Stock Based Compensation

Equity Plans

2007 Manager Equity Plan

The Care Investment Trust Inc. Manager Equity Plan was adopted in June 2007 and will automatically expire on the 10th anniversary of the date it was adopted. As of September 30, 2016, 134,629 common shares remain available for future issuances. No shares have been issued since March 30, 2012 from this plan.

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. The general purpose of the 2013 Equity Plan is to attract, motivate and retain selected employees and directors for the Company, 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 2013 Equity Plan terminates automatically on the tenth anniversary of its adoption.

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



	Number of shares ⁽¹⁾
Available for issuance as of December 31, 2015	1,582,339
Shares and options issued and granted	(613,289	)
Available for issuance as of September 30, 2016	969,050


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

Restricted stock units and restricted stock

A holder of the restricted stock units (RSUs) and restricted stock, pursuant to the terms of the agreements governing the awards, have all of the rights of a stockholder, including the right to vote and receive distributions. Generally, the 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 restricted stock is subject to forfeiture as set forth in the agreement governing the award.

The following table summarizes changes to the issuances of Class A common stock, restricted stock, and RSUs under the 2013 Equity Plan for the periods indicated:



	Number of shares issuable		Weighted Average Grant Date Fair Value
Unvested units as of December 31, 2015	128,323		$	7.68
Granted ⁽¹⁾	362,052		5.71
Vested ⁽¹⁾	(190,558	)	6.14
Unvested units as of September 30, 2016	299,817		$	6.27


(1)	Includes 130,946 of immediately vested Class A common stock with a grant date fair value of approximately $750 to settle compensation accrued during the year ended December 31, 2015.

The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Included in vested shares for 2016 are 646 shares surrendered to pay taxes on behalf of the employees with shares vesting. During the nine months ended September 30, 2016, the Company granted 218,310 RSUs to employees of the Company, of which 111,759 vest over a period of three years that began in January 2016, 33,624 will vest over a period of two years beginning February 2016, 55,768 will vest over a period of two years beginning April 2016 and the remainder will vest over a period of three years beginning April 2016.

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. 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 2013 Omnibus Incentive Plan. The Company has the option, but not the obligation to settle the exchange right in shares or cash.

These awards are currently considered to be liabilities based upon their expected settlement method. Changes in fair value of the awards are recognized in earnings for the relative amount of cumulative compensation cost. The Company uses the straight-line method to recognize compensation expense for the time vesting RSUs over the requisite service periods, beginning on the grant date. The Company uses the graded-vesting method to recognize compensation expense for the performance vesting RSUs. Compensation expense will be recognized to the extent that it is probable that the performance condition will be achieved. The Company reassesses the probability of satisfaction of the performance condition for the performance vesting RSUs for each reporting period.

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, 2015	$	874
Granted	7,339
Vested	(97		)
Unvested balance as of September 30, 2016	$	8,116

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 quarter 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. 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 market requirement is not met, but the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period.

The fair value of each option grant was 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 over a lookback period equal to 2.5 years from the grant date. 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 of $0.025 was 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	Nine Months Ended September 30, 2016
	Range				Weighted
	Low		High		Average
Historical Volatility	50.19	%	50.46	%	N/A
Risk-free Rate	1.93	%	2.28	%	N/A
Dividend Yield	1.70	%	1.76	%	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, 2015	—	$	—	$	—	—
Granted	251,237	5.69		2.62		—
Vested	—	—		—		—
Exercised	—	—		—		—
Canceled/forfeited	—	—		—		—
Balance, September 30, 2016	251,237	$	5.69	$	2.62	—

Weighted average remaining contractual term at September 30, 2016 (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 Consolidated Statements of Operations:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Payroll and employee commissions	$	633		$	161		$	1,597		$	285
Professional fees ⁽¹⁾	35			30			99			110
Income tax benefit	(236		)	(67		)	(599		)	(139		)
Net stock-based compensation expense	$	432		$	124		$	1,097		$	256


(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:



	At
	September 30, 2016
	Stock Options		Restricted Stock Awards and RSUs
Unrecognized compensation cost related to non-vested awards	$	533	$	7,865
Weighted - average recognition period (in years)	3.3		2.1