17. Stock Based Compensation

CPI Card Group Inc. Omnibus Incentive Plan

During October 2015, the Company adopted the CPI Card Group Inc. Omnibus Incentive Plan (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. As of December 31, 2016, there were 2,281,135 shares available for grant under the Omnibus Plan.

During the year ended December 31, 2016, the Company granted awards of non-qualified stock options under the Omnibus Plan for 785,058 shares of common stock. The options have a 10 year term and will generally vest ratably over either a three year period beginning on the first anniversary of the grant date, or a four year period beginning on the second anniversary of 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
Outstanding as of December 31, 2015	795,450	$	10.00
Granted	785,058		7.38
Forfeited	(143,000)		10.00
Outstanding as of December 31, 2016	1,437,508	$	8.62	8.98

Unvested options as of December 31, 2016, vest as follows:


2017		379,643
2018		469,627
2019		469,352
2020		118,886
Total unvested options as of December 31, 2016		1,437,508

Stock options were granted under the Omnibus Plan at various times during the year ended December 31, 2016. The fair value of stock option awards was determined at the date of grant using either a Monte Carlo simulation, or a Black-Scholes option-pricing model with the following average assumptions:



	Year ended
	December 31, 2016
Expected term in years	6.3
Volatility	35.4	%
Risk-free interest rate	1.5	%
Dividend yield	3.3	%

Expected term – For option grants valued using a Black-Scholes option-pricing model, 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. Certain other stock options were granted with an exercise price of $10 per share, and were valued using a Monte Carlo simulation. The Monte Carlo model simulates many future stock price paths, and assumes the exercise of vested options will occur uniformly once the options are projected to be in-the money.

Volatility – The expected volatility percentage 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 within the last 10 years.

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

Dividend yield – The estimated dividend yield is based on the Company’s recent historical dividend practice and the market value of its common stock.

During the year ended December 31, 2016, the Company granted awards of restricted stock units for 305,234 shares of common stock. The restricted stock unit awards contain conditions associated with continued employment or service, and generally vest one year from the date of grant. On the vesting dates, shares of common stock will be issued to the award recipients.

The following table summarizes the changes in the number of outstanding restricted stock units for the year ended December 31, 2016:


		Weighted-
		Average
		Grant Date
	Shares	Fair Value
Outstanding as of December 31, 2015	—	$	—
Granted	305,234		7.22
Vested	(15,803)		7.91
Forfeited	(18,965)		7.91
Outstanding as of December 31, 2016	270,466	$	7.13

Compensation expense for the Omnibus Plan for the years ended December 31, 2016 and December 31, 2015 was $2,770 and $239, respectively. As of December 31, 2016, the total unrecognized compensation expense related to unvested options and restricted stock units under the Omnibus Plan was $2,467, which the Company expects to recognize over an estimated weighted average period of 1.6 years. There was no aggregate intrinsic value of stock option awards outstanding under the Omnibus Plan as of December 31, 2016.

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 may be granted to employees, directors, and consultants at an exercise price greater than or equal to (and not less than) 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, 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. No stock options were granted during the years ended December 31, 2016, 2015 and 2014.

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, 2014	649,000	$	0.0004
Forfeited	(22,000)		0.0001
Outstanding as of December 31, 2014	627,000	$	0.0004
Exercised	(66,000)		0.0005
Forfeited	(99,000)		0.0003
Outstanding as of December 31, 2015	462,000	$	0.0003
Exercised	(245,666)		0.0003
Outstanding as of December 31, 2016	216,334	$	0.0004	5.34

Exercisable as of December 31, 2016	216,334	$	0.0004	5.34

Compensation expense and unrecorded compensation expense related to options previously granted under the Option Plan, for the years ended December 31, 2016, 2015 and 2014, were de minimis. The aggregate intrinsic value of stock option awards outstanding and exercisable under the Option Plan as of December 31, 2016 was $898.

Other Stock-Based Compensation Awards

During June 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 unvested 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”. The remaining unvested restricted shares vest over a three year period from the original grant date.

The following table summarizes the changes in the number of outstanding restricted shares of common stock:


		Weighted-
		Average
		Grant Date
	Shares	Fair Value
Outstanding as of December 31, 2014	—	$	—
Granted	191,664		9.48
Outstanding as of December 31, 2015	191,664	$	9.48
Vested	(96,800)		9.48
Outstanding as of December 31, 2016	94,864	$	9.48

Total compensation expense related to the restricted shares of common stock awards was $809 and $646 for the years ended December 31, 2016 and December 31, 2015, respectively. As of December 31, 2016, there was $326 of total remaining unrecognized compensation expense related to the unvested restricted shares of common stock that will be recognized over a weighted average period of 1.15 years.

Phantom Stock Plan

Effective January 1, 2012, the Company’s Board of Directors adopted the CPI Acquisition, Inc. Phantom Stock Plan (“Phantom Stock Plan”) to provide incentive compensation to certain key employees. In conjunction with the Company’s IPO, the Phantom Stock Plan was terminated and all outstanding liabilities under the plan were settled. During the year ended December 31, 2015, payments of $13,892 were made under the plan, and no liability existed as of December 31, 2015.

Under the terms of the Phantom Stock Plan, holders of an award were entitled to a cash payment equal to the difference between the fair market value of the award, as defined in the agreement, at the time of exercise and the award’s exercise price. The Company measured the liability at intrinsic value, with changes in the intrinsic value of the liability recognized as expense each year in the Consolidated Statements of Operations and Comprehensive Income.

During the years ended December 31, 2015 and 2014, the Company recognized compensation expense of $8,748 and $4,534 respectively, related to this plan.