Retirement and Share-based Compensation Plans

We have adopted a contributory defined contribution plan which is qualified under Section 401(k) of the Internal Revenue Code. The plan covers substantially all of our full-time employees subject to minimum eligibility requirements. Employees can contribute a percentage of their annual salary (up to a maximum contribution of $18,000 in 2016, $18,000 in 2015 and $17,500 in 2014) to the plan. We contribute an additional amount, subject to limitations, based on the voluntary contribution of the employee. Further, the plan provides for additional employer contributions based on the discretion of the Board of Directors. Plan contributions charged to expense were $1.3 million, $0.4 million and $0.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The following table summarizes compensation expense recognized for employees, directors and consultants as a result of share-based compensation:



	Year Ended December 31,
	2016		2015		2014
	(Dollars in thousands)
ESOP	$	2,522	$	2,604	$	2,486
Employee Incentive Plans	1,207		1,911		1,306
Director Equity and Incentive Plan and Stock Option Plan	685		613		789
	$	4,414	$	5,128	$	4,581

The principal purpose of the American Equity Investment Employee Stock Ownership Plan ("ESOP") is to provide each eligible employee with an equity interest in us. Employees become eligible once they have completed a minimum of six months of service. Employees become 100% vested after two years of service. Our contribution to the ESOP is determined by the Board of Directors.

In 2016, we adopted the 2016 Employee Incentive Plan which authorized the issuance of up to 2,500,000 shares of our Common stock in the form of grants of options, stock appreciation rights, restricted stock awards and restricted stock units. At December 31, 2016, we had 2,226,256 shares of common stock available for future grant under the 2016 Employee Incentive Plan. The 2009 Employee Incentive Plan, which expired in June of 2014, authorized the issuance of up to 2,500,000 shares of our common stock in the form of grants of options, stock appreciation rights, restricted stock awards and restricted stock units. All options granted under this plan had six or ten year terms and a three year vesting period after which they become fully exercisable immediately.

We have a long-term performance incentive plan under which certain members of our senior management team are granted restricted stock units pursuant to the 2016 Employee Incentive Plan or the 2009 Employee Incentive Plan. During 2016, 2015 and 2014, we granted 208,565, 60,947 and 54,718 restricted stock units under these plans, respectively. Vesting is tied to threshold and target performance goals for the three year period ending December 31, 2018, December 31, 2017 and December 31, 2016, respectively. Fifty percent of the restricted stock units will vest if we meet threshold goals and 100% of the restricted stock units will vest if we meet target performance goals. Compensation expense is recognized over the three year vesting period based on the likelihood of meeting threshold and target goals. Restricted stock units that ultimately vest are payable in an equal number of shares of our common stock. Restricted stock units are accounted for as equity awards and the estimated fair value of restricted stock units is based upon the closing price of our common stock on the date of grant. During 2016, the 2015 restricted stock unit award agreements were amended and the restricted stock units granted during 2015 will be settled in cash if earned. This amendment was due to an administrative issue related to the grant, which was made under an expired equity plan.

During 2016, 2015 and 2014, we issued 43,373, 25,784 and 18,239 (43,373, 23,062 and 14,869 shares were restricted stock), respectively, shares of common stock under the 2016 Employee Incentive Plan or the 2009 Employee Incentive Plan to certain employees. These shares will vest on the date three years following the grant date provided the participant remains employed with us. Compensation expense is recognized over the three year vesting period. Shares vest immediately for participants over 65 years of age with 10 years of service with us, and compensation expense under this plan for these participants was recognized upon approval of the incentive award by the compensation committee. During 2016, the shares of restricted stock granted during 2015 were canceled due to an administrative issue related to the grant, which was made under an expired equity plan. During 2016, we issued 21,806 shares of common stock to the employees impacted by the cancellation taking into consideration the canceled 2015 grants.

The 2013 Director Equity and Incentive Plan authorizes the grant of options, stock appreciation rights, restricted stock awards and restricted stock units convertible into or based upon our common stock of up to 250,000 shares to our Directors. During 2016, 2015 and 2014, we issued 47,500, 22,000 and 24,000 shares of common stock, respectively, all of which are restricted stock, and which vest one year from the grant date provided the individual remains a Director during that time period. At 2016, we had 116,500 shares of common stock available for future grant under the 2013 Director and Equity Incentive Plan.

