Note 15—Share-based Compensation

Equity Incentive Plans

On September 30, 2010, Holdings Board of Directors adopted the Carib Holdings, Inc. 2010 Equity Incentive Plan (the “2010 Plan”) to grant stock options, rights to purchase shares, restricted stock units and other stock-based rights to employees, directors, consultants and advisors. On April 17, 2012, in connection with the Reorganization, EVERTEC, Inc. assumed the 2010 Plan and all of the outstanding equity awards issued thereunder or subject thereto. EVERTEC, Inc. reserved 5,843,208 shares of its common stock for issuance upon exercise and grants of stock options, restricted stock and other equity awards under the 2010 Plan.

In connection with the Company’s initial public offering, the Company adopted the EVERTEC, Inc. 2013 Equity Incentive Plan (the “2013 Plan” and, together with the 2010 Plan, the “Equity Incentive Plans”). Under the 2013 Plan, 5,956,882 shares of its common stock are reserved for issuance upon exercise and grants of stock options, restricted stocks and other equity awards. In connection with the adoption of the 2013 Plan, the 2010 Plan remains in effect. However, no new awards will be granted under the 2010 Plan. The Equity Incentive Plans have a contractual term of ten years.

Long-term Incentive Plan

In the first quarter of 2015, the Compensation Committee of the Board of Directors approved grants of restricted stock units (“RSUs”) to executives and certain employees pursuant to the 2015 Long-Term Incentive Program (“LTIP”) under the terms of our 2013 Equity Incentive Plan. Under the LTIP, the Company granted restricted stock units to eligible participants as time-based awards and/or performance-based awards.

The vesting of the RSUs is dependent upon service, market, and/or performance conditions as defined in the grants. Employees that received time-based awards with service conditions are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the employee is providing services to the Company on the vesting date. Time-based awards vest over a period of three years in substantially equal installments commencing on the start of the fiscal year during which the RSUs were granted and ending on January 1st of each year. Employees that received awards with market conditions are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the Company’s total shareholder return (“TSR”) target relative to a specified group of industry peer companies is achieved. Employees that received awards with performance conditions are entitled to receive a specific number of shares of the Company’s common stock on the vesting date if the Cumulative Compound Annual Growth Rate (“CAGR”) of Diluted EPS target is achieved. Performance and market-based awards vest at the end of the performance period which commenced on the start of the fiscal year during which the RSUs were granted and ends on January 1, 2018. Awards are forfeited if the employee voluntarily ceases to be employed by the Company prior to vesting.

The following table summarizes the stock options activity for the years ended December 31, 2015, 2014 and 2013:


	Shares			Weighted-average exercise prices
Outstanding at December 31, 2012		5,177,582		$	2.06
Granted		150,000			23.36
Exercised		(4,042,046	)		1.99

Outstanding at December 31, 2013		1,285,536		$	4.77
Granted		100,000			24.01
Forfeitures		(31,164	)		1.30
Exercised ⁽¹⁾		(945,040	)		1.96
Repurchased		(93,332	)		4.83

Outstanding at December 31, 2014		316,000		$	19.56
Expired		(50,000	)		23.36
Forfeitures		(126,000	)		18.81

Outstanding at December 31, 2015		140,000		$	18.88

Exercisable at December 31, 2015		33,333		$	24.01

⁽¹⁾	At December 31, 2014, the total intrinsic value of options exercised during the year amounted to $19.3 million.

The following table presents information about fully vested stock options for the years ended December 31, 2015, 2014 and 2013:


	Years ended December 31,
	2015				2014				2013
	Shares		Weighted average exercise price		Shares		Weighted average exercise price		Shares		Weighted average exercise price
Vested stock options ^(1)(2)(3)		33,333	$	24.01		766,995	$	3.75		3,757,099	$	2.07

⁽¹⁾	At December 31, 2015, there is no intrinsic value for vested stock options as the options are out-of-the-money. For December 31, 2014 and 2013, the aggregate intrinsic value amounted to $14.0 million and $84.9 million, respectively.

⁽²⁾	The weighted average contractual term of fully vested options is 8.16 years, 6.06 years and 7.04 years as of December 31, 2015, 2014 and 2013, respectively.

⁽³⁾	The fair value of vested stock options at December 31, 2015, 2014 and 2013 amounted to $1.4 million, $17.0 million and $92.7 million, respectively.

Management uses the fair value method of recording stock-based compensation as described in the guidance for stock compensation in ASC topic 718. The fair value of stock options granted during 2014 and 2013, none were granted in 2015, was estimated using the Black-Scholes-Merton (“BSM”) option pricing model, with the following assumptions:


	Years ended December 31,
	2014			2013
	Stock options granted under the 2013 Plan			Stock options granted under the 2010 Plan
Stock Price	$	24.01 per share		$	23.36 per share
Risk-free rate		1.80	%		1.68	%
Expected volatility		36.98	%		36.56	%
Expected annual dividend yield		1.63	%		1.71	%
Expected term		6 years			6 years

The risk-free rate is based on the U.S. Constant Maturities Treasury Interest Rate as of the grant date. The expected volatility is based on a combination of historical volatility and implied volatility from public trade companies in the Company’s industry. The expected annual dividend yield is based on management’s expectations of future dividends as of the grant date. The expected term for stock options granted under the 2010 Plan was based on the vesting time of the options. For the stock options granted under the 2013 Plan, the simplified method was used to estimate the expected term.

The following table summarizes the nonvested restricted shares and RSUs activity for the years ended December 31, 2015, 2014 and 2013:


Nonvested restricted shares and RSUs	Shares			Weighted-average grant date fair value
Nonvested at December 31, 2012		115,420		$	5.90
Granted		9,133			24.64
Vested		(115,420	)		5.90

Nonvested at December 31, 2013		9,133		$	24.64
Granted		23,252			22.04
Vested		(9,133	)		24.64

Nonvested at December 31, 2014		23,252		$	22.04
Granted		596,238			22.24
Vested		(94,550	)		21.33
Forfeited		(33,214	)		23.61

Nonvested at December 31, 2015		491,726		$	22.32

Share-based compensation recognized was as follows:


	Years ended December 31,
(Dollar amounts in thousands)	2015		2014		2013
Share-based compensation recognized, net
Stock options	$	193	$	4,305	$	5,820
Restricted shares and RSUs		5,011		282		359

Pursuant to the terms of the 2010 Plan, Tranche A stock options will generally vest in five equal installments, except for some grants as specified in the stock agreement, Tranche B options granted to employees and certain directors would vest at such time as the Investor Internal Rate of Return (“IRR”) equals or exceeds 25%, except for one grant that vests upon a 20% IRR, based on cash proceeds received by Apollo Investment Fund VII, L.P. (the “Investor”), and Tranche C options would vest at such time as the IRR equals or exceeds 30% based on cash proceeds received by the Investor.

As a result of the Initial Public Offering, the IRR required by the Tranche B and C options was achieved and accordingly, all Tranche B and C options became vested. As a result, the Company recognized a share-based compensation expense of $4.9 million in April 2013.

The unrecognized share-based compensation expense related to the stock options amounting to $0.3 million is expected to be recognized over a weighted average period of 1.3 years.

The maximum unrecognized cost for restricted stock units was $7.8 million as of December 31, 2015. The cost is expected to be recognized over a weighted average period of 2.2 years.