12. Stock-Based Compensation Plans

Employee Stock Purchase Plan

Under the Company’s 1999 Employee Stock Purchase Plan (the “ESPP”), a total of 4,500,000 shares of the Company’s common stock have been reserved for issuance to eligible employees. Participating employees are permitted to designate up to the lesser of $25,000 or 10% of their annual base compensation, for the purchase of common stock under the ESPP. Purchases under the ESPP are made one calendar month after the end of each fiscal quarter. The price for shares of common stock purchased under the ESPP is 85% of the stock’s fair market value on the last business day of the three-month participation period. Shares issued under the ESPP during the years ended December 31, 2016, 2015, and 2014, totaled 188,453, 162,058, and 154,223, respectively.

Additionally, the discount offered pursuant to the Company’s ESPP discussed above is 15%, which exceeds the 5% non-compensatory guideline in ASC 718 and exceeds the Company’s estimated cost of raising capital. Consequently, the entire 15% discount to employees is deemed to be compensatory for purposes of calculating expense using a fair value method. Compensation costs related to the ESPP for the years ended December 31, 2016, 2015, and 2014 was approximately $0.5 million.

On July 24, 2007, the Company’s stockholders approved a proposal to amend the ESPP to extend the term of the ESPP by ten years to April 30, 2018. The term of the amended ESPP commenced May 1, 2008 and continues until April 30, 2018 subject to earlier termination by the Board.

Stock Incentive Plans – Active Plans

2016 Equity and Performance Incentive Plan

On March 23, 2016, the Board approved the 2016 Equity and Performance Incentive Plan (the “2016 Incentive Plan”). The 2016 Incentive Plan is intended to meet the Company’s objective of balancing stockholder concerns about dilution with the need to provide appropriate incentives to achieve Company performance objectives. The 2016 Incentive Plan was adopted by the stockholders on June 14, 2016. Following the adoption of the 2016 Incentive Plan, the 2005 Equity and Performance Incentive Plan, as amended (the “2005 Incentive Plan”) was terminated. Termination of the 2005 Incentive Plan did not affect any equity awards outstanding under the 2005 Incentive Plan.

The 2016 Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, performance awards, and other awards (“Awards”). Subject to adjustment in certain circumstances, the maximum number of shares of Common Stock that may be issued or transferred in connection with Awards granted under the 2016 Incentive Plan will be the sum of (i) 8,000,000 shares of Common Stock and (ii) any shares of Common Stock that are represented by options previously granted under the 2005 Incentive Plan which are forfeited, expire, or are canceled without delivery of common stock or which result in the forfeiture or relinquishment of Common Stock back to the Company. To the extent Awards granted under the 2016 Incentive Plan terminate, expire, are canceled without being exercised, are forfeited or lapse for any reason, the shares of Common Stock subject to such Award will again become available for grants under the 2016 Incentive Plan.

The 2016 Incentive Plan expressly prohibits re-pricing stock options and appreciation rights. The 2016 Incentive Plan also, subject to certain limited exceptions, expressly requires a one-year vesting period for all stock options and appreciation rights.

No eligible person selected by the Board to receive awards (“Participant”) will receive stock options, stock appreciation rights, restricted stock, restricted stock units, and other awards under the 2016 Incentive Plan, during any calendar year, for more than 3,000,000 shares of common stock. In addition, no Participant may receive performance shares or performance units having an aggregate value on the date of grant in excess of $9,000,000 during any calendar year. Each of the limits described above may be adjusted equitably to accommodate a change in the capital structure of the Company.

Stock options granted pursuant to the 2016 Incentive Plan are granted at an exercise price not less than the market value per share of the Company’s common stock on the date of the grant. Under the 2016 Incentive Plan, the term of the outstanding options may not exceed ten years nor be less than one year. Vesting of options is determined by the Compensation Committee of the Board of Directors, the administrator of the 2016 Incentive Plan, and can vary based upon the individual award agreements. In addition, outstanding options do not have dividend equivalent rights associated with them under the 2016 Incentive Plan.

