11. 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 March 31, 2017, there were 1,460,029 shares available for grant under the Omnibus Plan.

During the three months ended March 31, 2017, the Company granted awards of non-qualified stock options under the Omnibus Plan for 785,370 shares of common stock. The stock option awards were granted at various times during the quarter. All stock option grants have a 10-year term, and will generally vest ratably over a three-year period beginning on the first anniversary of the grant date. As of March 31, 2017, there are no exercisable options outstanding under the Omnibus Plan.

Outstanding 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, 2016	1,437,508	$	8.62
Granted	785,370		4.31
Forfeited	(7,000)		10.00
Outstanding as of March 31, 2017	2,215,878	$	7.06	9.14

Unvested options as of March 31, 2017 will vest as follows:


2017		377,305
2018		744,389
2019		715,109
2020		366,938
2021		12,137
Total unvested options as of March 31, 2017		2,215,878

The fair value of the stock option awards was determined using a Black-Scholes option-pricing model with the following average assumptions:


	Three Months
	Ended
	March
	31, 2017
Expected term in years	6.0
Volatility	33.7	%
Risk-free interest rate	2.1	%
Dividend yield	4.1	%

During the three months ended March 31, 2017, the Company granted awards of restricted stock units for 114,446 shares of common stock. The restricted stock units contain conditions associated with continued employment or service, and a majority will vest three years from the date of grant. On the vesting date, 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 three month period ended March 31, 2017:


		Weighted-
		Average
		Grant Date
	Shares	Fair Value
Outstanding as of December 31, 2016	270,466	$	7.13
Granted	114,446		4.32
Vested	(198,149)		7.91
Forfeited	—
Outstanding as of March 31, 2017	186,763	$	4.59

During the three months ended March 31, 2017, the Company granted awards of 932,837 cash performance units with a grant date fair value of $663. These awards will settle in cash in three annual payments on the first, second and third anniversaries of the date of grant. The cash performance units are based on the performance of the Company’s stock price, measured based on the Company’s stock price at each of the first, second, and third anniversaries of the grant date compared to the Company’s stock price on the date of grant. The cash performance units were valued using a Monte Carlo simulation. The Monte Carlo model used the following valuation assumptions based on the 3-year term of the awards: leverage adjusted peer volatility of 48%, risk free rate of 1.5%, and a dividend yield of 4.0%. The Company recognizes compensation expense on a straight-line basis for each annual performance period. The cash performance units are accounted for as a liability and remeasured to fair value at the end of each reporting period. As of March 31, 2017, the amount of liability recorded for cash performance units was not material.

The following table summarizes the changes in the number of outstanding cash performance units for the three month period ended March 31, 2017:


		Weighted-Average
	Units	Grant Date Fair Value

Outstanding as of December 31, 2016	—	$	—
Granted	932,837		0.71
Vested	—		—
Forfeited	—		—
Outstanding as of March 31, 2017	932,837	$	0.71

Compensation expense for the Omnibus Plan for the three months ended March 31, 2017 and March 31, 2016 was $689 and $422, respectively. As of March 31, 2017, the total unrecognized compensation expense related to unvested options, restricted stock units, and cash performance unit awards under the Omnibus Plan was $3,824, which the Company expects to recognize over an estimated weighted average period of 1.9 years.

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 the Omnibus Plan, as further described above, no further awards will be made under the Option Plan. The outstanding stock options under the Option Plan are non-qualified, have a 10-year life and are fully vested as of March 31, 2017.

The following table summarizes the changes in the number of outstanding stock options under the Option Plan for the three-month period ended March 31, 2017:


				Weighted-
				Average
				Remaining
		Weighted- Average		Contractual Term
	Options	Exercise Price		(in Years)

Outstanding and Exercisable as of December 31, 2016	216,334	$	0.0004
Granted	—		—
Exercised	(106,334)		0.0003
Forfeited	—		—
Outstanding and Exercisable as of March 31, 2017	110,000	$	0.0004	5.17

There was no compensation expense related to options previously granted under the Option Plan for the three months ended March 31, 2017, as all options were fully vested. The aggregate intrinsic value of stock option awards outstanding and exercisable under the Option Plan as of March 31, 2017 was $462.

Other Stock-Based Compensation Awards

During June 2015, the Company issued 191,664 restricted shares of common stock to executives with a weighted-average grant date fair value of $9.48 per share. 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, and accordingly are included in weighted-average shares outstanding in the Company’s basic earnings per share calculation. See Note 9, “(Loss) Earnings per Share”. As of March 31, 2017, 94,864 restricted shares of common stock were outstanding, which vest over a three-year period from the grant date. The executive holding the remaining restricted shares changed employment status to a consultant during the first quarter of 2017. Accordingly, the Company remeasured the awards and reduced stock-based compensation expense by $143 during the three months ended March 31, 2017. Compensation expense for the three month period ended March 31, 2016 was $323.