Note 9 – Capital Stock and Equity Compensation

Capital Stock

Our 2009 Long-Term Equity Compensation Plan, which expired in early February 2019, permitted the granting of restricted stock units and certain other forms of equity awards to officers and other key employees. Under this plan, we also awarded each non-management director deferred stock units, which permitted non-management directors to receive, at a later date, one share of Rogers capital stock for each deferred stock unit, with no payment of any consideration by the director at the time the shares were received.

Shares of capital stock reserved for possible future issuance were as follows:



	As of December 31,
	2018	2017
Shares reserved for issuance under the stock acquisition program⁽¹⁾	—	120,883
Shares reserved for issuance under the Rogers Employee Savings and Investment Plan⁽²⁾	—	169,044
Shares reserved for issuance under outstanding stock options and restricted stock unit awards	413,294	545,018
Deferred compensation to be paid in stock, including deferred stock units	13,498	17,100
Additional shares reserved for issuance under Rogers Corporation 2009 Long-Term Equity Compensation Plan⁽³⁾	777,385	793,603
Shares reserved for issuance under the Rogers Corporation Global Stock Ownership Plan for Employees	106,344	117,987
Total	1,310,521	1,763,635


⁽¹⁾	The Company ceased offering capital stock under the stock acquisition program prior to the periods covered by this table.


⁽²⁾	The Company ceased offering its capital stock as an investment option under the Rogers Employee Savings and Investment Plan prior to the periods covered by this table.

⁽³⁾This plan expired in early February 2019, and these shares are no longer available for issuance thereunder.

Equity Compensation

Performance-Based Restricted Stock Units

As of December 31, 2018, we had performance-based restricted stock units from 2018, 2017 and 2016 outstanding. These awards generally cliff vest at the end of a three year measurement period. However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed during the measurement period. Participants are eligible to be awarded shares ranging from 0% to 200% of the original award amount, based on certain defined performance measures.

The outstanding awards have one measurement criteria: the three year total shareholder return (TSR) on our capital stock as compared to that of a specified group of peer companies. The TSR measurement criteria of the awards is considered a market condition. As such, the fair value of this measurement criteria is determined on the grant date using a Monte Carlo simulation valuation model. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period with no changes for final projected payout of the awards. We account for forfeitures as they occur.

Below were the assumptions used in the Monte Carlo calculation on the respective grant dates for awards granted in 2018 and 2017:



	September 17, 2018	February 8, 2018	February 9, 2017
Expected volatility	36.6%	34.8%	33.6%
Expected term (in years)	3.0	3.0	3.0
Risk-free interest rate	2.85%	2.28%	1.38%

Expected volatility – In determining expected volatility, we have considered a number of factors, including historical volatility.

Expected term – We use the vesting period of the award to determine the expected term assumption for the Monte Carlo simulation valuation model.

Risk-free interest rate – We use an implied “spot rate” yield on U.S. Treasury Constant Maturity rates as of the grant date for our assumption of the risk-free interest rate.

Expected dividend yield – We do not currently pay dividends on our capital stock; therefore, a dividend yield of 0% was used in the Monte Carlo simulation valuation model.

A summary of activity of the outstanding performance-based restricted stock units for 2018, 2017 and 2016 is presented below:



	2018				2017				2016
	Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value
Awards outstanding as of January 1	169,202		$	97.16	151,769		$	89.72	107,229		$	66.13
Awards granted	75,760		163.55		56,147		110.77		84,443		69.01
Stock issued	(81,230	)	131.72		(34,442	)	86.59		(25,397	)	72.68
Awards forfeited	(21,298	)	114.40		(4,272	)	99.35		(14,506	)	104.83
Awards outstanding as of December 31	142,434		$	110.19	169,202		$	97.16	151,769		$	89.72

We recognized $4.4 million, $4.7 million and $4.6 million of compensation expense related to performance-based restricted stock units for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, there was $6.0 million of total unrecognized compensation cost related to unvested performance-based restricted stock units. That cost is expected to be recognized over a weighted-average period of 0.9 years.

Time-Based Restricted Stock Units

As of December 31, 2018, we had time-based restricted stock unit awards from 2018, 2017 and 2016 outstanding. The outstanding awards all ratably vest on the first, second and third anniversaries of the original grant date. However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed subsequent to the last grant anniversary date. Each time-based restricted stock unit represents a right to receive one share of the Rogers’ capital stock at the end of the vesting period. The fair value of the award is determined by the market value of the underlying stock price at the grant date. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period. We account for forfeitures as they occur.