The Board may issue or transfer shares of common stock to Participants under a restricted stock grant for consideration or no consideration, and subject to restrictions, as determined by the Board. All restricted stock Awards will transfer ownership of such shares of restricted stock to the Participant and entitle the Participant to voting, dividend and other ownership rights, but the Participant’s ownership of the restricted shares shall be subject to substantial risk of forfeiture and restrictions on transfer. The Board may establish conditions under which restrictions will lapse over a period of time based upon the achievement of performance goals or according to such other criteria as the Board deems appropriate (the “Restriction Period”). An Award Agreement for restricted stock Awards may specify any Management Objectives that, if achieved, will result in the termination or early termination of the restrictions on the restricted shares including, without limitation, any minimum acceptable levels of achievement or formulas for determining the number of restricted shares on which the restrictions will terminate.

The Board may award Participants “Performance Shares” or “Performance Units” (collectively, “Performance Awards”) which will become payable to a Participant upon the achievement of specified “Management Objectives”, which are measurable objectives established for Participants. Each Award Agreement for Performance Awards will specify: (i) the number of Performance Shares or Performance Units granted; (ii) the period of time established for the Participant to achieve the Management Objectives (the “Performance Period”); (iii) the Management Objectives and a minimum acceptable level of achievement as well as a formula for determining the number of Performance Shares or Performance Units earned if performance is at or above the minimum level but short of full achievement of the Management Objectives; and (iv) any other terms that the Board may deem appropriate.

2005 Equity and Performance Incentive Plan

The Company had a 2005 Incentive Plan, under which shares of the Company’s common stock have been reserved for issuance to eligible employees or non-employee directors of the Company. The 2005 Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, performance awards and other awards. The maximum number of shares of the Company’s common stock that may be issued or transferred in connection with awards granted under the 2005 Incentive Plan is the sum of (i) 9,000,000 shares and (ii) any shares represented by outstanding options that had been granted under designated terminated stock option plans that are subsequently forfeited, expire or are canceled without delivery of the Company’s common stock.

On July 24, 2007, the stockholders of the Company approved the First Amendment to the 2005 Incentive Plan which increased the number of shares authorized for issuance under the plan from 9,000,000 to 15,000,000 and contained certain other amendments, including an amendment to provide that the exercise price for any options granted under the 2005 Incentive Plan, as amended, may not be less than the market value per share of common stock on the date of grant. On June 14, 2012, the stockholders of the Company approved the Second Amendment to the 2005 Incentive Plan which increased the number of shares authorized for issuance under the plan from 15,000,000 to 23,250,000.

Stock options granted pursuant to the 2005 Incentive Plan are granted at an exercise price not less than the market value per share of the Company’s common stock on the date of the grant. Prior to the adoption of the First Amendment to the 2005 Incentive Plan, stock options granted under the 2005 Incentive Plan were granted with an exercise price not less than the market value per share of common stock on the date immediately preceding the date of grant. Under the 2005 Incentive Plan, the term of the outstanding options may not exceed ten years. Vesting of options is determined by the Compensation Committee of the Board of Directors, the administrator of the 2005 Incentive Plan, and can vary based upon the individual award agreements.

Supplemental options granted pursuant to the 2005 Incentive Plan are granted at an exercise price not less than the market value per share of the Company’s common stock on the date of the grant. These options vest, if at all, based upon (i) tranche one—any time after the third anniversary date if the stock has traded at 133% of the exercise price for at least 20 consecutive trading days, (ii) tranche two—any time after the fourth anniversary date if the stock has traded at 167% of the exercise price for at least 20 consecutive trading days, and (iii) tranche three—any time after the fifth anniversary date if the stock has traded at 200% of the exercise price for at least 20 consecutive trading days. The employees must also remain employed with the Company as of the anniversary date in order for the options to vest. The exercise price of the supplemental stock options is the closing market price on the date the awards were granted.

