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 March 31, 2019, 129,239 shares underlying options and 3,080 shares of restricted units were outstanding under the 2007 Plan. The 2007 Plan terminated on February 14, 2017.

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 Plan since no further grants will be made under the 2007 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 March 31, 2019, 423,000 shares underlying options and 37,312 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 three months ended March 31, 2019:



	Number of Shares		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	707,777		$	56.84
Granted	—		—
Exercised	(155,538	)	33.81
Canceled	—		—
Outstanding at March 31, 2019	552,239		$	63.33	7.0	$	12,853,259
Exercisable at March 31, 2019	193,039		$	41.91	3.8	$	8,626,659
Vested and expected to vest at March 31, 2019	420,068		$	59.66	6.4	$	11,318,687

The total intrinsic values of options exercised during the three months ended March 31, 2019 and 2018 were $8.0 million and $1.5 million, respectively.

The Company recognized $0.2 million and $0.2 million of compensation expense related to stock options for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019 and December 31, 2018, unrecognized stock compensation related to non-vested stock options granted under each of the share-based compensation plans approximated $7.6 million and $6.9 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 6.6 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 12.63% and 10.74% as of March 31, 2019 and 2018, 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. Vesting periods are approximately one year for awards to members of the Company’s Board of Directors, five years for senior staff (excluding market-based awards discussed below) and eight years for the Chief Executive Officer.

Restricted Stock - Awards with Market Conditions

j2 Global has awarded certain key employees market-based restricted stock awards pursuant to the 2015 Plan. 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 and 30-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 three months ended March 31, 2019 and 2018, the Company awarded 72,734 and 400,000 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 three months ended March 31, 2019 and 2018 were $69.99 and $49.92, respectively.

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



	March 31, 2019			March 31, 2018
Underlying stock price at valuation date	$	84.58		$	75.03
Expected volatility	28.3		%	28.4		%
Risk-free interest rate	2.53		%	2.34		%

Restricted stock award activity for the three months ended March 31, 2019 is set forth below:



	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2019	1,207,011		$	64.82
Granted	146,897		77.23
Vested	(34,394	)	73.95
Canceled	(75,694	)	71.43
Nonvested at March 31, 2019	1,243,820		$	65.66

Restricted stock unit award activity for the three months ended March 31, 2019 is set forth below:



	Number of Shares		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	41,231
Granted	3,844
Vested	(4,683	)
Canceled	—
Outstanding at March 31, 2019	40,392		2.3	$	3,497,947
Vested and expected to vest at March 31, 2019	30,673		1.8	$	2,656,288

The Company recognized $4.5 million and $6.2 million of compensation expense related to restricted stock and restricted stock units for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019 and December 31, 2018, the Company had unrecognized share-based compensation cost of approximately $63.9 million and $61.6 million, respectively, associated with these awards. This cost is expected to be recognized over a weighted-average period of 5.4 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 85% of the lesser of the fair market value of a share of common stock of the Company on the beginning or the end of the offering period.

j2 Global determined that a plan provision exists which allows for the more favorable of two exercise prices, commonly referred to as a “look-back” feature. The purchase price discount and the look-back feature cause the Purchase Plan to be compensatory and the Company to recognize compensation expense. The compensation cost is recognized on a straight-line basis over the requisite service period. The Company used the Black-Scholes option pricing model to calculate the estimated fair value of the purchase right issued under the ESPP. The expected volatility is based on historical volatility of the Company’s common stock. 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 1.96% as of March 31, 2019.

For the three months ended March 31, 2019 and 2018, zero and 851 shares were purchased under the Purchase Plan, respectively. Cash received upon the issuance of j2 Global common stock under the Purchase Plan was zero and $65,000 for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, 1,589,981 shares were available under the Purchase Plan for future issuance.

The Company recognized $0.4 million and zero of compensation expense related to the Purchase Plan for the three months ended March 31, 2019 and 2018, respectively.