17. Stock-based Compensation Plans

2013 Performance Incentive Plan

The 2013 Performance Incentive Plan ("2013 PIP") was approved by the Board of Directors on December 11, 2012 and subsequently approved by the stockholders on February 19, 2013. The plan was amended on February 11, 2015. The 2013 PIP provides for the grant of annual cash incentive awards to all employees (including the Company’s executive officers), and stock options, restricted stock or stock unit awards, stock appreciation rights and other stock-based awards to all employees (including the Company’s executive officers), any consultants of the Company and its subsidiaries, and all non-employee directors serving on the Company’s Board of Directors. The awards granted under the 2013 PIP are established by our Board of Directors or a committee thereof at the time of issuance.

The 2013 PIP replaced on a prospective basis, our 2004 Performance Incentive Plan, and will expire in February 2023. A total of 3,665,500 shares of common stock were reserved for awards under the 2013 Plan. The number of shares authorized and available for issuance under the 2013 PIP will be increased by shares of stock subject to an option or award under the 2013 PIP, the Company’s 2004 Performance Incentive Plan, or the Ownership Program as further described below, (collectively, the "Existing Plans"), that is canceled, expired, forfeited, settled in cash, or otherwise terminated after February 19, 2013 without a delivery of shares to the participant of such plan, including shares used to satisfy the exercise price of a stock option or a tax withholding obligation arising in connection with an award. As of October 31, 2018, 3,142,917 shares remain available for issuance under the 2013 PIP. Shares issued under the Plan may be newly issued shares or reissued Treasury shares.

Other Plans and Grants

The following plans were approved by our Board of Directors but were not approved and were not required to be approved by our stockholders: the Executive Stock Ownership Program, as amended from time to time (the "Ownership Program"), and the Non-Employee Directors Deferred Fee Plan (the "Deferred Fee Plan").

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Ownership Program—In June 1997, our Board of Directors approved the terms of the Ownership Program. In general, under the Ownership Program in existence through November 2013, all officers and senior managers were required to acquire, by direct purchase or through salary or annual bonus reduction, an ownership interest in the Company by acquiring a designated amount of our common stock based on organizational level. Participants were required to hold such stock for the entire period in which they are employed by the Company. The Ownership Program was amended and restated effective November 1, 2013 on a going forward basis. The new guidelines (i) increased stock ownership guideline multiples to six times salary for the President and CEO and up to three times salary for other senior executives; (ii) modified retention requirements for Company granted equity until ownership requirements are met; (iii) added a holding period for shares acquired through transactions with Company granted equity after the executives satisfy the stock ownership requirement; (iv) eliminated the granting of premium shares as an inducement to executives fulfilling stock ownership guidelines on an accelerated basis; and (v) eliminated the required time frame to fulfill stock ownership guidelines. Under the prior Ownership Program, participants were entitled to defer their cash bonus into deferred share units ("DSUs"), which vested immediately. There were 2,365 DSUs outstanding as of October 31, 2018. Premium share units ("PSUs") were also eligible to be awarded to participants who complete their ownership requirement on an accelerated basis. PSUs vested annually, pro rata over three years. There were 29,712 PSUs outstanding as of October 31, 2018 under the prior Ownership Program. Each vested DSU and PSU will be settled by delivery of one share of common stock within ten days after a participant's termination of employment or at such later date as required by IRC Section Rule 409A. PSUs and DSUs awarded between February 19, 2013 and October 31, 2013 were issued under the 2013 PIP.

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Deferred Fee Plan—Under the Deferred Fee Plan, non-employee directors may elect to defer payment of all or a portion of their retainer fees and meeting fees in cash (with interest) or in stock units. Deferrals in the deferred stock account are valued as if each deferral was vested in NIC common stock as of the deferral date. As of October 31, 2018, 19,491 deferred shares were outstanding under the Deferred Fee Plan. Beginning on September 30, 2013, shares deferred by non-employee directors have been issued out of the 2013 PIP. The Deferred Fee Plan was amended and restated effective February 11, 2015 on a going forward basis.

Stock Options

Stock options represent the right to purchase a specified number of shares of common stock at a specified exercise price. Generally, stock options are awarded with an exercise price equal to the fair market value of the common stock at grant date. The stock options granted prior to December 2009 generally have a ten-year contractual life. Stock options granted in December 2009 through November 2016 were granted with a seven-year contractual life. Since December 2016, stock options have been granted with a ten-year contractual life. Stock options are valued using the Black-Scholes option pricing model and vest ratably over a three-year period.