Performance awards granted pursuant to the 2005 Incentive Plan become payable upon the achievement of specified management objectives. Each performance award specifies: (i) the number of performance shares or units granted, (ii) the period of time established to achieve the management objectives, which may not be less than one year from the grant date, (iii) the management objectives and a minimum acceptable level of achievement as well as a formula for determining the number of performance shares or units earned if performance is at or above the minimum level but short of full achievement of the management objectives, and (iv) any other terms deemed appropriate.

Restricted stock awards granted pursuant to the 2005 Incentive Plan have requisite service periods of three years and vest in increments of 33%, respectively, on the anniversary of the grant date. Under each arrangement, stock is issued without direct cost to the employee. Restricted stock awards granted to our Board of Directors vest one year from grant or as of the next annual shareholders meeting, whichever is earlier.

A summary of stock options issued under the various Stock Incentive Plans previously described and changes is as follows:


	Number of Shares			Weighted- Average Exercise Price ($)		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value of In-the-Money Options ($)
Outstanding, December 31, 2013		7,408,821		$	11.02
Granted		27,132			20.13
Exercised		(2,036,558	)		8.08
Forfeited		(116,702	)		17.80

Outstanding, December 31, 2014		5,282,693			12.06
Granted		2,055,514			19.12
Exercised		(1,144,273	)		10.62
Forfeited		(394,265	)		19.06
Expired		(593	)		20.51

Outstanding, December 31, 2015		5,799,076			14.37
Granted		2,284,500			17.92
Exercised		(792,841	)		11.69
Forfeited		(446,845	)		18.69
Expired		(52,515	)		20.44

Outstanding, December 31, 2016		6,791,375		$	15.54		6.68	$	20,777,320



Exercisable, December 31, 2016		3,650,356		$	13.15		4.87	$	20,245,847

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2016, 2015, and 2014 was $5.59, $6.49, and $9.02, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2016, 2015, and 2014 was $6.8 million, $12.4 million, and $22.8 million, respectively.

The fair value of options granted in the respective fiscal years are estimated on the date of grant using the Black-Scholes option-pricing model, acceptable under ASC 718, with the following weighted-average assumptions:


	Years Ended December 31,
	2016			2015			2014
Expected life (years)		5.9			5.9			5.9
Risk-free interest rate		1.2	%		1.4	%		1.8	%
Expected volatility		29.7	%		32.1	%		45.2	%
Expected dividend yield		—			—			—

Expected volatilities are based on the Company’s historical common stock volatility derived from historical stock price data for historic periods commensurate with the options’ expected life. The expected life of options granted represents the period of time that options granted are expected to be outstanding, based primarily on historical employee option exercise behavior. The risk-free interest rate is based on the implied yield currently available on U. S. Treasury zero coupon issued with a term equal to the expected life at the date of grant of the options. The expected dividend yield is zero as the Company has historically paid no dividends and does not anticipate dividends to be paid in the future.

During the year ended December 31, 2016, the Company granted supplemental stock options with three tranches at a grant date fair value of $7.46, $7.06, and $6.50, respectively, per share. During the year ended December 31, 2015, the Company granted supplemental stock options with three tranches at a grant date fair value of $8.01, $7.56, and $7.00, respectively, per share. These options vest, if at all, based upon (i) tranche one—any time after the third anniversary date if the stock has traded at 133% of the exercise price for at least 20 consecutive trading days, (ii) tranche two—any time after the fourth anniversary date if the stock has traded at 167% of the exercise price for at least 20 consecutive trading days, and (iii) tranche three—any time after the fifth anniversary date if the stock has traded at 200% of the exercise price for at least 20 consecutive trading days. The employees must also remain employed with the Company as of the anniversary date in order for the options to vest. The exercise price of the supplemental stock options is the closing market price on the date the awards were granted. In order to determine the grant date fair value of the supplemental stock options, a Monte Carlo simulation model is used. With respect to options granted that vest based on the achievement of certain market conditions, the grant date fair value of such options was estimated using the following weighted-average assumptions:


	Years Ended December 31,
	2016			2015
Expected life (years)		7.5			7.5
Risk-free interest rate		1.6	%		1.7	%
Expected volatility		41.6	%		41.9	%
Expected dividend yield		—			—

Stock Incentive Plan – ORCC Corporation Stock Incentive Plan, as amended and restated

In relation to the acquisition of Online Resources Corporation (“ORCC”), the Company amended the ORCC Stock Incentive Plan, as previously amended and restated (the “ORCC Incentive Plan”). Stock options were granted to ORCC employees by ORCC prior to acquisition by the Company under the ORCC Incentive Plan. Outstanding ORCC options were converted into ACI options in accordance with the terms of the acquisition agreement. These are the only equity awards currently outstanding under the ORCC Incentive Plan and no further grants will be made.

