On May 13, 2004, the Company’s stockholders approved the 2004 Incentive Plan of Dril-Quip, Inc. (as amended in 2012 and approved by the Company’s stockholders on May 10, 2012, the “2004 Plan”), which reserved up to 2,696,294 shares of common stock for awards under the 2004 Plan. Persons eligible for awards under the 2004 Plan are employees holding positions of responsibility with the Company or any of its subsidiaries and members of the Board of Directors.

On May 12, 2017, the Company’s stockholders approved the 2017 Omnibus Incentive Plan of Dril-Quip, Inc. (the “2017 Plan”), which reserved up to 1,500,000 shares of common stock to be used for awards under the 2017 Plan. Persons eligible for awards under the 2017 Plan are employees of the Company or any of its subsidiaries and members of the Board of Directors.

Options granted under the 2004 Plan have a term of ten years and become exercisable in cumulative annual increments of one-fourth of the total number of shares of common stock subject thereto, beginning on the first anniversary of the date of the grant. The last outstanding options granted under the 2004 Plan will expire on October 28, 2021. No stock options have been granted under the 2017 Plan.

The fair value of stock options granted was estimated on the grant date using the Black-Scholes option pricing model. The expected life was based on the Company’s historical trends, and volatility is based on the historical volatility over the expected life of the options. The risk-free interest rate is based on U.S. Treasury yield curve at the grant date. The Company does not pay dividends and, therefore, there is no assumed dividend yield.

	Number of Options			Weighted Average Price		Aggregate Intrinsic Value (in millions)		Weighted Average Remaining Contractual Life (in years)
Outstanding at December 31, 2019		132,375		$	67.85
Forfeited		(74,750	)		67.40
Outstanding at December 31, 2020		57,625		$	68.43		-		0.8

Exercisable at year-end		57,625		$	68.43		-		0.8

The total intrinsic value of stock options exercised in 2020, 2019 and 2018 was nil, $0.2 million and $0.7 million, respectively. The income tax benefit realized from stock options exercised was nil, $38,342 and $157,442 for the years ended December 31, 2020, 2019 and 2018, respectively. There were 108,992 anti-dilutive stock option shares on December 31, 2020.

Stock-based compensation is recognized as selling, general and administrative expense in the accompanying Consolidated Statements of Income (Loss). For the years ended December 31, 2020, 2019 and 2018, there was no stock-based compensation expense for stock option awards and no stock-based compensation expense was capitalized during 2020, 2019 and 2018.

Options granted to employees vest over four years and the Company recognizes compensation expense on a straight-line basis over the vesting period of the options. At December 31, 2020, there was no unrecognized compensation expense related to non-vested stock options as all outstanding options were fully vested.

On October 28, 2020 and 2019 and 2018, pursuant to the 2017 Plan, the Company awarded officers, directors and key employees restricted stock awards (RSAs), which is an award of common stock subject to time vesting. The awards issued under both the 2017 Plan and the 2004 Plan are restricted as to transference, sale and other disposition. These RSAs vest ratably over a three-year period. The RSAs may also vest in the event of a change of control. Upon termination, whether voluntary or involuntary, the RSAs that have not vested will be returned to the Company resulting in stock forfeitures. The fair market value of the stock on the date of grant is amortized and charged to selling, general and administrative expense over the stipulated time period over which the RSAs vest on a straight-line basis, net of estimated forfeitures.

	Restricted Stock			Weighted- average Grant Date Fair Value
Unvested at December 31, 2019		348,690		$	43.16
Granted		340,107			24.24
Vested		(172,501	)		42.02
Forfeited		(35,520	)		42.88
Nonvested at December 31, 2020		480,776		$	30.20

RSA compensation expense for the years ended December 31, 2020, 2019 and 2018 totaled $7.5 million, $8.6 million and $8.8 million, respectively. For 2020, 2019 and 2018, the income tax benefit recognized in net income for RSAs was $1.1 million, $2.0 million and $1.5 million, respectively. As of December 31, 2020, there was $7.2 million of total unrecognized compensation cost related to nonvested RSAs, which is expected to be recognized over a weighted average period of 2.9 years. There were 352,408 anti-dilutive restricted shares on December 31, 2020.

