We issue stock-based awards to certain of our employees and our Board of Directors pursuant to our 2000 Stock Incentive Plan, as amended, (the "Plan") and our 2001 Employee Stock Purchase Plan (the "ESPP") and recognize related stock-based compensation in our consolidated financial statements. The Plan provides for the granting to employees and consultants of Comtech (including prospective employees and consultants): (i) incentive and non-qualified stock options, (ii) restricted stock units ("RSUs"), (iii) RSUs with performance measures (which we refer to as "performance shares"), (iv) restricted stock, (v) stock units (reserved for issuance to non-employee directors) and share units (reserved for issuance to employees) (collectively, "share units") and (vi) stock appreciation rights ("SARs"), among other types of awards. Our non-employee directors are eligible to receive non-discretionary grants of stock-based awards, subject to certain limitations.

As of July 31, 2020, the aggregate number of shares of common stock which may be issued, pursuant to the Plan, may not exceed 10,962,500. Stock options granted may not have a term exceeding ten years or, in the case of an incentive stock award granted to a stockholder who owns stock representing more than 10.0% of the voting power, no more than five years. We expect to settle all outstanding awards under the Plan and employee purchases under the ESPP with the issuance of new shares of our common stock.

As of July 31, 2020, we had granted stock-based awards pursuant to the Plan representing the right to purchase and/or acquire an aggregate of 9,174,926 shares (net of 4,248,147 expired and canceled awards), of which an aggregate of 6,753,327 have been exercised or settled.

Our ESPP provides for the issuance of up to 1,050,000 shares of our common stock. Our ESPP is intended to provide our eligible employees the opportunity to acquire our common stock at 85% of fair market value at the date of issuance. Through July 31, 2020, we have cumulatively issued 840,009 shares of our common stock to participating employees in connection with our ESPP.


	Fiscal Years Ended July 31,
	2020		2019	2018
Cost of sales	$	823,000	1,047,000	758,000
Selling, general and administrative expenses	7,527,000		9,336,000	6,866,000
Research and development expenses	925,000		1,044,000	945,000
Stock-based compensation expense before income tax benefit	9,275,000		11,427,000	8,569,000
Estimated income tax benefit	(2,042,000)		(2,553,000)	(2,005,000)
Net stock-based compensation expense	$	7,233,000	8,874,000	6,564,000

Stock-based compensation for equity-classified awards is measured at the date of grant, based on an estimate of the fair value of the award and is generally expensed over the vesting period of the award. At July 31, 2020, unrecognized stock-based compensation of $9,677,000, net of estimated forfeitures of $883,000, is expected to be recognized over a weighted average period of 3.2 years. Total stock-based compensation capitalized and included in ending inventory at both July 31, 2020 and 2019 was $48,000. There are no liability-classified stock-based awards outstanding as of July 31, 2020 or 2019.


	Fiscal Years Ended July 31,
	2020		2019	2018
Stock options	$	442,000	739,000	1,089,000
Performance shares	1,491,000		1,554,000	1,013,000
RSUs and restricted stock	2,543,000		2,149,000	1,458,000
ESPP	222,000		215,000	205,000
Share units	4,577,000		6,770,000	4,804,000

Stock-based compensation expense before income tax benefit	9,275,000		11,427,000	8,569,000
Estimated income tax benefit	(2,042,000)		(2,553,000)	(2,005,000)
Net stock-based compensation expense	$	7,233,000	8,874,000	6,564,000

The estimated income tax benefit as shown in the above table was computed using income tax rates expected to apply when the awards are settled. Such deferred tax asset was recorded net as part of our non-current deferred tax liability on our Consolidated Balance Sheet as of July 31, 2020 and 2019. The actual income tax benefit recognized for tax reporting is based on the fair market value of our common stock at the time of settlement and can significantly differ from the estimated income tax benefit recorded for financial reporting.


	Awards (in Shares)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2017	1,855,875	$	28.60

Expired/canceled	(72,190)	27.58
Exercised	(114,710)	27.44
Outstanding at July 31, 2018	1,668,975	28.72
Expired/canceled	(32,490)	30.11
Exercised	(80,930)	28.18
Outstanding at July 31, 2019	1,555,555	28.72
Granted	327,100	17.88
Expired/canceled	(174,840)	29.06
Exercised	(285,790)	28.82
Outstanding at July 31, 2020	1,422,025	$	26.17	4.51	$	—

Exercisable at July 31, 2020	1,036,435	$	28.73	2.80	$	—

Vested and expected to vest at July 31, 2020	1,404,387	$	26.25	4.46	$	—

Stock options outstanding as of July 31, 2020 have exercise prices ranging from $17.88 - $33.94, representing the fair market value of our common stock on the date of grant, a contractual term of five or ten years and a vesting period of three or five years. The total intrinsic value relating to stock options exercised during the fiscal years ended July 31, 2020, 2019 and 2018 was $1,869,000, $576,000 and $469,000, respectively.

During fiscal 2020, 2019 and 2018, at the election of certain holders of vested stock options, 269,090, 72,830 and 101,610, respectively, of stock options were net settled upon exercise. As a result, 27,994, 9,345 and 8,706 shares of our common stock were issued during the fiscal years ended July 31, 2020, 2019 and 2018, respectively, net of shares retained to satisfy the exercise price and minimum statutory tax withholding requirements.