A summary of transaction stock options issued pursuant to the Company’s stock incentive plans is as follows:


	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value of In-the-Money Options
Outstanding as of December 31, 2013		62,445		$	35.03
Exercised		(909	)		13.92
Cancelled		(15,024	)		31.03

Outstanding as of December 31, 2014		46,512			36.73
Exercised		(1,926	)		13.92
Cancelled		(23,550	)		44.83

Outstanding as of December 31, 2015		21,036			29.76
Exercised		(4,299	)		13.92
Cancelled		(2,634	)		40.51

Outstanding as of December 31, 2016		14,103		$	32.58		1.39	$	—

Exercisable as of December 31, 2016		14,103		$	32.58		1.39	$	—

Long-term Incentive Program Performance Share Awards

During the years ended December 31, 2016 and 2015, pursuant to the Company’s 2005 Incentive Plan, the Company granted LTIP Performance Shares. These LTIP Performance Shares are earned, if at all, based upon the achievement, over a specified period that must not be less than one year and is typically a three-year performance period, of performance goals related to (i) the compound annual growth over the performance period in the sales for the Company as determined by the Company, and (ii) the cumulative operating income or earnings before interest, income taxes, depreciation, and amortization (“EBITDA”) over the performance period as determined by the Company. In no event will any of the LTIP Performance Shares become earned if the Company’s sales growth or cumulative operating income/EBITDA is below a predetermined minimum threshold level at the conclusion of the performance period. Assuming achievement of the predetermined sales growth and cumulative operating income/EBITDA threshold levels, up to 200% of the LTIP Performance Shares may be earned upon achievement of performance goals equal to or exceeding the maximum target levels for the performance goals over the performance period. Management must evaluate, on a quarterly basis, the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment in order to determine the amount of compensation costs to record in the consolidated financial statements.

During the fourth quarter of the year ended December 31, 2014, the Company revised the expected attainment for the awards granted in fiscal years 2012 and 2013 from 100% to 0% and 75%, respectively, due to changes in forecasted sales and operating income. During the first quarter of the year ended December 31, 2015, the Company revised the expected attainment rate for the awards granted in fiscal 2011 from 100% to 91% due to changes in actual sales and operating income. During the third quarter of the year ended December 31, 2015, the Company revised the expected attainment rate for the awards granted in fiscal 2013 from 75% to 0% due to changes in forecasted sales and operating income. The expected attainment rate for the 2015 and 2016 grants remain at 100%.

At December 31, 2015, the LTIPs granted in 2012 were earned by the employees. As the expected attainment rate was 0% for the LTIPs granted in 2012, no shares were issued in the first quarter of 2016. At December 31, 2016, the LTIPs granted in 2013 were earned by the employees. As the expected attainment rate was 0% for the LTIPs granted in 2013, no shares will be issued in the first quarter of 2017.

A summary of the nonvested LTIP Performance Shares is as follows:


Nonvested LTIP Performance Shares	Number of Shares at Expected Attainment			Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2013		2,718,576		$	13.78
Granted		19,065			20.13
Vested		(635,643	)		8.88
Forfeited		(111,599	)		16.43
Change in expected attainment for 2012 and 2013 grants		(844,483	)		15.86

Nonvested at December 31, 2014		1,145,916			14.84
Granted		1,025,863			19.12
Vested		(548,671	)		9.75
Forfeited		(205,510	)		19.39
Change in expected attainment for 2011 and 2013 grants		(528,303	)		19.44

Nonvested at December 31, 2015		889,295			19.13
Granted		1,059,428			17.92
Forfeited		(210,667	)		18.61

Nonvested at December 31, 2016		1,738,056		$	18.45

During the years ended December 31, 2015 and 2014 the Company had 548,671 and 635,643 LTIP shares vest, respectively. The Company withheld 196,169 and 228,279 of those shares to pay the employees’ portion of the minimum payroll withholding taxes for the years ended December 31, 2015 and 2014, respectively.

