17. Stock Option Plans

CPI Card Group Inc. Omnibus Plan

In conjunction with the completion of the IPO, the Company adopted the Omnibus Plan pursuant to which cash and equity based incentives may be granted to participating employees, advisors and directors. The Company has reserved 4,000,000 shares of common stock for issuance under the Omnibus Plan. During the year ended December 31, 2015, the Company granted awards of stock options for 795,450 shares of common stock at an exercise price of $10 per share, including 770,450 options granted in connection with the IPO. The options will generally vest 33.4%, 33.3%, and 33.3% on the second, third and fourth anniversary dates following the grant date.

Outstanding and exercisable stock options under the Omnibus Plan are as follows:


				Weighted-
		Weighted-		Average
		Average		Remaining
		Exercise		Contractual Term
	Options	Price		(in Years)
Outstanding as of December 31, 2014	—	$	—	—
Granted	795,450		10.00	10.00
Forfeited	—		—	—
Outstanding as of December 31, 2015	795,450	$	10.00	9.80

Unvested options as of December 31, 2015, vest as follows:


2016		—
2017		265,150
2018		265,150
2019		265,150
Total unvested options as of December 31, 2015		795,450

Compensation expense for the Omnibus Plan for the year ended December 31, 2015 was $239. As of December 31, 2015, the total unrecognized compensation expense related to unvested options was $2,470, which the Company expects to recognize over an estimated weighted average period of 2.8 years. The aggregate intrinsic value of stock option awards outstanding under the Omnibus Plan as of December 31, 2015 was $525.

The fair value of the stock options granted under the Omnibus Plan was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:


	Year
	ended
	December
	31, 2015
Expected term in years	6.5
Volatility	36.7	%
Risk-free interest rate	1.8	%
Dividend yield	1.3	%

Expected term – The Company estimated the expected term based on the average of the weighted-average vesting period and the contractual term of the stock option awards by utilizing the “simplified method”, as the Company does not have sufficient available historical data to estimate the expected term of these stock option awards.

Volatility – The expected volatility percentage of 36.7% was based on a peer group average historical volatility over the expected option term. The peer group was based on financial technology companies that completed an initial public offering of common stock from 2007 through 2014.

Risk-free interest rate – The risk-free interest rate of 1.8% was determined by using the United States Treasury rate for the period that coincided with the expected option term described above.

Dividend yield – The Company’s expected annual dividend yield in the current year was determined based on an estimated annual dividend divided by the expected share price for the Company’s common stock on the initial public offering date.

CPI Holdings I, Inc. Amended and Restated 2007 Stock Option Plan

In 2007, the Company’s Board of Directors adopted the CPI Holdings I, Inc. Amended and Restated 2007 Stock Option Plan (the “Option Plan”). Under the provisions of the Option Plan, stock options and restricted stock awards may be granted to employees, directors, and consultants at an exercise price greater than or equal to the fair market value of a share on the date the option is granted.

As a result of the Company’s adoption of its Omnibus Plan in conjunction with its IPO, as further described above, no further awards will be made under the Option Plan. The outstanding stock options have a 10-year life and vest, as noted, in each respective grant letter. All stock options are nonqualified.

Outstanding and exercisable stock options under the Option Plan are as follows:


				Weighted-
		Weighted-		Average
		Average		Remaining
		Exercise		Contractual Term
	Options	Price		(in Years)
Outstanding as of January 1, 2013	528,000	$	0.0004	7.48
Granted	165,000		0.0005
Forfeited	(44,000)		0.0005
Outstanding as of December 31, 2013	649,000	$	0.0004	7.35
Forfeited	(22,000)		0.0001
Outstanding as of December 31, 2014	627,000	$	0.0004	6.44
Exercised	(66,000)		0.0005
Forfeited	(99,000)		0.0003
Outstanding as of December 31, 2015	462,000	$	0.0003	5.57

Exercisable as of December 31, 2015	421,667	$	0.0004	5.48

Unvested options as of December 31, 2015 vest as follows:


2016		40,333
Total		40,333

Compensation expense and unrecorded compensation expense related to options previously granted under the Option Plan, for the years ended December 31, 2015, 2014 and 2013, were de minimis. The aggregate intrinsic value of stock option awards outstanding and exercisable under the Option Plan as of December 31, 2015 was $4,925 and $4,495, respectively.

During the year ended December 31, 2015, the Company issued 191,664 restricted shares of common stock to executives of the Company. The awards contain conditions associated with continued employment or service. The terms of the non-vested restricted shares of common stock provide voting and regular dividend rights to the holders of the restricted shares of common stock, and accordingly are included in weighted-average shares outstanding in the Company’s basic earnings per share calculation. See Note 14 “Earnings per Share”. Upon vesting, the restrictions lapse and the shares are considered issued and outstanding. The restricted shares vest over one to three year periods.

The following table summarizes the changes in the number of outstanding restricted shares of common stock for the year ended December 31, 2015:


		Weighted-
		Average
		Grant Date
	Shares	Fair Value
Outstanding as of December 31, 2014	—	$	—
Granted	191,664		9.48
Vested	—		—
Forfeited	—		—
Outstanding as of December 31, 2015	191,664	$	9.48

Total compensation expense related to the unvested restricted shares of common stock awards was $646 for the year ended December 31, 2015. As of December 31, 2015, there was $1,171 of total remaining unrecognized compensation expense related to non-vested restricted shares of common stock that will be recognized over a weighted average period of 1.24 years.