(11) Stock–Based Compensation Plan

2019 Incentive Plan

In June 2019, the Company’s stockholders approved the CAI International, Inc. 2019 Incentive Plan (2019 Plan), which replaced the CAI International, Inc. Amended and Restated 2007 Equity Incentive Plan (2007 Plan). No further awards will be made under the 2007 Plan. Under the 2019 Plan, a maximum of 2,577,075 share awards may be granted. Under the 2019 Plan, the Company may grant incentive and nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and other stock or cash-based awards.

Stock Options

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. All of the stock options have a contractual term of 10 years.

The following table summarizes the Company’s stock option activities for the three years ended December 31, 2019:



				Weighted
				Average
		Weighted		Remaining		Aggregate
		Average		Contractual		Intrinsic
	Number of	Exercise		Term		Value
	Shares	Price		(in years)		(in thousands)
Options outstanding, December 31, 2016	1,428,255	$	16.31
Options granted	230,500	$	16.80
Options exercised	(799,195)	$	16.31
Options outstanding, December 31, 2017	859,560	$	16.44
Options exercised	(9,393)	$	14.76
Options outstanding, December 31, 2018	850,167	$	16.46
Options exercised	(185,221)	$	14.06
Options forfeited	(3,000)	$	12.88
Options expired	(15,000)	$	25.53
Options outstanding, December 31, 2019	646,946	$	16.96		5.6	$	7,779
Options exercisable at December 31, 2019	568,876	$	17.44		5.4	$	6,566
Expected to vest after December 31, 2019	78,070	$	13.44		6.9	$	1,213

The aggregate intrinsic value represents the value by which the Company’s closing stock price of $28.98 per share on the last trading day of the year ended December 31, 2019 exceeds the exercise price of the stock multiplied by the number of options outstanding or exercisable, excluding options that have a zero or negative intrinsic value. The aggregate intrinsic value of stock options exercised during 2019, 2018 and 2017, based on the closing share price on the date each option was exercised, was $2.0 million, $0.1 million and $11.7 million, respectively.

The Company recognized stock-based compensation expense relating to stock options in continuing operations of $0.6 million, $1.1 million and $1.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, the remaining unamortized stock-based compensation cost relating to stock options granted to the Company’s employees and independent directors was approximately $0.4 million, which is to be recognized over the remaining weighted average vesting period of approximately 0.9 years.

The total fair value of stock options granted to the Company’s employees and independent directors at the time of grant was approximately $2.1 million, or $9.16 per share for the year ended December 31, 2017, calculated using the Black-Scholes-Merton pricing model under the following weighted average assumptions:



	2017
Stock price	$	16.80
Exercise price	$	16.80

Expected term (years)		5.5 - 6.25
Expected volatility (%)		56.4 - 57.5
Risk-free interest rate (%)		1.77 - 2.14
Dividend yield (%)		-

The Company did not grant any stock options during the years ended December 31, 2019 and 2018.

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 the daily U.S. Treasury yield curve with a term approximating the expected term of the options. No forfeiture was estimated on all options granted during the year ended December 31, 2017, as the Company accounts for forfeitures as they occur (see Note 2(o)).

Restricted Stock and Performance Stock

The Company grants restricted stock units and restricted stock awards from time to time to certain employees and independent directors pursuant to the 2019 Plan. Restricted stock granted to employees has a vesting period of four years; 25% vesting on each anniversary of the grant date. Restricted stock granted to independent directors vests in one year. The company recognizes the compensation cost associated with restricted stock over the vesting period based on the closing price of the Company’s stock on the date of grant.

The Company grants performance stock to certain executives and other key employees. The performance stock vests at the end of a 3-year performance cycle if certain financial performance targets are met. The Company recognizes compensation cost associated with the performance stock ratably over the 3-year term when it is considered probable that performance targets will be met. Compensation cost is based on the closing price of the Company’s common stock on the date of grant.

The following table summarizes the activity of restricted stock and performance stock under the 2019 Plan:



		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Outstanding at December 31, 2016	65,802	$	14.75
Granted	37,414	$	17.14
Vested	(24,674)	$	17.83
Outstanding at December 31, 2017	78,542	$	14.92
Granted	156,165	$	22.48
Vested	(29,977)	$	16.52
Outstanding at December 31, 2018	204,730	$	20.45
Granted	166,939	$	25.37
Vested	(81,259)	$	20.89
Forfeited	(8,674)	$	22.42
Outstanding at December 31, 2019	281,736	$	23.18

The Company recognized stock-based compensation expense relating to restricted stock and performance stock awards in continuing operations of $2.2 million, $1.5 million and $0.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, unamortized stock-based compensation expense relating to restricted stock and performance stock was $3.8 million, which will be recognized over the remaining average vesting period of 1.9 years.

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

Employee Stock Purchase Plan

In June 2019, the Company’s stockholders approved the CAI International, Inc. 2019 Employee Stock Purchase Plan (ESPP). The ESPP provides a means by which eligible employees may be given an opportunity to purchase shares of the Company’s common stock at a discount using payroll deductions. The ESPP authorizes the issuance of up to 250,000 shares of the Company’s common stock. The first offering period under the ESPP commenced in December 2019. No shares were issued under the ESPP during the year ended December 31, 2019.