Restricted Share Awards

During the years ended December 31, 2016, 2015, and 2014, pursuant to the Company’s 2016 Incentive Plan and 2005 Incentive Plan, the Company granted restricted share awards (“RSAs”). The awards have requisite service periods of three years and vest in increments of 33% on the anniversary of the grant dates. Under each arrangement, stock is issued without direct cost to the employee. RSAs granted to our Board of Directors vest one year from grant or as of the next annual shareholders meeting, whichever is earlier. The Company estimates the fair value of the RSAs based upon the market price of the Company’s stock at the date of grant. The RSA grants provide for the payment of dividends on the Company’s common stock, if any, to the participant during the requisite service period (vesting period) and the participant has voting rights for each share of common stock. The Company recognizes compensation expense for RSAs on a straight-line basis over the requisite service period.

A summary of nonvested RSAs are as follows:


Nonvested Restricted Share Awards	Restricted Share Awards			Grant Date Fair Value
Nonvested at December 31, 2013		145,065		$	14.91
Granted		106,275			18.57
Vested		(66,670	)		14.59
Forfeited		(1,461	)		20.51

Nonvested at December 31, 2014		183,209			17.11
Granted		125,026			23.82
Vested		(158,973	)		17.21

Nonvested at December 31, 2015		149,262			22.62
Granted		148,322			20.19
Vested		(114,219	)		22.64
Forfeited		(11,257	)		21.01

Nonvested at December 31, 2016		172,108		$	20.62

During the years ended December 31, 2016, 2015, and 2014, the Company had 114,219, 158,973, and 66,670 RSA shares vested, respectively. The Company withheld 9,062, 25,235, and 26,461 of those respective shares to pay the employees’ portion of the minimum payroll withholding taxes.

Performance-Based Restricted Share Awards

During the year ended December 31, 2015, pursuant to the Company’s 2005 Incentive Plan, the Company granted PBRSAs. The PBRSA grants provide for the payment of dividends on the Company’s common stock, if any, to the participant during the requisite service period (vesting period) and the participant has voting rights for each share of common stock. These PBRSA awards are earned, if at all, based upon the achievement of performance goals over a specific period (the “Performance Period”) and completion of the service period. The PBRSAs granted on June 9, 2015 have a graded-vesting period of three years (33% vest each year) and are subject to performance targets based on the Company’s EBITDA. The first 33% of the PBRSAs issued vest subject to meeting the EBITDA target based for the year ending December 31, 2015. The remaining 66% of the PBRSAs issued, vest 33% at the end of year two and 33% at the end of year three, subject to meeting the EBITDA target for the year ending December 31, 2016. The PBRSAs granted on September 15, 2015 have a vesting period of 1.3 years and are subject to performance targets based on the Company’s EBITDA for the year ending December 31, 2016. In no event will any of the PBRSA shares become earned if the Company’s EBITDA is below a predetermined minimum threshold level at the conclusion of the Performance Period. Assuming achievement of the predetermined EBITDA threshold level, up to 150% of the PBRSA shares may be earned upon achievement of performance goals equal to or exceeding the maximum target levels for the performance goals over the Performance Period. Management will evaluate, on a quarterly basis, the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment in order to determine the amount of compensation costs to record in the consolidated financial statements. Through December 31, 2015, the Company had accrued compensation costs assuming an attainment level of 100% for all PBRSA grants. The first tranche of the June 9^th grant vested at 90.4%. The remaining outstanding awards assume 100% attainment. The Company recognizes compensation expense for PBRSAs on a straight-line basis over the requisite service periods.

