11.

SHARE BASED COMPENSATION

AND

EMPLOYEE BENEFIT

PLANS

Employee Stock Purchase Plan

The Company’s

2004

Employee Stock Purchase Plan, as amended and restated (the “Employee Stock Purchase Plan”) allows eligible employees to contribute up to

$10,625

of their base earnings every

six

months toward the semi-annual purchase of the Company’s Class A Common Stock. The employee’s purchase price is

85%

of the lesser of the closing price of the Class A Common Stock on the

first

business day or the last business day of the semi-annual offering period, as reported by The NASDAQ Global Select Market. Employees

may

purchase shares having a fair market value of up to

$25,000

(measured as of the

first

day of each semi-annual offering period) for each calendar year. On

May

17,

2016,

the Company’s shareholders approved the amendment and restatement of the Employee Stock Purchase Plan to increase the number of shares of Class A Common Stock authorized for issuance thereunder by

500,000

shares. Under the Employee Stock Purchase Plan, there are approximately

528,000

shares remaining of the

1,400,000

shares of the Company’s Class A Common Stock that have been reserved for issuance. The Company issued

137,360

shares under the Employee Stock Purchase Plan during the year ended

December

31,

2016

and

85,263

shares during the year ended

December

31,

2015.

Of the

6,180

employees eligible to participate,

1,011

elected to participate in the plan as of

December

31,

2016.

Non-Employee Director Stock Option Plan

May

16,

2006,

the Board of Directors and shareholders adopted the Rush Enterprises, Inc.

2006

Non-Employee Director Stock Option Plan (the “Director Plan”), reserving

1,500,000

shares of Class A Common Stock for issuance upon exercise of any awards granted under the plan. This Director Plan was Amended and Restated on

May

20,

2008

to expand the type of awards that

may

be granted under the plan to include Class A Common Stock awards. The Director Plan was also amended on

May

18,

2010

to reduce the number of shares reserved for issuance under the plan by

1,000,000

shares of Class A Common Stock.

The Director Plan is designed to attract and retain highly qualified non-employee directors. Prior to

2008,

each non-employee director received options to purchase

20,000

shares of the Company’s Class A Common Stock upon their respective date of appointment and each year on the date that they are elected or reelected by the shareholders to serve on the Board of Directors. Each option has a

ten

year term from the grant date and vested immediately. Currently, each non-employee director receives a grant of the Company’s Class A Common Stock, or up to

40%

cash, equivalent to a compensation value of

$125,000.

2015,

three

non-employee directors received a grant of

4,725

shares of the Company’s Class A Common Stock,

one

non-employee director received a grant of

3,780

shares of the Company’s Class A Common Stock and

$25,000

cash and

three

non-employee directors received a grant of

2,835

shares of the Company’s Class A Common Stock and

$50,000

cash, for total compensation equivalent to

$125,000

each. In

2016,

two

non-employee directors received a grant of

6,145

shares of the Company’s Class A Common Stock and

four

non-employee director received a grant of

3,687

shares of the Company’s Class A Common Stock and

$50,000

cash, for total compensation equivalent to

$125,000

each. Under the Director Plan, there are approximately

165,000

shares remaining for issuance of the

500,000

shares of the Company’s Class A Common Stock that have been reserved for issuance. The Company granted

27,038

shares of Class A Common Stock under the Director Plan during the year ended

December

31,

2016

and

26,460

shares of Class A Common Stock under the Director Plan during the year ended

December

31,

2015.

Employee Incentive Plans

May

2007,

the Board of Directors and shareholders adopted the Rush Enterprises, Inc.

2007

Long-Term Incentive Plan (the

“2007

Incentive Plan”). The

2007

Incentive Plan provides for the grant of stock options (which

may

be nonqualified stock options or incentive stock options for tax purposes), stock appreciation rights issued independent of or in tandem with such options (“SARs”), restricted stock awards and performance awards. The

2007

Incentive Plan replaced the Rush Enterprises, Inc. Long-Term Incentive Plan (“Incentive Plan”) effective

May

22,

2007.

The

2007

Incentive Plan was amended and restated on

May

20,

2014

to increase the number of shares available for issuance under the plan to

6,050,000

shares of Class A Common Stock and

1,450,000

shares of Class B Common Stock.

The aggregate number of shares of common stock subject to stock options or SARs that

may

be granted to any

one

participant in any year under the

2007

Incentive Plan is

100,000

shares of Class A Common Stock or

100,000

shares of Class B Common Stock. Each option granted pursuant to the

2007

Incentive Plan has a

ten

year term from the grant date and vests in

three

equal annual installments beginning on the

third

anniversary of the grant date. The Company has

6,050,000

shares of Class A Common Stock and

1,450,000

shares of Class B Common Stock reserved for issuance upon exercise of any awards granted under the Company’s

2007

Incentive Plan. As of

December

31,

2016,

approximately

856,000

shares of Class A Common Stock and

539,000

shares of Class B Common Stock are available for issuance upon the exercise of any awards granted under the Company’s

2007

Incentive Plan. The Company issues new shares of its Class A or Class B Common Stock upon the exercise of stock options or vesting of restricted stock units.

During the year ended

December

31,

2016,

the Company granted

493,088

options to purchase Class A Common Stock and

268,890

restricted Class B Common Stock units under the

2007

Incentive Plan. During the year ended

December

31,

2015,

the Company granted

485,838

options to purchase Class A Common Stock and

259,490

restricted Class B Common Stock units under the

2007

Incentive Plan.

Valuation and Expense Information

Stock-based compensation expense related to stock options, restricted stock awards, restricted stock units and employee stock purchases was

$12.9

million for the year ended

December

31,

2016,

$12.4

million for the year ended

December

31,

2015,

and

$11.3

million for the year ended

December

31,

2014.