A summary of activity of the outstanding time-based restricted stock units for 2018, 2017 and 2016 is presented below:



	2018				2017				2016
	Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value
Awards outstanding as of January 1	173,331		$	69.10	239,189		$	57.71	208,318		$	64.27
Awards granted	46,810		143.93		80,535		83.17		118,660		51.70
Stock issued	(82,921	)	84.92		(140,208	)	58.18		(60,326	)	64.03
Awards forfeited	(19,744	)	112.06		(6,185	)	60.70		(27,463	)	64.60
Awards outstanding as of December 31	117,476		$	116.10	173,331		$	69.10	239,189		$	57.71

We recognized $5.6 million, $5.7 million and $5.6 million of compensation expense related to time-based restricted stock units for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, there was $6.7 million of total unrecognized compensation cost related to unvested time-based restricted stock units. That cost is expected to be recognized over a weighted-average period of 0.9 years.

Deferred Stock Units

We grant deferred stock units to non-management directors. These awards are fully vested on the date of grant and the related shares are generally issued on the 13-month anniversary of the grant date unless the individual elects to defer the receipt of those shares. Each deferred stock unit results in the issuance of one share of Rogers’ capital stock. The grant of deferred stock units is typically done annually during the second quarter of each year. The fair value of the award is determined by the market value of the underlying stock price at the grant date.

A summary of activity of the outstanding deferred stock units for 2018, 2017 and 2016 is presented below:



	2018				2017				2016
	Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value
Awards outstanding as of January 1	9,250		$	109.48	11,900		$	58.82	23,950		$	27.22
Awards granted	8,400		108.86		9,250		109.48		11,900		58.82
Stock issued	(9,250	)	109.48		(11,900	)	58.82		(23,950	)	52.69
Awards outstanding as of December 31	8,400		$	108.86	9,250		$	109.48	11,900		$	58.82

We recognized compensation expense related to deferred stock units of $0.9 million, $1.0 million and $0.7 million, for the years ended December 31, 2018, 2017 and 2016, respectively.

Stock Options

Stock options have been granted under various equity compensation plans. The maximum contractual term for all options is normally 10 years. We have not granted any stock options since the first quarter of 2012. As of February 2016, all outstanding stock option awards were fully vested and the related compensation cost had been expensed. The total grant-date fair value of stock options that vested during 2016 and the equity compensation expense related to stock options that we recognized in 2016 were both de minimis.

During the years ended December 31, 2018 and 2017, the total intrinsic value of options exercised (i.e., the difference between the market price at time of exercise and the price paid by the individual to exercise the options) was $2.4 million and $6.0 million, respectively. The total amount of cash received from the exercise of these options was $0.9 million and $3.1 million, during the years ended December 31, 2018 and 2017, respectively.

A summary of the activity under our stock option plans for 2018, 2017 and 2016, is presented below:



	2018				2017				2016
	Options Outstanding		Weighted- Average Exercise Price Per Share		Options Outstanding		Weighted- Average Exercise Price Per Share		Options Outstanding		Weighted- Average Exercise Price Per Share
Options outstanding, vested and exercisable as of January 1	33,283		$	36.40	116,575		$	37.76	212,038		$	40.47
Options exercised	(22,333	)	38.57		(83,292	)	37.04		(95,113	)	43.56
Options forfeited	—		—		—		—		(350	)	44.32
Options outstanding, vested and exercisable as of December 31	10,950		$	31.99	33,283		$	36.40	116,575		$	37.76

As of December 31, 2018 and 2017, our outstanding stock options had a weighted-average remaining contractual life of 2.0 years and 2.2 years, respectively, and an aggregate intrinsic value of $0.7 million and $4.2 million, respectively.

Employee Stock Purchase Plan

We have an ESPP that allows eligible employees to purchase, through payroll deductions, shares of our capital stock at a discount to fair market value. The ESPP has two six-month offering periods each year, the first beginning in January and ending in June and the second beginning in July and ending in December. The ESPP contains a look-back feature that allows the employee to acquire stock at a 15% discount from the underlying market price at the beginning or end of the applicable period, whichever is lower. We recognize compensation expense on this plan ratably over the offering period based on the fair value of the anticipated number of shares that will be issued at the end of each offering period. Compensation expense is adjusted at the end of each offering period for the actual number of shares issued. Fair value is determined based on two factors: (i) the 15% discount on the underlying stock’s market value on the first day of the applicable offering period, and (ii) the fair value of the look-back feature determined by using the Black-Scholes model. We recognized approximately $0.3 million of compensation expense associated with the plan for the year ended December 31, 2018, and $0.5 million for each of the years ended December 31, 2017 and 2016, respectively.