CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) Stock–Based Compensation Plan

Stock Options

The following table summarizes the Company’s stock option activities for the six months ended June 30, 2014 and 2013:



	Six Months Ended June 30,
	2014			2013
		Weighted			Weighted
		Average			Average
	Number of	Exercise		Number of	Exercise
	Shares	Price		Shares	Price
Options outstanding at January 1	1,263,485	$	14.84	1,335,680	$	13.41
Options granted - employees	120,000	$	22.09	51,300	$	26.41
Options granted - directors	50,000	$	22.09	40,000	$	26.41
Options forfeited - employees	(5,417)	$	22.55	(834)	$	5.60
Options exercised - employees	(1,583)	$	17.77	(98,661)		11.80

Options outstanding at June 30	1,426,485	$	15.67	1,327,485	$	14.43
Options exercisable	1,134,635	$	13.97	1,075,810	$	12.37
Weighted average remaining term	5.0 years			5.7 years

Stock options granted to employees have a vesting period of four years from grant date, with 25% vesting after one year, and 1/48th vesting each month thereafter until fully vested. Stock options granted to independent directors vest in one year.

The Company recorded stock-based compensation expense of $0.4 million for the three months ended June 30, 2014 and 2013, respectively, and $0.8 million and $0.7 million for the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, the remaining unamortized stock-based compensation cost relating to stock options granted to the Company’s employees and independent directors was approximately $3.2 million which is to be recognized over the remaining weighted average vesting period of approximately 2.7 years.

The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2014 was less than $0.1 million. The aggregate intrinsic value of all options outstanding as of June 30, 2014 was $10.0 million based on the closing price of the Company’s common stock of $22.01 per share on June 30, 2014, the last trading day of the quarter.

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair value of the stock options granted to the Company’s employees and independent directors was estimated using the Black-Scholes-Merton pricing model using the following weighted average assumption:



	Six Months Ended June 30,
	2014			2013
Stock price	$	22.09		$	26.41
Exercise price	$	22.09		$	26.41
Expected term:
Employees		6.25 years			6.25 years
Directors		5.5 years			5.5 years
Expected volatility:
Employees		53.50	%		56.70	%
Directors		44.80	%		58.60	%
Dividend yield		-	%		-	%
Risk free rate:
Employees		1.98	%		1.35	%
Directors		1.79	%		1.16	%

The expected option term is calculated using the simplified method in accordance with SEC guidance. The expected volatility was derived from the average volatility of the Company’s stock over a period approximating the expected term of the options. The risk-free rate is based on daily U.S. Treasury yield curve with a term approximating the expected term of the options. No forfeiture rate was estimated on all options granted during the six months ended June 30, 2014 and 2013 as management believes that none of the grantees will leave the Company within the option vesting period.

Restricted Stock

During 2013, the Company granted 28,150 shares of restricted common stock valued at $0.7 million to certain employees. During the six months ended June 30, 2014, the Company granted an additional 23,500 shares of restricted common stock valued at $0.5 million to certain employees. The restricted stock was valued based on the closing price of the Company’s stock on the date of grant. The restricted stock has a vesting period of 4 years.

During the six months ended June 30, 2014, 6,803 shares with a weighted average grant date fair value of $26.10 per share were vested while 1,500 shares with a weighted average grant date fair value of $26.41 per share were forfeited, leaving a balance of 43,347 unvested shares as of June 30, 2014.

The Company recognized less than $0.1 million of stock compensation expense relating to restricted stock for the three months ended June 30, 2014 and 2013 and the six months ended June 30, 2013, and $0.1 million for the six months ended June 30, 2014. As of June 30, 2014, unamortized stock compensation expense relating to restricted stock was $1.0 million to be recognized over the remaining average vesting period of 3.4 years.

Stock-based compensation expense is recorded as a component of marketing, general and administrative expense in the Company’s consolidated statements of income with a corresponding credit to additional paid-in capital in the Company’s consolidated balance sheet.