16.

Share-Based Compensation Plans

The fair value method of accounting recognizes share-based compensation to employees and non-employee directors in the consolidated statements of operations using the grant-date fair value of the stock options and other equity-based compensation expensed over the requisite service and vesting period.

For the purpose of determining the fair value of stock option awards, the Company uses the Black-Scholes option-pricing model. An estimation of forfeitures is required when recognizing compensation expense which is then adjusted over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment to compensation in the period of change.

The prescribed accounting guidance also requires tax benefits relating to excess stock-based compensation deductions to be prospectively presented in the consolidated statements of cash flows as financing cash inflows. The tax benefit resulting from stock-based compensation deductions in excess of amounts reported for financial reporting purposes was $0.1 million, $0.05 million, and $0.04 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Share Incentive Plan

On June 11, 2014, the Company’s Shareholders approved the Global Indemnity plc Share Incentive Plan (the “Plan”). The previous share incentive plan, which became effective in 2003, expired per its terms on September 5, 2013. As a result of the redomestication, the Global Indemnity plc Share Incentive Plan’s sponsorship and existing obligations with respect to awards granted and outstanding were assumed by the Company and the Global Indemnity plc Share Incentive Plan was replaced with the Global Indemnity Limited Share Incentive Plan (collectively, the “Plan”). The purpose of the Plan is to give the Company a competitive advantage in attracting and retaining officers, employees, consultants and non-employee directors by offering stock options, restricted shares and other stock-based awards. Under the Plan, the Company may grant up to 2.0 million A ordinary shares pursuant to grants under the Plan.

Options

Award activity for stock options granted under the Plan and the weighted average exercise price per share are summarized as follows:


	Time-Based Options			Performance- Based Options			Total Options			Weighted Average Exercise Price Per Share
Options outstanding at January 1, 2014		412,500			—			412,500		$	18.62
Options issued		325,000			—			325,000		$	31.74
Options forfeited		(125,000	)		—			(125,000	)	$	19.60
Options exercised		—			—			—			—
Options expired		—			—			—			—
Options purchased by the Company		—			—			—			—

Options outstanding at December 31, 2014		612,500			—			612,500		$	25.38
Options issued		—			200,000			200,000		$	28.37
Options forfeited		—			—			—			—
Options exercised		—			—			—			—
Options expired		(12,500	)		—			(12,500	)	$	37.70
Options purchased by the Company		—			—			—			—

Options outstanding at December 31, 2015		600,000			200,000			800,000		$	25.94
Options issued		—			—			—			—
Options forfeited		—			(200,000	)		(200,000	)	$	28.37
Options exercised		—			—			—			—
Options expired		—			—			—			—
Options purchased by the Company		—			—			—			—

Options outstanding at December 31, 2016		600,000			—			600,000		$	25.13

Options exercisable at December 31, 2016		450,000			—			450,000		$	22.71

Of the 450,000 of options exercisable at December 31, 2016, 250,000 options are still subject to a clawback which is based on the remeasurement of accident year results on the third anniversary after the options provisionally vest.

During the year ended December 31, 2015, the Company awarded 200,000 options with a strike price of $28.37 which were subsequently forfeited during the year ended December 31, 2016. During the year ended December 31, 2014, the Company granted 325,000 Time-Based Options under the Plan. Of these options, 25,000 were forfeited during 2014. The remaining 300,000 stock options were issued to the Company’s Chief Executive Officer. See below for vesting schedule related to this stock award.

The Company recorded $0.3 million, $0.4 million, and $0.3 million of compensation expense for stock options outstanding under the Plan in each of the years ended December 31, 2016, 2015, and 2014, respectively.

The Company did not receive any proceeds from the exercise of options during 2016, 2015 or 2014 under the Plan.

Amortization expense related to options outstanding is anticipated to be $0.3 million in 2017.

Option intrinsic values, which are the differences between the fair value of $38.21 at December 31, 2016 and the strike price of the option, are as follows:


	Number of Shares		Weighted Average Strike Price			Intrinsic Value
Outstanding		600,000	$	25.13		$	7.9 million
Exercisable		450,000	$	22.71	(1)	$	7.0 million
Exercised (1)		—		—			—

(1)

The intrinsic value of the exercised options is the difference between the fair market value at time of exercise and the strike price of the option.