The following table summarizes stock options activity:



	For the Years Ended October 31,
	2018				2017				2016
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
	(in thousands)				(in thousands)				(in thousands)
Options outstanding, at beginning of year	2,408		$	38.81	2,835		$	38.89	2,886		$	39.33
Granted	236		40.44		301		27.88		35		10.6
Exercised	(236	)	32.78		(325	)	30.25		—		—
Forfeited/expired	(628	)	56.64		(403	)	38.13		(86	)	42.30
Options outstanding, at end of year	1,780		28.98		2,408		38.81		2,835		38.89
Options exercisable, at end of year	1,396		33.55		2,073		40.72		2,695		39.29

The following table summarizes information about stock options outstanding:



	Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Aggregate Intrinsic Value
Range of Exercise Prices:	(in thousands)	(in years)			(in millions)
$ 10.60 - $ 31.19	813	3.7	$	28.19	$	4.3
$ 31.20 - $ 39.32	684	0.9	37.02		—
$ 39.33 - $ 68.65	283	7.3	41.52		—
Options Outstanding	1,780

The following table summarizes information about stock options exercisable:



	Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Aggregate Intrinsic Value
Range of Exercise Prices:	(in thousands)	(in years)			(in millions)
$ 10.60 - $ 31.19	637	2.5	$	28.52	$	3.2
$ 31.20 - $ 39.32	678	0.8	37.05		—
$ 39.33 - $ 68.65	81	2.4	43.86		—
Options Exercisable	1,396

The weighted average grant date fair value of options granted during the years ended October 31, 2018, 2017, and 2016 was $18.90, $13.61, and $5.15, respectively. The total intrinsic value of stock options exercised during the years ended October 31, 2018, 2017, and 2016 was $2.5 million, $2.6 million, and zero, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model.

The following table summarizes the annual weighted average assumptions:



	For the Years Ended October 31,
	2018		2017		2016
Risk-free interest rate	2.5	%	1.9	%	1.7	%
Expected volatility	49.1	%	55.2	%	56.8	%
Expected life (in years)	5.3		5.0		4.8

The use of the Black-Scholes option-pricing model requires us to make certain estimates and assumptions. The risk-free interest rate utilized is the implied yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term assumption on the grant date, rounded to the nearest half year. A dividend yield assumption of 0% is used for all grants based on our history of not paying a dividend to any class of stock and future expectations. Expected volatility is based on a blend of our historical stock prices and implied volatilities from traded options in our stock. The weighted average expected life in years for all grants as a group is then calculated for each year.

Restricted Stock

Restricted stock represents common stock issued subject to forfeiture or other restrictions that will lapse upon satisfaction of specified conditions. Restricted stock is valued based on the fair value of the common stock at grant date and except for the restricted stock issued to non-employee directors, vests either ratably over a three-year period or cliff-vest at the end of a three-year period. Restricted stock issued to non-employee directors represent their first quarterly retainer fees and immediately vest at grant date.

The following table summarizes restricted stock activity:



	For the Years Ended October 31,
	2018				2017				2016
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
	(in thousands)				(in thousands)				(in thousands)
Nonvested, at beginning of year	—		$	—	—		$	—	—		$	—
Granted	4		34.97		5		24.62		5		12.52
Vested	(4	)	34.97		(5	)	24.62		(5	)	12.52
Nonvested, at end of year	—		—		—		—		—		—

The aggregate grant date fair value of restricted stock vested for the years ended October 31, 2018, 2017 and 2016 was $0.1 million.

Restricted Stock Units

Restricted stock units ("RSUs") represent the right to receive shares of common stock ("share-settled RSUs") or the cash ("cash-settled RSUs") value of one share of common stock in the future, with the right to future delivery of the shares or cash subject to forfeiture or other restrictions that will lapse upon satisfaction of specified conditions. Share and cash-settled RSUs are valued based on the fair value of the common stock at grant date and vest either ratably over a three-year period or cliff-vest at the end of a three-year period. Cash-settled RSUs are classified as liabilities and are remeasured at each reporting date until settlement.

The following tables summarize RSUs activity for the years ended October 31:



	Share-Settled RSUs
	2018				2017				2016
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
	(in thousands)				(in thousands)				(in thousands)
Nonvested, at beginning of year	619		$	15.04	613		$	8.74	69		$	28.60
Granted	168		40.05		210		27.28		624		8.76
Vested	(214	)	9.59		(204	)	8.74		(66	)	28.66
Forfeited	(71	)	20.24		—		—		(14	)	13.07
Nonvested, at end of year	502		25.01		619		15.04		613		8.74

	Cash-Settled RSUs
	2018				2017				2016
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
	(in thousands)				(in thousands)				(in thousands)
Nonvested, at beginning of year	587		$	18.02	817		$	13.95	498		$	29.96
Granted	187		40.12		258		27.48		650		7.26
Vested	(319	)	16.42		(456	)	15.92		(231	)	26.06
Forfeited	(27	)	22.76		(32	)	20.17		(100	)	22.19
Nonvested, at end of year	428		28.58		587		18.02		817		13.95

The aggregate grant date fair value of RSUs vested during the years ended October 31, 2018, 2017, and 2016 was $7 million, $9 million, and $8 million, respectively.

Performance-based Stock Options

Performance-based stock options represent the right to receive shares of common stock in the future, with the right to future delivery of the shares subject to forfeiture or other restrictions that will lapse upon satisfaction of a combination of the following conditions: service, market and performance conditions. Performance-based stock options have a seven-year contractual life. Performance-based stock options subject to service and performance conditions are valued using the Black-Scholes option pricing model and cliff-vest at the end of a three-year period, if performance measures are met. Performance-based stock options subject to service and market conditions are valued using a Monte Carlo simulation and cliff-vest at the end of a three-year period, if performance measures are met.