On October 28, 2020, 2019 and 2018, pursuant to the 2017 Plan, the Company awarded performance unit awards (Performance Units) to officers and key employees. The Performance Units were valued on a per unit basis based on a Monte Carlo simulation at $32.05 for the 2020 grants, $48.47 for the 2019 grants, and $54.62 for the 2018 grants, approximately 134.3%, 108.9% and 126.8%, respectively, of the grant date share price. Under the terms of the Performance Units, participants may earn from 0% to 200% of their

target award based upon the Company’s relative total share return (TSR) in comparison to the 15 component companies of the Philadelphia Oil Service Index.

The TSR is calculated over a three -year period from October 1, 2020 and 2019 and 2018 to September 30, 2023 and 2022, and 2021, respectively, and assumes reinvestment of dividends for companies within the index that pay dividends, which Dril-Quip does not.

	2020		2019		2018
Grant date	October 28, 2020		October 28, 2019		October 28, 2018
Performance period	October 1, 2020 to September 30, 2023		October 1, 2019 to September 30, 2022		October 1, 2018 to September 30, 2021
Volatility	50.9%		38.8%		32.6%
Risk-free interest rate	0.2%		1.7%		2.9%
Grant date price	$	23.86	$	44.53	$	43.09

The Company’s Performance Unit activity and related information is presented below:

	Number of Performance Units			Weighted Average Grant Date Fair Value Per Unit
Nonvested balance at December 31, 2019		268,550		$	52.81
Granted		264,355			40.66
Vested		(168,902	)		54.64
Forfeited		(33,036	)		53.06
Nonvested balance at December 31, 2020		330,967		$	42.10

Performance Unit compensation expense was $4.0 million, $9.6 million and $4.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. The income tax benefit recognized in net income for Performance Units was $0.8 million, $1.9 million and $0.4 million, for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $9.0 million of total unrecognized compensation expense related to nonvested Performance Units which is expected to be recognized over a weighted average period of 2.3 years. There were 349,014 anti-dilutive Performance Units at December 31, 2020.

In June 2014, the Board of Directors authorized a stock compensation program for the directors pursuant to the 2004 Plan. This program continues under the 2017 Plan. Under this program, the Directors may elect to receive all or a portion of their fees in the form of restricted stock awards (DSAs) in an amount equal to 125% of the fees in lieu of cash. The awards are made quarterly on the first business day after the end of each calendar quarter and vest on January 1 of the second year after the grant date.

The Company's DSA activity for the year ended December 31, 2020 is presented below:

	DSA Number of Shares			Weighted Average Grant Date Fair Value Per Share
Nonvested balance at December 31, 2019		36,320		$	44.61
Granted		58,194			29.41
Vested		(32,318	)		45.16
Nonvested balance at December 31, 2020		62,196		$	30.18

Director stock compensation awards expense for 2020 was $1,464,590 as compared to $782,125 for 2019 and $460,884 for 2018. For 2020, 2019, and 2018, the income tax benefit recognized in net income for DSAs was $208,106, $58,901, and $81,879, respectively. There was $957,281 of unrecognized compensation expense related to nonvested DSAs, which is expected to be recognized over a weighted average period of one year. There were 48,676 anti-dilutive DSA shares on December 31, 2020.

The following table summarizes information for equity compensation plans in effect as of December 31, 2020 :

	Number of securities to be issued upon exercise of outstanding options, warrants and rights ⁽¹⁾		Weighted- average exercise price of outstanding options, warrants and rights ⁽²⁾		Number of securities remaining available for future issuance under equity compensation plan
Plan category	(a)		(b)		(c)
Equity compensation plans approved by stockholders		388,592	$	68.43		11,897
Total		388,592	$	68.43		11,897