On August 11, 2016 in connection with the Company's IPO, the Board approved the formation of the 2016 Incentive Award Plan (the “2016 Plan”), which replaced our 2014 Equity Incentive Plan (the “2014 Plan”). The 2016 Plan provides for long-term equity incentive compensation for key employees, officers and non-employee directors. A variety of discretionary awards (collectively, the “Awards”) for employees and non-employee directors are authorized under the 2016 Plan, including vested shares, stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), or other cash based or stock dividend equivalent awards, which are all equity-classified instruments under the 2016 Plan. The number of shares registered and available for grant under the 2016 Plan is 6,000,000. The vesting of such awards may be conditioned upon either a specified period of time or the attainment of specific performance goals as determined by the administrator of the 2016 Plan. The option price and term are also subject to determination by the administrator with respect to each grant. Option prices are generally expected to be set at the market price of the Company’s common stock at the date of grant and option terms are not expected to exceed ten years.

The Company granted 816,286 awards to employees under the 2016 Incentive Award Plan during the year ended December 31, 2019, consisting of 10,000 stock option awards and 227,610 restricted stock units (“RSU”) vesting after four years, 5,000 stock option awards vesting after one year, 551,676 fully-vested stock option awards and 22,000 stock option awards with vesting in twelve equal monthly installments beginning on March 31, 2019. The Company granted an additional 41,853 stock option awards to non-employee directors under the 2016 Incentive Award Plan, during the year ended December 31, 2019. These awards will vest on the earlier of (a) the day immediately preceding the date of the first annual meeting following the date of grant and (b) the first anniversary of the date of grant, subject to the non-employee director continuing in service through the applicable vesting date.

The Company granted 850,700 awards to employees under the 2016 Plan during the year ended December 31, 2018, consisting of 550,500 stock option awards and 300,200 restricted stock units (“RSU”), all vesting after four years. The Company granted an additional 33,801 stock option awards to non-employee directors under the 2016 Incentive Award Plan, during the year ended December 31, 2018. These awards will vest on the earlier of (a) the day immediately preceding the date of the first annual meeting following the date of grant and (b) the first anniversary of the date of grant, subject to the non-employee director continuing in service through the applicable vesting date.

The Company granted 968,550 awards to employees under the 2016 Plan during the year ended December 31, 2017, consisting of 797,550 stock option awards, 118,000 restricted stock awards (“RSA”) and 38,000 restricted stock units (“RSU”), all vesting after four years. The Company granted 15,000 stock option awards, vesting equally on the second, third and fourth anniversary of the grant date over four years. Additionally, the Company granted 41,346 stock option awards, vesting over one year, to non-employee directors under the 2016 Incentive Award Plan, during the year ended December 31, 2017.

The 2016 Plan expires in 2026, except for awards then outstanding, and is administered by the Board. All Awards granted at the IPO or thereafter were or will be issued under the 2016 Plan.

The company satisfies stock option exercises and vested stock awards with newly issued shares. Shares available for future stock compensation grants totaled 3.2 million and 3.8 million at December 31, 2019 and 2018.

The 2014 Plan for employees and directors provided the issuance of vested shares, stock options, RSAs and RSUs in Medpace Holdings, Inc.’s common stock. The awards were granted to key employees as additional compensation for services rendered and as a means of retention over the vesting period, typically three to four years. RSAs awarded under the 2014 Plan were subject to automatic forfeiture upon departure until vested and entitle the shareholder to all rights of common stock ownership except that they may not be sold, transferred, pledged or otherwise disposed of during the restriction period, except as noted in the following paragraph. The 2014 Plan allowed for the issuance of non-qualified stock options to employees, officers, and directors under this plan (collectively, “the Participants”). Under the 2014 Plan, options could be granted with an exercise price equal to or greater than the fair value of common stock at the grant date as determined by the Board of Directors. The stock options, if unexercised, expired seven years from the date of grant. The awards under the 2014 Plan were equity classified instruments for all periods presented.

In the third quarter of 2019, Medpace Investors, LLC (“MPI”), a related party to the Company, filed a Tender Offer Statement (“Tender Offer”) offering to purchase, for cash, vested stock options of employee holders of options outstanding from the 2014 Incentive Award Plan. The Tender Offer resulted in the tender and purchase of 229,431 vested options from employee holders of options by MPI. Under generally accepted accounting guidance governing such transactions, because the Tender offer by an economic interest holder in the Company, this transaction is accounted for as a settlement of vested options and a reissuance of options at fair value as of the transaction date. Expense related to the reissuance of options to MPI is included as stock-based compensation expense of $5.1 million within Selling, general and administrative expenses during the year ended December 31, 2019.

The Company determines the fair value of stock options using the Black-Scholes-Merten option pricing model (the “BSM Model”). The BSM Model is primarily affected by the fair value of the Company’s common stock (see restricted share valuation discussion below), the expected holding period for the option, expected stock price volatility over the term of the awards, the risk-free interest rate, and expected dividends.

The following table sets forth the key weighted-average assumptions used in the BSM Model to calculate the fair value of options:



	Year Ended December 31,
	2019		2018		2017
Expected holding period - years	2.6		5.4		5.4
Expected volatility	26.3%		27.0%		28.0%
Risk-free interest rate	2.0%		2.8%		2.0%
Expected dividend yield		0.0%		0.0%		0.0%

The assumptions used in the table above reflect grant date inputs to arrive at the grant date fair values for stock options subject to equity-classified stock compensation accounting.