A summary of nonvested PBRSAs as of December 31, 2016 and changes during the period are as follows:


Nonvested Performance-Based Restricted Share Awards	Number of Performance-Based Restricted Share Awards			Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2014		—		$	—
Granted		978,365			23.45
Forfeited		(39,502	)		24.24

Nonvested as of December 31, 2015		938,863			23.42
Forfeited		(67,397	)		22.34
Vested		(169,567	)		24.41
Change in attainment for 2015 grants		(18,232	)		24.41

Nonvested as of December 31, 2016		683,667		$	23.25

During the year ended December 31, 2016, 169,567 shares of the PBRSAs vested. The Company withheld 59,659 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

Retention Restricted Share Awards

During the year ended December 31, 2016, pursuant to the Company’s 2005 Incentive Plan, the Company granted Retention RSAs. The Retention RSA awards granted to named executive officers have a requisite service period (vesting period) of 1.3 years and vest 50% on July 1, 2016 and 50% on July 1, 2017. Retention RSA awards granted to employees other than named executive officers have a vesting period of 0.8 years and vest 50% on July 1, 2016 and 50% on January 1, 2017. Under each agreement, stock is issued without direct cost to the employee. The Company estimates the fair value of the Retention RSAs based upon the market price of the Company’s stock at the date of grant. The Retention RSA grants provide for the payment of dividends on the Company’s common stock, if any, to the participant during the requisite service period and the participant has voting rights for each share of common stock. The Company recognizes compensation expense for Retention RSAs on a straight-line basis over the requisite service period.

A summary of nonvested Retention RSAs as of December 31, 2016 and changes during the period are as follows:


Nonvested Retention Restricted Share Awards	Number of Retention Restricted Share Awards			Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2015		—		$	—
Granted		473,069			17.89
Vested		(226,526	)		17.89
Forfeited		(41,003	)		17.89

Nonvested as of December 31, 2016		205,540		$	17.89

During the year ended December 31, 2016, 226,526 shares of the Retention RSAs vested. The Company withheld 76,421 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

PAY.ON Restricted Share Awards

Under the terms of the PAY.ON acquisition agreement, the Company issued PAY.ON RSAs to two key employees. The awards have requisite service periods of two years and vest in increments of 25% every six months from the date of the acquisition. The PAY.ON RSA grants provide for the payment of dividends on the Company’s common stock, if any, to the participant during the requisite service period (vesting period) and the participant has voting rights for each share of common stock. The Company recognizes compensation expense for the PAY.ON RSAs on a straight-line basis over the requisite service period.

A summary of nonvested PAY.ON RSAs as of December 31, 2016 and changes during the period are as follows:


Nonvested PAY.ON RSAs	Number of PAY.ON RSAs			Grant Date Fair Value
Nonvested at December 31, 2014		—		$	—
Granted		476,750			23.60

Nonvested at December 31, 2015		476,750			23.60
Vested		(238,374	)		23.60

Nonvested at December 31, 2016		238,376		$	23.60

As of December 31, 2016, there were unrecognized compensation costs of $12.0 million related to nonvested stock options, $2.0 million related to the nonvested RSAs, $18.0 million related to the LTIP performance shares, $3.2 million related to nonvested PBRSAs, and $0.5 million related to nonvested Retention RSAs, which the Company expects to recognize over weighted-average periods of 1.9 years, 1.3 years, 2.0 years, 1.1 years, and 0.5 years, respectively.

The Company recorded stock-based compensation expenses recognized under ASC 718 during the years ended December 31, 2016, 2015, and 2014 related to stock options, LTIP Performance Shares, RSAs, PBRSAs, and the ESPP of $43.6 million, $18.4 million, and $11.0 million, respectively, with corresponding tax benefits of $14.3 million, $6.9 million, and $4.2 million, respectively. The Company recognizes compensation costs for stock option awards which vest with the passage of time with only service conditions on a straight-line basis over the requisite service period. The Company recognizes compensation costs for stock option awards that vest with service and market-based conditions on a straight-line basis over the longer of the requisite service period or the estimated period to meet the defined market-based condition.