There were no stock options granted during fiscal 2019 and 2018. The estimated per-share weighted average grant-date fair value of stock options granted during fiscal 2020 was $5.52, which was determined using the Black-Scholes option pricing model, and included weighted average assumptions as follows: (i) expected dividend yield of 2.24%, (ii) expected volatility of 40.03%, (iii) risk-free interest rate of 0.54%, and (iv) expected life of 6.5 years.

Expected dividend yield is the expected annual dividend as a percentage of the fair market value of our common stock on the date of grant, based on our Board's annual dividend target at the time of grant. We estimate expected volatility by considering the historical volatility of our stock and the implied volatility of publicly-traded call options on our stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for an instrument which closely approximates the expected term. The expected term is the number of years we estimate that awards will be outstanding prior to exercise and is determined by employee groups with sufficiently distinct behavior patterns. Assumptions used in computing the fair value of stock-based awards reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by recipients of stock-based awards.


	Awards (in Shares)	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at July 31, 2017	830,197	$	16.95
Granted	473,005	22.45
Settled	(354,822)	17.66
Canceled/Forfeited	(129,942)	17.26
Outstanding at July 31, 2018	818,438	19.78
Granted	442,363	29.76
Settled	(275,619)	26.05
Canceled/Forfeited	(30,506)	25.52
Outstanding at July 31, 2019	954,676	22.40
Granted	560,361	19.93
Settled	(431,581)	22.02
Canceled/Forfeited	(83,882)	22.84
Outstanding at July 31, 2020	999,574	$	21.15	$	16,413,000

Vested at July 31, 2020	429,191	$	16.22	$	7,047,000

Vested and expected to vest at July 31, 2020	964,807	$	21.10	$	15,842,000

The performance shares granted to employees since fiscal 2014 principally vest over a three-year performance period, if pre-established performance goals are attained, or as specified pursuant to the Plan and related agreements. As of July 31, 2020, the number of outstanding performance shares included in the above table, and the related compensation expense prior to consideration of estimated pre-vesting forfeitures, assume achievement of the pre-established goals at a target level.

RSUs and restricted stock granted to non-employee directors prior to July 31, 2019 have a vesting period of three years and are convertible into shares of our common stock generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. RSUs and restricted stock granted to non-employee directors after July 31, 2019 have a vesting period of five years. RSUs granted to employees have a vesting period of five years and are convertible into shares of our common stock generally at the time of vesting, on a one-for-one basis for no cash consideration.

Share units granted prior to July 31, 2017 were vested when issued and are convertible into shares of our common stock, generally at the time of termination, on a one-for-one basis for no cash consideration, or earlier under certain circumstances. Share units granted on or after July 31, 2017 were granted to certain employees in lieu of non-equity incentive compensation and are convertible into shares of our common stock on the one-year anniversary of the respective grant date.

On July 31, 2020, 330,696 fully vested share units were granted to certain employees in lieu of fiscal 2020 non-equity incentive compensation. Also, on July 31, 2020, 223,739 fully vested share units (previously granted in lieu of fiscal 2019 non-equity incentive compensation) were settled by delivery of 81,507 shares of our common stock after reduction of share units retained to satisfy employees’ statutory tax withholding requirements. Cumulatively, through July 31, 2020, 658,583 share units granted have been settled.

The fair value of performance shares, RSUs, restricted stock and share units is determined using the closing market price of our common stock on the date of grant, less the present value of any estimated future dividend equivalents such awards are not entitled to receive and an applicable estimated discount for any post-vesting transfer restrictions. RSUs, performance shares and restricted stock granted since fiscal 2013 are entitled to dividend equivalents unless forfeited before vesting occurs. Share units granted since fiscal 2014 are entitled to dividend equivalents while the underlying shares are unissued.

Dividend equivalents are subject to forfeiture, similar to the terms of the underlying stock-based awards, and are payable in cash generally at the time of settlement of the underlying award. During fiscal 2020, 2019 and 2018, we accrued $294,000, $327,000 and $300,000, respectively, of dividend equivalents (net of forfeitures) and paid out $288,000, $263,000 and $141,000, respectively. Accrued dividend equivalents were recorded as a reduction to retained earnings. As of July 31, 2020 and 2019, accrued dividend equivalents were $783,000 and $777,000, respectively.

With respect to the actual settlement of stock-based awards for income tax reporting, during the fiscal year ended July 31, 2020, we recorded an income tax expense of $224,000, and during the fiscal years ended July 31, 2019 and 2018 we recorded income tax benefits of $479,000 and $1,193,000 respectively. Such income tax expense generally relates to the reversal of deferred tax assets associated with expired and unexercised stock-based awards and any net income tax shortfalls upon settlement. Such income tax benefit generally relates to any net excess income tax benefits upon settlement.

In the first quarter of fiscal 2021, our Board of Directors authorized the issuance of stock-based awards with a total unrecognized compensation expense, net of estimated forfeitures, of approximately $6,140,000.