The following table summarizes the performance-based stock options subject to service and performance conditions activity:



	For the Years Ended October 31,
	2018				2017				2016
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
	(in thousands)				(in thousands)				(in thousands)
Options outstanding, at beginning of year	599		$	27.59	973		$	30.47	1,409		$	31.64
Exercised	(13	)	27.67		—		—		—		—
Forfeited	(434	)	27.59		(374	)	35.09		(436	)	34.22
Options outstanding, at end of year	152		27.59		599		27.59		973		30.47

There were 151,968 performance-based stock options subject to service and performance conditions exercisable during the year ended October 31, 2018.

The following table summarizes the performance-based stock options subject to service and market conditions activity:



	For the Years Ended October 31,
	2018				2017				2016
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
	(in thousands)				(in thousands)				(in thousands)
Options outstanding, at beginning of year	431		$	27.24	567		$	27.24	615		$	27.24
Exercised	(44	)	27.24		(130	)	27.24		—		—
Forfeited	—		—		(6	)	27.24		(48	)	27.24
Options outstanding, at end of year	387		27.24		431		27.24		567		27.24
Options exercisable, at end of year	387		27.24		431		27.24		567		27.24

The total intrinsic value of stock options exercised during the years ended October 31, 2018 and October 31, 2017 was $0.9 million and $1.5 million, respectively.

Performance-based Stock Units

Performance-based stock units ("PUs") represent the right to receive one share of common stock ("share-settled PUs") or cash equal to the value of one share of common stock ("cash-settled PUs") in the future, with the right to future delivery of the shares or cash subject to forfeiture or other restrictions that will lapse upon satisfaction of a combination of the following conditions: service, market, and performance conditions. Share and cash-settled PUs subject to service and performance conditions are valued based on the fair value of the common stock at grant date and vest either at the end of the performance period or cliff-vest at the end of a three-year period, if performance measures are met. Cash-settled PUs subject to service and market conditions are valued using a Monte Carlo simulation and cliff-vest at the end of a three-year period, if performance measures are met. Cash-settled PUs are classified as liabilities and are remeasured at each reporting date until settlement.

The following tables summarize PUs activity for the years ended October 31:



	Share-Settled PUs subject to Service and Performance Conditions
	2018			2017			2016
	Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
	(in thousands)			(in thousands)			(in thousands)
Nonvested, at beginning of year	—	$	—	—	$	—	244		$	28.73
Forfeited	—	—		—	—		(244	)	28.73
Nonvested, at end of year	—	—		—	—		—		—



	Cash-Settled PUs subject to Service and Performance Conditions
	2018				2017				2016
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
	(in thousands)				(in thousands)				(in thousands)
Nonvested, at beginning of year	220		$	27.59	379		$	30.63	$	434		$	30.64
Granted	—		—		—		—		—			—
Vested	(121	)	27.59		—		—		—			—
Forfeited	(99	)	27.59		(159	)	34.86		(55		)	30.65
Nonvested, at end of year	—		—		220		27.59		379			30.63



	Cash Settled PUs subject to Service and Market Conditions
	2018			2017				2016
	Shares	Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
	(in thousands)			(in thousands)				(in thousands)
Nonvested, at beginning of year	—	$	—	70		$	50.52	172		$	69.64
Forfeited	—	—		(70	)	50.52		(102	)	82.86
Nonvested, at end of year	—	—		—		—		70		50.52

Total Share-Based Compensation Expense

Total share-based compensation expense for the years ended October 31, 2018, 2017, and 2016 was $17 million, $25 million and $15 million, respectively. As of October 31, 2018, the minimum performance measures for the fiscal year 2014 performance-based stock options and cash-settled PUs were not met and no share-based compensation expense was recorded. However, fiscal year 2015 and 2016 performance-based stock options and cash-settled PUs partially met the overall performance measures, and share-based compensation expense recorded was based on the interpolated calculated future pay out. Share-based compensation expense will be adjusted each reporting period based on the available current performance measures information for all awards subject to performance conditions. We record share-based compensation expense on a straight-line basis over the required service period which is equal to the vesting period, beginning on the grant date. Share-based compensation expense is included in Selling, general and administrative expenses in the Consolidated Statements of Operations. As of October 31, 2018, there was $14 million of total unrecognized compensation expense related to non-vested share-based awards which is expected to be recognized over a weighted average period of approximately one year.

We received cash of $8 million, $12 million, and zero during the years ended October 31, 2018, 2017 and 2016, respectively, related to stock options exercised. We used cash of $13 million, $13 million, and $2 million during the years ended October 31, 2018, 2017, and 2016, respectively, to settle cash-settled RSUs. We did not realize any tax benefit from stock options exercised for fiscal years 2018 and 2017. There were no stock options exercised in 2016.