Cash received from options exercised and shares purchased under all share-based payment arrangements was

$6.5

million for the year ended

December

31,

2016,

$4.3

million for the year ended

December

31,

2015,

and

$12.5

million for the year ended

December

31,

2014.

A summary of the Company’s stock option activity and related information for the year ended

December

31,

2016,

follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
Options	Shares			Price		Life (in Years)		Value

Balance of Outstanding Options at January 1, 2016		3,475,115		$	20.95
Granted		493,088			17.65
Exercised		(466,877	)		13.82
Forfeited		(11,500	)		25.55
Balance of Outstanding Options at December 31, 2016		3,489,826		$	21.42		5.86	$	36,573,365
Expected to vest after December 31, 2016		1,823,896		$	24.79		7.63	$	12,969,933
Vested and exercisable at December 31, 2016		1,608,248		$	17.48		3.80	$	23,198,547

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the weighted-average of the closing price as of

December

30,

2016,

of the Company’s Class A common of

$31.90.

The total intrinsic value of options exercised was

$4.8

million during the year ended

December

31,

2016,

$2.6

million during the year ended

December

31,

2015,

and

$18.7

million during the year ended

December

31,

2014.

A summary of the status of the number of shares underlying Company’s non-vested stock options as of

December

31,

2016,

and changes during the year ended

December

31,

2016,

is as follows:

				Weighted
				Average
	Number of			Grant Date
Non-vested Shares	Shares			Fair Value

Non-vested at January 1, 2016		1,919,873		$	12.30
Granted		493,088			6.54
Vested		(527,883	)		10.56
Forfeited		(3,500	)		9.24

Non-vested at December 31, 2016		1,881,578		$	11.28

The total fair value of vested options was

$5.6

million during the year ended

December

31,

2016,

$5.1

million during the year ended

December

31,

2015,

and

$3.3

million during the year ended

December

31,

2014.

The weighted-average grant date fair value of options granted was

$6.54

per share during the year ended

December

31,

2016,

$11.27

per share during the year ended

December

31,

2015,

and

$15.86

per share during the year ended

December

31,

2014.

Stock Awards

The Company granted restricted stock units to certain of its employees under the

2007

Incentive Plan and unrestricted stock awards to its non-employee directors under the Director Plan during the year ended

December

31,

2016.

The restricted stock units granted to employees vest in

three

equal installments on the

first,

second

and

third

anniversary of the grant date and are forfeited in the event the recipient’s employment or relationship with the Company is terminated prior to vesting. The fair value of the restricted stock units to the Company’s employees is amortized to expense on a straight-line basis over the restricted stock’s vesting period. The shares granted to non-employee directors are expensed on the grant date.

The following table presents a summary of the Company’s non-vested restricted stock units outstanding at

December

31,

2016:

				Weighted
				Average				Weighted
				Remaining		Aggregate		Average
				Contractual		Intrinsic		Grant Date
Stock Awards and Units	Shares			Life (in Years)		Value		Fair Value

Outstanding Non-vested shares at January 1, 2016		483,335						$	24.73
Granted		268,890							17.57
Vested		(233,052	)						24.32
Forfeited		−							−

Outstanding Non-vested at December 31, 2016		519,173			8.6	$	16,561,618	$	21.21

Expected to vest after December 31, 2016		516,649			8.6	$	16,481,103

The total fair value of the shares issued upon the vesting of stock awards during the year ended

December

31,

2016

was

$5.7

million. The weighted-average grant date fair value of stock awards and units granted was

$17.57

per share during the year ended

December

31,

2016,

$24.75

per share during the year ended

December

31,

2015,

and

$26.81

per share during the year ended

December

31,

2014.

As of

December

31,

2016,

there was

$13.3

million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Incentive Plan and the

2007

Incentive Plan. That cost is expected to be recognized over a weighted-average period of

2.2

years.

Defined Contribution Plan

The Company has a defined contribution plan (the “Rush

401k

Plan”), which is available to all Company employees and the employees of certain affiliates. Each employee who has completed

days of continuous service is entitled to enter the Rush

401k

Plan on the

first

day of the following month. Participating employees

may

contribute from

50%

of total gross compensation. However, certain highly compensated employees are limited to a maximum contribution of

15%

of total gross compensation. Effective

February

2012,

for the

first

10%

of an employee’s contribution, the Company contributed an amount equal to

20%

of the employees’ contributions for those employees with less than

five

years of service and an amount equal to

40%

of the employees’ contributions for those employees with more than

five

years of service. The Company incurred expenses related to the Rush

401k

Plan of approximately

$6.5

million during the year ended

December

31,

2016,

$6.2

million during the year ended

December

31,

2015,

and

$5.2

million during the year ended

December

31,

2014.

Deferred Compensation Plan

November

2010

the Board of Directors of the Company adopted the Rush Enterprises, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”) pursuant to which selected employees and directors

may

elect to defer a portion of their annual compensation. The Deferred Compensation Plan also provides the Company with the discretion to make matching contributions to participants’ accounts. The Company established a rabbi trust to finance obligations under the Deferred Compensation Plan with corporate-owned variable life insurance contracts. Participants are

100%

vested in their respective deferrals and the earnings thereon. The

first

deferral election period began on

January

2011.

The Company’s liability related to the Deferred Compensation Plan was

$7.2

million on

December

31,

2016

and

$4.9

million on

December

31,

2015.

The related cash surrender value of the life insurance contracts was

$6.8

million on

December

31,

2016

and

$4.8

million on

December

31,

2015.

The Company currently does not provide any post-retirement benefits nor does it provide any post-employment benefits.