The options exercisable at December 31, 2016 include the following:


Option Price	Number of options exercisable
$17.87		300,000
$32.38		150,000

Options exercisable at December 31, 2016		450,000

There were no options granted under the Plan in 2016. The weighted average fair value of options granted under the Plan was $8.69 and $7.92 in 2015 and 2014, respectively, using a Black-Scholes option-pricing model and the following weighted average assumptions.


	2015			2014
Dividend yield		0.0	%		0.0	%
Expected volatility		31.59	%		37.7	%
Risk-free interest rate		1.7	%		1.7	%
Expected option life		5.0 years			6.9 years

The following tables summarize the range of exercise prices of options outstanding at December 31, 2016, 2015, and 2014:


Ranges of Exercise Prices	Outstanding at December 31, 2016			Weighted Average Per Share Exercise Price		Weighted Average Remaining Life
$17.87 – $19.99		300,000		$	17.87		4.7 years
$20.00 – $29.99		—			—		N/A
$30.00 – $37.70		300,000	(1)	$	32.38		7.1 years

Total		600,000

(1)—the weighted average per share exercise price on these shares outstanding is variable. See note below under Chief Executive Officer for additional information.


Ranges of Exercise Prices	Outstanding at December 31, 2015			Weighted Average Per Share Exercise Price		Weighted Average Remaining Life
$17.87 – $19.99		300,000		$	17.87		5.7 years
$20.00 – $29.99		200,000		$	28.37		9.0 years
$30.00 – $37.70		300,000	(1)	$	32.38		8.1 years

Total		800,000

(1)—the weighted average per share exercise price on these shares outstanding is variable. See note below under Chief Executive Officer for additional information.


Ranges of Exercise Prices	Outstanding at December 31, 2014			Weighted Average Per Share Exercise Price		Weighted Average Remaining Life
$17.87 – $19.99		300,000		$	17.87		6.7 years
$20.00 – $29.99		—			—		N/A
$30.00 – $37.70		312,500	(1)	$	32.59		8.8 years

Total		612,500

(1)—the weighted average per share exercise price on 300,000 of these shares outstanding is variable. See note below under Chief Executive Officer for additional information.

Restricted Shares

In addition to stock option grants, the Plan also provides for the granting of restricted shares to employees and non-employee Directors. The Company recognized compensation expense for restricted stock of $3.2 million, $3.5 million and $2.6 million for 2016, 2015, and 2014, respectively. The total unrecognized compensation expense for the non-vested restricted stock is $2.9 million at December 31, 2016, which will be recognized over a weighted average life of 1.4 years.

The following table summarizes the restricted stock grants since the 2003 inception of the previous share incentive plan.


	Restricted Stock Awards
Year	Employees		Directors		Total
Inception through 2013		711,068		405,280		1,116,348
2014		95,694		36,608		132,302
2015		138,507		36,321		174,828
2016		121,346		35,185		156,531

		1,066,615		513,394		1,580,009

The following table summarizes the non-vested restricted shares activity for the years ended December 31, 2016, 2015, and 2014:


	Number of Shares			Weighted Average Price Per Share
Non-vested Restricted Shares at January 1, 2014		98,121		$	21.48
Shares issued		132,302		$	25.67
Shares vested		(57,017	)	$	24.29
Shares forfeited		(1,131	)	$	22.13

Non-vested Restricted Shares at December 31, 2014		172,275		$	23.76
Shares issued		174,828		$	28.24
Shares vested		(70,503	)	$	25.31
Shares forfeited		(16,695	)	$	24.11

Non-vested Restricted Shares at December 31, 2015		259,905		$	26.33
Shares issued		156,531		$	29.44
Shares vested		(111,205	)	$	26.11
Shares forfeited		(5,633	)	$	27.25

Non-vested Restricted Shares at December 31, 2016		299,598		$	28.02

Based on the terms of the Restricted Share grants, all forfeited shares revert back to the Company.

During 2014, the Company granted an aggregate of 95,694 A ordinary shares to key employees at a weighted average grant date fair value of $25.37 per share under the Plan. Of the shares granted in 2014, 5,671 were granted to a key employee and vest 33 1/3% on each subsequent anniversary date of the award for a period of three years and 11,857 were granted to the Company’s Chief Executive Officer and vest 33 1/3% on each subsequent anniversary date of the grant for a period of three years subject to an accident year true-up of bonus year underwriting results as of the third anniversary of the grant. The remaining 78,166 shares were granted to key employees and will vest as follows:

•

16.5%, 16.5%, and 17.0% of the granted stock vest on the first, second, and third anniversary of the grant, respectively.

