESPP when they choose to withhold a whole percentage of their compensation.

Beginning on July 1, 2013, our ESPP had a 27-month offering period and three-month accumulation periods ending on each March 31, June 30, September 30 and December 31. The purchase price of stock on March 31, June 30, September 30 and December 31 was the lesser of (1) 85% of the fair market value at the time of purchase and (2) the greater of (i) 95% of the fair market value at the beginning of the applicable offering period or (ii) 65% of the fair market value at the time of purchase. In addition, participating employees may purchase shares under the ESPP at the beginning of an applicable offering period for a purchase price of stock equal to 95% of the fair market value at such time or at 5 pm on a day other than March 31, June 30, September 30 and December 31 during the applicable offering period for a purchase price of stock equal to 95% of the fair market value at purchase.

Beginning April 1, 2015, employees may elect to withhold a positive fixed amount from each compensation payment in addition to the previous approach of withholding a whole percentage of such compensation payment, with all withholding for a given employee subject to a maximum monthly amount of $2,500 following the amendment and restatement as opposed to a $25,000 maximum annual amount prior to the amendment and restatement. For offering periods beginning on or after April 1, 2015, the purchase price of stock on March 31, June 30, September 30 and December 31 is to be the lesser of (1) 85% of the fair market value at the time of purchase and (2) the greater of (i) 85% of the fair market value at the beginning of the applicable offering period, (ii) the fair market value at the beginning of the applicable offering period less 1 cent and (iii) 65% of the fair market value at the time of purchase. In addition, participating employees may elect to purchase shares under the ESPP at the beginning of an applicable offering period for a purchase price of stock equal to the greater of (1) 85% of the fair market value at the beginning of the applicable offering period and (2) the fair market value at the beginning of the applicable offering period less 1 cent or at 5 pm on a day other than March 31, June 30, September 30 and December 31 during the applicable offering period for a purchase price of stock equal to the greater of (1) 85% of the fair market value at the time of purchase and (2) the fair market value at the time of purchase less 1 cent.

We issued 10,698, 10,078 and 10,983 shares under the ESPP for the years ended December 31, 2019, 2018 and 2017, respectively.

For the years ended December 31, 2019, 2018 and 2017, we estimated the fair values of stock purchase rights granted under the ESPP using the Black-Scholes pricing model and the following weighted average assumptions:



	2019	2018	2017
Risk-free interest rate	2.09%	1.67%	0.74%
Expected lives	1.1 years	1.2 years	1.2 years
Expected volatility	40%	42%	45%
Expected dividend yield	0%	0%	0%

The weighted-average fair value of the purchase rights granted was $18.10, $18.14 and $15.72 per share for the years ended December 31, 2019, 2018 and 2017, respectively.

Restricted Stock

We have granted non-vested restricted stock awards (“restricted stock”) to management and 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 period 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.

The following table summarizes restricted stock transactions for the year ended December 31, 2019:



	Restricted Stock		Weighted-Average Grant Date Fair Value Per Award
Non-vested as of December 31, 2018	259,430		$	74.26
Granted	83,567		$	74.93
Vested	(4,230	)	$	85.09
Forfeited	(3,100	)	$	80.90
Non-vested as of December 31, 2019	335,667		$	74.29

The weighted average grant date fair value of awards granted during the year was $74.93, $71.77 and $82.36 for the years ended December 31, 2019, 2018 and 2017, respectively. Fair value of restricted stock vested was $0.3 million, $4.4 million and $3.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

As of December 31, 2019, there was approximately $2.7 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 1.1 years. As of December 31, 2019, we reviewed each of the underlying corporate performance targets and determined that approximately 219,000 shares of common stock were related to corporate performance targets in which we did not deem achievement probable. No compensation expense had been recorded at any period prior to December 31, 2019. The unrecognized compensation cost associated with the restricted stock awards not deemed probable, based on grant date fair value, is approximately $17.8 million. Any change in the probability determination could accelerate the recognition of this expense.