Note 6 – Stock Based Compensation

Stock based compensation expense is recorded within general and administrative expenses.

PetIQ, Inc. Omnibus Incentive Plan

The PetIQ, Inc. Omnibus Incentive Plan (the “Plan”) provides for the grant of various equity-based incentive awards to directors of the Company, employees, and consultants. The types of equity-based awards that may be granted under the Plan include: stock options, stock appreciation rights (SARs), restricted stock, restricted stock units (RSUs), and other stock-based awards. The Company initially reserved 1,914,047 registered shares of Class A common stock for issuance under the Plan. As of September 30, 2017, 1,109,998 shares were available for issuance under the Plan. All awards issued under the Plan may only be settled in shares of Class A common stock.

Stock Options

The Company awards stock options to certain employees and directors under the Plan, which are subject to time-based vesting conditions, typically 25% on each anniversary of the grant date until fully vested. Upon a termination of service relationship by the Company, all unvested options will be forfeited and the shares of common stock underlying such awards will become available for issuance under the Plan. The maximum contractual term for stock options is 10 years

The fair value of these equity awards is amortized to equity based compensation expense over the vesting period, which totaled $246 for the three and nine months ended September 30, 2017. All stock based compensation expense is included in general and administrative expenses based on the role of recipients. The fair value of the stock option awards was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions for the period ended September 30:


	2017
Expected term (years) (1)		6.25
Expected volatility (2)		35.00	%
Risk-free interest rate (3)		1.98	%
Dividend yield (4)		0.00	%

⁽¹⁾

The Company utilized the simplified method to determine the expected term of the stock options since we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

⁽²⁾

The expected volatility assumption was calculated based on a peer group analysis of stock price volatility with a look back period consistent with the expected option term.

⁽³⁾

The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds to the expected term of the stock options.

⁽⁴⁾

The Company has not paid and does not anticipate paying a cash dividend on our common stockThe following table summarizes the activity of the Company’s unvested stock options for the period ended September 30, 2017:

The following table summarizes the activity of the Company’s unvested stock options for the period ended September 30, 2017:

Weighted

Average

Weighted

Remaining

Average

Aggregate

Contractual

Stock

Exercise

Intrinsic

Life

Options

Price

Value

(years)

Outstanding at December 31, 2016

—

Granted

804,049

Exercised

—

Forfeited

—

Cancelled

—

Outstanding at September 30, 2017

804,049

8,909

9.8

Options exercisable at September 30, 2017

—

The grant date fair value of stock options granted during the period ended September 30, 2017 was $6.08 per option. At September 30, 2017, total unrecognized compensation cost related to unvested stock options was $4.4 million and is expected to be recognized over a weighted-average period of 3.8 years.