Stock Based Compensation

Equity Plans

2007 Manager Equity Plan

The Care Investment Trust Inc. Manager Equity Plan (Manager Plan) was adopted in June 2007. On June 6, 2017, the 134,629 remaining shares of Class A common stock available for issuance under the Manager Plan was rolled into the 2017 Equity Plan and the Manager Plan was simultaneously terminated.

2013 Omnibus Incentive Plan

The Company adopted the Tiptree 2013 Omnibus Incentive Plan (2013 Equity Plan) on August 8, 2013, which permits the grant of stock units, stock, and stock options up to a maximum of 2,000,000 shares of Class A common stock. On June 6, 2017, the 7,359 remaining shares of Class A common stock available for issuance under the 2013 Equity Plan was rolled into the 2017 Equity Plan and the 2013 Equity Plan was simultaneously terminated.

2017 Omnibus Incentive Plan

The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of stock units, stock, and stock options up to a maximum of 6,100,000 shares of Class A common stock, which consists of 5,958,012 shares of Class A common stock reserved for issuance under the 2017 Equity Plan, 134,629 shares of Class A common stock rolled over from the Manager Plan and 7,359 shares of Class A common stock rolled over from the 2013 Equity Plan. The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on the 10th anniversary of its adoption.

The table below summarizes changes to the issuances under the Company’s 2013 and 2017 Equity Plan for the periods indicated:



2013 Equity Plan	Number of shares ⁽¹⁾
Available for issuance as of December 31, 2016	961,650
Shares granted	(954,291	)
Shares rolled into 2017 Equity Plan	(7,359	)
Available for issuance as of June 30, 2017	—

2017 Equity Plan	Number of shares ⁽¹⁾
Available for issuance as of December 31, 2016	—
Available from 2007 Manager Plan	134,629
Available from 2013 Equity Plan	7,359
Available from 2017 Equity Plan	5,958,012
Shares granted	(60,000	)
Available for issuance as of June 30, 2017	6,040,000

(1) Excludes shares granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree Class A common stock.

Restricted stock units (RSUs)

Generally, the Tiptree RSUs shall vest and become nonforfeitable with respect to one-third of Tiptree shares granted on each of the first, second and third anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period.

The following table summarizes changes to the issuances of Class A common stock and RSUs under the 2017 Equity Plan for the periods indicated:



	Number of shares issuable		Weighted Average Grant Date Fair Value
Unvested units as of December 31, 2016	299,817		$	6.27
Granted ⁽¹⁾	443,664		6.59
Vested	(131,012	)	6.31
Unvested units as of June 30, 2017	612,469		$	6.49

(1) Includes grants of 16,176 shares of Class A common stock to directors.

The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Included in vested shares for 2017 are 12,087 shares surrendered to pay taxes on behalf of the employees with shares vesting. During the six months ended June 30, 2017, the Company granted 427,488 RSUs to employees of the Company. 142,175 shares vest ratably over a period of three years that began in February 2017 and the remaining 285,313 shares will cliff vest in February 2020.

Subsidiary Incentive Plans

Certain of Tiptree’s subsidiaries have established RSU programs under which they are authorized to issue RSUs or their equivalents, representing equity of such subsidiaries to certain of their employees. Such awards are accounted for as equity. These RSUs are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting RSUs) and time-vesting subject to continued employment (time vesting RSUs). Following the service period, such vested RSUs may be exchanged at fair market value, at the option of the holder, for Tiptree Class A common stock under the 2017 Equity Plan. The Company has the option, but not the obligation to settle the exchange right in shares or cash.

The following table summarizes changes to the issuances of subsidiary RSU’s under the subsidiary incentive plans for the periods indicated:



	Grant date fair value of equity shares issuable
Unvested balance as of December 31, 2016	$	8,089
Vested	(2,055		)
Grant value adjustment ⁽¹⁾	(210		)
Unvested balance as of June 30, 2017	$	5,824

(1) Due to the approval of the 2017 Equity Plan, Tiptree changed the classification of the subsidiary RSU’s during the three months ended June 30, 2017 from liability to equity awards, because the Company expects to settle these awards in stock.

Stock Options

Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant; those option awards have a 10-year term and are subject the recipient’s continuous service, a market requirement, and generally vest over five years beginning on the 3^rd anniversary of the grant date. Options granted during the year ended December 31, 2016 contained a market requirement that, at any time during the option term, the 20-day volume weighted average stock price must exceed the December 31, 2015 book value per share. Options granted in 2017 contained a market requirement that, at any time during the option term, the 20-day volume weighted average stock price plus the sum of actual cash dividends paid must exceed the December 31, 2016 as exchanged book value per share. The market requirement may be met any time before the option expires and it only needs to be met once for the option to remain exercisable for the remainder of its term. If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not.

The fair value option grants are estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. Historical volatility was computed based on historical daily returns of the Company’s stock between the grant date and July 1, 2013, the date of the business combination through which Tiptree became a public company. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grant date. The current quarterly dividend rates in effect as of the date of the grant are used to calculate a spot dividend yield as of the date of grant for use in the model.

The following table presents the assumptions used to estimate the fair values of the stock options granted for the following period:



Valuation Input	Six Months Ended June 30, 2017
			Weighted
	Assumption		Average
Historical Volatility	47.20	%	N/A
Risk-free Rate	2.44	%	N/A
Dividend Yield	1.80	%	N/A
Expected term (years)			6.5

The following table presents the Company's stock option activity for the current period:



	Options Outstanding	Weighted Average Exercise Price (in dollars per stock option)		Weighted Average Grant Date Value (in dollars per stock option)		Options Exercisable
Balance, December 31, 2016	251,237	$	5.69	$	2.62	—
Granted	570,627	6.65		2.91		—
Balance, June 30, 2017	821,864	$	6.36	$	2.82	—

Weighted average remaining contractual term at June 30, 2017 (in years)	9.3

Stock-based Compensation Expense

The following table presents the total time-based and performance-based stock-based compensation expense and the related income tax benefit recognized on the condensed consolidated statements of operations:



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Payroll and employee commissions	$	1,342		$	574		$	3,140		$	964
Professional fees ⁽¹⁾	—			29			—			64
Income tax benefit	(474		)	(213		)	(1,108		)	(363		)
Net stock-based compensation expense	$	868		$	390		$	2,032		$	665


(1)	Professional fees consist of the value of restricted stock units and options granted to persons providing services to the Company.

Additional information on total non-vested stock-based compensation is as follows:



	As of
	June 30, 2017
	Stock Options		Restricted Stock Awards and RSUs
Unrecognized compensation cost related to non-vested awards	$	1,953	$	7,631
Weighted - average recognition period (in years)	3.8		2.3