•

50% of granted stock vests 100% on the third anniversary of the grant subject to accident year true-up of bonus year underwriting results and are subject to Board approval.

During 2014, the Company granted 36,608 A ordinary shares, at a weighted average grant date fair value of $26.46 per share, to non-employee directors of the Company under the Plan. As noted above, an additional 18,838 A ordinary shares were issued to non-employee directors on June 12, 2014. These shares were earned by non-employee directors prior to January 1, 2014 and were conditioned on shareholders’ approval of the Plan at the Company’s June 11, 2014 annual shareholder meeting. The shareholders approved the plan at the June 11, 2014 annual shareholder meeting.

During 2015, the Company granted an aggregate of 138,507 A ordinary shares to key employees at a weighted average grant date fair value of $28.37 per share under the Plan. Of the shares granted in 2015, 10,574 were granted to the Company’s Chief Executive Officer and vest 33 1/3% on each subsequent anniversary date of the grant for a period of three years subject to an accident year true-up of bonus year underwriting results as of the third anniversary of the grant and an additional 44,058 shares were granted to the Company’s Chief Executive Officer and other key employees which vest 100% on January 1, 2018. The remaining 83,875 shares were granted to key employees and will vest as follows:

•

16.5%, 16.5%, and 17.0% of the granted stock vest on the first, second, and third anniversary of the grant, respectively.

•

50% of granted stock vests 100% on the third anniversary of the grant subject to calendar year true-up of bonus year underwriting results and are subject to Board approval.

During 2015, the Company granted 36,321 A ordinary shares, at a weighted average grant date fair value of $27.73 per share, to non-employee directors of the Company under the Plan.

During 2016, the Company granted an aggregate of 121,346 A ordinary shares to key employees at a weighted average grant date fair value of $28.97 per share under the Plan. Of the shares granted in 2016, 11,199 were granted to the Company’s Chief Executive Officer and vest 33 1/3% on each subsequent anniversary date of the grant for a period of three years subject to true-up of bonus year underwriting results as of the third anniversary of the grant. 5,309 shares were granted to another key employee and vest 100% on February 7, 2019. 8,253 shares were granted to other key employees and vest 33% on the first and second anniversary of the grant and vest 34% on the third anniversary of the grant contingent on meeting certain performance objectives and subject to Board approval. The remaining 96,585 shares were granted to key employees and will vest as follows:

•

16.5%, 16.5%, and 17.0% of the granted stock vest on the first, second, and third anniversary of the grant, respectively.

•

50% of granted stock vests 100% on the third anniversary of the grant subject to true-up of bonus year underwriting results and are subject to Board approval.

During 2016, the Company granted 35,185 A ordinary shares, at a weighted average grant date fair value of $31.05 per share, to non-employee directors of the Company under the Plan.

All of the shares granted to non-employee directors in 2016, 2015, and 2014 were fully vested but subject to certain restrictions.

Chief Executive Officer

Effective September 19, 2011, Cynthia Y. Valko was hired as the Company’s Chief Executive Officer.

Ms. Valko’s terms of employment included two equity components including the granting of 300,000 stock options with a strike price equal to the closing price of the Company’s shares on the trading day preceding the start date, or $17.87 per share, and an annual bonus opportunity of which 50% shall be paid in restricted shares based on the market value of the Company’s shares as of December 31 of the subject bonus year. The stock options vested 33 1/3% on December 31, 2012, 2013, and 2014. The restricted shares vest 33 1/3% on each anniversary of the subject bonus year. All equity components based on performance are subject to accident year true-up of bonus year underwriting results and are subject to Board approval.

In 2014, Ms. Valko was awarded an additional 300,000 stock options. The stock options vest as follows: 20% vested on December 31, 2015, 30% vested on December 31, 2016, and the remaining 50% vest on December 31, 2017 and are based on achieving underwriting income, premium volume, and underwriting profitability targets, subject to an accident year true up on the 3rd anniversary of each such year. Vesting of the stock options is subject to continued employment. The exercise price applicable to the Stock Options is $25.00 subject to adjustment based on the Company’s average year-end tangible book value per share, the average interest rate of certain Treasury bonds and the time period elapsed between January 1, 2014 and the date the stock options are exercised. The stock options were granted under and are subject to the terms of the Plan, as amended, subject to shareholder approval of such plan to the extent required to affect such grant under the plan.