Stock Options and Employee Stock Purchase Plan

j2 Global’s share-based compensation plans include the 2007 Stock Plan (the “2007 Plan”), 2015 Stock Option Plan (the “2015 Plan”) and 2001 Employee Stock Purchase Plan (the “Purchase Plan”). Each plan is described below.

The 2007 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and other share-based awards. 4,500,000 shares of j2 Global common stock are authorized to be used for 2007 Plan purposes. Options under the 2007 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the fair market value of j2 Global’s common stock on the date of grant for incentive stock options and not less than 85% of the fair market value of j2 Global’s common stock on the date of grant for non-statutory stock options. As of June 30, 2017, 315,675 shares underlying options and 14,140 shares of restricted units were outstanding under the 2007 Plan.

The 2015 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units and other share-based awards and is intended as a successor plan to the 2007 Stock Plan since no further grants will be made under the 2007 Stock Plan. 4,200,000 shares of j2 Global common stock are authorized to be used for 2015 Plan purposes. Options under the 2015 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the higher of the par value or 100% of the fair market value of j2 Global’s common stock subject to the option on the date the option is granted. As of June 30, 2017, 62,000 shares underlying options and 28,700 shares of restricted stock units were outstanding under the 2015 Plan.

All stock option grants are approved by “outside directors” within the meaning of Internal Revenue Code Section 162(m).

Stock Options

The following table represents stock option activity for the six months ended June 30, 2017:



	Number of Shares		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2017	413,858		$	31.09
Granted	—		—
Exercised	(36,183	)	29.05
Canceled	—		—
Outstanding at June 30, 2017	377,675		$	31.28	3.6	$	20,322,158
Exercisable at June 30, 2017	338,475		$	27.33	3.1	$	19,549,090
Vested and expected to vest at June 30, 2017	368,546		$	30.39	3.5	$	20,158,778

The total intrinsic values of options exercised during the six months ended June 30, 2017 and 2016 were $2.0 million and $2.5 million, respectively.

The Company recognized $50,000 and $0.1 million of compensation expense related to stock options for the three months ended June 30, 2017 and 2016, respectively, and $0.1 million and $0.2 million for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017 and December 31, 2016, unrecognized stock compensation related to non-vested stock options granted under each of the share-based compensation plans approximated $0.5 million and $0.7 million, respectively. Unrecognized stock compensation expense related to non-vested stock options granted under these plans is expected to be recognized ratably over a weighted-average period of 2.7 years (i.e., the remaining requisite service period).

Fair Value Disclosure

j2 Global uses the Black-Scholes option pricing model to calculate the fair value of each option grant. The expected volatility is based on historical volatility of the Company’s common stock. The Company estimates the expected term based upon the historical exercise behavior of our employees. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a term equal to the expected term of the option assumed at the date of grant. The Company uses an annualized dividend yield based upon the per share dividends declared by its Board of Directors. Estimated forfeiture rates were 14.43% and 12.33% as of June 30, 2017 and 2016, respectively.

Restricted Stock and Restricted Stock Units

j2 Global has awarded restricted stock and restricted stock units to its Board of Directors and senior staff pursuant to certain share-based compensation plans. Compensation expense resulting from restricted stock and restricted unit grants is measured at fair value on the date of grant and is recognized as share-based compensation expense over the applicable vesting period. Beginning in fiscal year 2012, vesting periods are approximately one year for awards to members of the Company’s Board of Directors and five years for senior staff (excluding market-based awards discussed below).

Restricted Stock - Awards with Market Conditions

In May 2017, certain key employees were granted market-based restricted stock awards. The market-based awards have vesting conditions that are based on specified stock price targets of the Company’s common stock. Market conditions were factored into the grant date fair value using a Monte Carlo valuation model, which utilized multiple input variables to determine the probability of the Company achieving the specified stock price targets with a 20 day lookback (trading days). Stock-based compensation expense related to an award with a market condition will be recognized over the requisite service period using the graded-vesting method regardless of whether the market condition is satisfied, provided that the requisite service period has been completed. During the six months ended June 30, 2017 and 2016, the Company awarded 85,825 and 106,780 market-based restricted stock awards, respectively. The per share weighted average grant-date fair values of the market-based restricted stock awards granted during the six months ended June 30, 2017 were $72.20.

The weighted-average fair values of market-based restricted stock awards granted have been estimated utilizing the following assumptions:



	June 30, 2017
Underlying stock price at valuation date	$	91.17
Expected volatility	29.0		%
Risk-free interest rate	2.17		%

Restricted stock award activity for the six months ended June 30, 2017 is set forth below:



	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2017	705,015		$	41.40
Granted	219,220		54.40
Vested	(176,341	)	45.17
Canceled	(1,850	)	87.68
Nonvested at June 30, 2017	746,044		$	44.22

Restricted stock unit award activity for the six months ended June 30, 2017 is set forth below:



	Number of Shares		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2017	51,950
Granted	7,100
Vested	(9,530	)
Canceled	(6,680	)
Outstanding at June 30, 2017	42,840		1.9	$	3,645,256
Vested and expected to vest at June 30, 2017	32,409		1.7	$	2,757,659

The Company recognized $5.5 million and $3.2 million of compensation expense related to restricted stock and restricted stock units for the three months ended June 30, 2017 and 2016, respectively, and $9.1 million and $6.0 million for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017 and December 31, 2016, the Company had unrecognized share-based compensation cost of approximately $45.8 million and $37.9 million, respectively, associated with these awards. This cost is expected to be recognized over a weighted-average period of 3.7 years for awards and 3.4 years for units.

Employee Stock Purchase Plan

The Purchase Plan provides for the issuance of a maximum of two million shares of the Company’s common stock. Under the Purchase Plan, eligible employees can have up to 15% of their earnings withheld, up to certain maximums, to be used to purchase shares of j2 Global common stock at certain plan-defined dates. The price of the j2 Global common stock purchased under the Purchase Plan for the offering periods is equal to 95% of the fair market value of the j2 Global common stock at the end of the offering period. For the six months ended June 30, 2017 and 2016, 1,606 and 1,920 shares were purchased under the plan, respectively. Cash received upon the issuance of j2 Global common stock under the Purchase Plan was $133,000 and $123,000 for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017, 1,624,920 shares were available under the Purchase Plan for future issuance.