The expected holding period represents the period of time the grants are expected to be outstanding. The Company uses the simplified method, as prescribed by accounting guidance governing such awards, to calculate the expected holding period for options granted to employees as we do not have sufficient historical evidence data to provide a reasonable basis upon which to estimate the expected holding period. For options valued by the Company for the years ended December 31, 2019, 2018 and 2017, the expected holding period is based on an average between the midpoint of the vesting date and the expiration date of the options.

The Company estimates expected volatility primarily by using the historical volatility of a publicly traded peer group that operates in the clinical research and development industry. The Company does not have adequate history to calculate its own historical or implied volatility and believes the Company’s expected volatility will approximate the historical experience of the peer group.

The risk-free interest rate is based on the yield on U.S. Treasury obligations with remaining durations equal to the expected holding period of the options. The expected dividend yield is assumed to be zero based on recent and anticipated dividend activity.

Subsequent to the IPO, the fair value of common stock is based upon the market price of the Company’s common stock on the date of grant as listed on the NASDAQ. Due to the absence of an active market for the Company’s common stock prior to the IPO, the Company determined the fair value of restricted shares by obtaining an independent valuation of the fair value of the Company’s equity, applying a discount for lack of marketability, and then calculating the implied share price. The fair value of the Company was estimated primarily using an income approach which is based on assumptions and estimates made by management and, secondarily, using other market-related factors in current industry trends as well as observed transaction values. In determining the estimated future cash flows used in the income approach, the Company developed and applied certain estimates and judgments, including current and projected future levels of income based on management’s plans, business trends, prospects and market and economic conditions, including market-participant considerations. Significant assumptions utilized in the income approach were based on company specific information and projections, which were not observable in the market and are thus considered Level 3 measurements by authoritative guidance. The discount for lack of marketability (the “Marketability Discount”) was applied to reflect what a market participant would consider in relation to the post-vesting restrictions imposed regarding the inability to sell, transfer, or pledge the shares during the restriction period. The Marketability Discount was estimated by using the BSM Model to calculate the cost of a theoretical put option to hedge the fluctuation in value of the investment between the valuation date and an anticipated liquidity date.

The following table summarizes the grant date fair values of stock options and restricted shares issued during the period as well as the allocation of stock-based compensation expense to Total direct costs, and Selling, general and administrative reported in the consolidated statements of operations:



	Year Ended December 31,
	2019		2018		2017
Weighted average, grant date fair value
Stock options	$	14.06	$	11.51	$	8.54
Restricted shares (RSAs and RSUs)	$	60.53	$	49.38	$	31.90

Stock-based compensation expense allocated to:
Total direct costs	$	6,999	$	4,132	$	2,128
Selling, general, and administrative		13,742		2,367		2,335
Total stock-based compensation expense	$	20,741	$	6,499	$	4,463


	Year Ended December 31,
	2019					2018					2017
				Weighted Average					Weighted Average					Weighted Average
	Options			Exercise Price		Options			Exercise Price		Options			Exercise Price
Outstanding - beginning of Period		2,945,040		$	24.18		2,782,868		$	20.73		2,350,166		$	17.57
Granted		859,960		$	54.97		584,301		$	37.72		853,896		$	28.67
Exercised		(399,368	)	$	16.19		(169,771	)	$	14.98		(116,787	)	$	15.52
Forfeited/Expired		(375,561	)	$	19.91		(252,358	)	$	23.69		(304,407	)	$	20.55
Outstanding - end of period		3,030,071		$	34.50		2,945,040		$	24.18		2,782,868		$	20.73

Exercisable - end of period		1,435,088		$	38.62		1,096,116		$	16.01		917,592		$	15.40



	Year Ended December 31,
	2019			2018			2017
	Shares/Units			Shares/Units			Shares/Units
Outstanding and unvested - beginning of period		421,200			183,629			59,258
Granted		227,610			300,200			156,000
Vested		-			(29,629	)		(29,629	)
Forfeited		(79,040	)		(33,000	)		(2,000	)
Outstanding and unvested - end of period		569,770			421,200			183,629

Cumulative vested shares - end of period		1,913,916			1,913,916			1,884,287

The following table summarizes information about stock options expected to vest, stock options exercisable, and unvested restricted share awards expected to vest at December 31, 2019:

	Weighted Average						Weighted Average
	Exercise		Stock		Restricted		Remaining
	Price		Options		Shares		Life (Years)
December 31, 2019
Number of stock options expected to vest	$	34.50		3,030,071		-		4.0
Number of Restricted Shares expected to vest				-		569,770
Total expected to vest - December 31, 2019				3,030,071		569,770
Total stock options exercisable - December 31, 2019	$	38.62		1,435,088				3.6
Unrecognized compensation cost - December 31, 2019 (in thousands)			$	5,884	$	19,697
Weighted average years over which unrecognized compensation cost will be recognized				1.9		2.9

The following table sets forth the aggregate intrinsic value of stock options exercised, the fair values of awards vested, and share based liabilities settled during the respective periods (in thousands):



	Year Ended December 31,
	2019		2018		2017
Total intrinsic value of stock options exercised	$	19,807	$	5,326	$	1,619
Total grant-date fair value of stock options vested	$	12,117	$	1,417	$	1,317
Total grant-date fair value of restricted shares vested	$	-	$	447	$	447
Total settlement date fair value of restricted shares vested	$	-	$	1,568	$	1,074

The actual tax benefits recognized related to stock-based compensation totaled $5.5 million, $1.0 million and $0.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.