Our 1996 Stock Option Plan, 2000 Employee Stock Option Plan, 2000 Directors Stock Option Plan and 2011 Director Stock Option Plan authorized grants of options to officers, directors and employees for an aggregate of up to 3,475,000 shares of our common stock. All options granted under these plans have ten year terms and a six month or three year vesting period after which they become fully exercisable immediately. At December 31, 2016, we had 18,000 shares of common stock available for future grant under the 2011 Director Stock Option Plan.

During 2014, we established the 2014 Independent Insurance Agent Restricted Stock and Restricted Stock Unit Plan, which was amended during 2016. Under the amended plan, agents of American Equity Life may receive grants of restricted stock and restricted stock units based upon their individual sales. The plan authorizes grants of up to 1,800,000 shares of our common stock. We recognize commission expense and an increase to additional paid-in capital as share-based compensation equal to the fair value of the restricted stock and restricted stock units as they are earned.

In January 2017, American Equity Life's agents were granted 363,624 restricted stock units based on their production during 2016, and we recorded commission expense (capitalized as deferred policy acquisition costs) of $2.6 million in 2016. In January 2016, American Equity Life's agents were granted 650,683 restricted stock units based on their production during 2015, and we recorded commission expense (capitalized as deferred policy acquisition costs) of $3.5 million in 2015. In January 2017, agents vested in 246,532 restricted stock units granted in January 2016 based on their continued service as an independent agent and their 2016 individual sales of our products, and for which we recorded commission expense (capitalized as deferred policy acquisition costs) of $1.7 million in 2016. 20% of the restricted stock units will vest one year from the grant date if the agent is in good standing with American Equity Life at that date. The remaining 80% of the restricted stock units granted to retirement eligible individuals will vest over a four year period if the agent remains in good standing with American Equity Life. The remaining 80% of the restricted stock units granted to non-retirement eligible individuals will vest based on the agent's individual sales and continued service as an independent agent over a period of time not to exceed five years.

In January 2015, American Equity Life's agents were granted 27,985 shares of restricted stock and 221,489 restricted stock units based on their production during 2014, and we recorded commission expense (capitalized as deferred policy acquisition costs) of $1.9 million in 2014. In January 2016, agents vested in 85,104 restricted stock units granted in January of 2015 based on their continued service as an independent agent and their 2015 individual sales of our products, and for which we recorded commission expense (capitalized as deferred policy acquisition costs) of $1.3 million in 2015. In January 2017, agents vested in 36,609 restricted stock units granted in January 2015 based on their continued service as an independent agent and their 2016 individual sales of our products, and for which we recorded commission expense (capitalized as deferred policy acquisition costs) of $0.6 million in 2016. The restricted stock was granted to retirement eligible individuals and vested immediately upon grant. 20% of the restricted stock units vested one year from the grant date if the agent was in good standing with American Equity Life at that date. The remaining 80% of the restricted stock units granted will vest based on the agent's individual sales and continued service as an independent agent over a period of time not to exceed five years.

During 2007, 2010 and 2012 we established Independent Insurance Agent Stock Option plans. Under these plans, agents of American Equity Life received grants of options to acquire shares of our common stock based upon their individual sales. The plans authorize grants of options to agents for an aggregate of up to 8,000,000 shares of our common stock. We recognize commission expense and an increase to additional paid-in capital as share-based compensation equal to the fair value of the options as they are earned.

Changes in the number of stock options outstanding during the years ended December 31, 2016, 2015 and 2014 are as follows:



	Number of Shares		Weighted-Average Exercise Price per Share		Total Exercise Price
	(Dollars in thousands, except per share data)
Outstanding at January 1, 2014	3,976,725		$	10.86	$	43,171
Granted	1,277,650		24.79		31,673
Canceled	(35,400	)	11.64		(412		)
Exercised	(1,174,800	)	11.64		(13,672		)
Outstanding at December 31, 2014	4,044,175		15.02		60,760
Granted	—		—		—
Canceled	(47,300	)	10.54		(499		)
Exercised	(552,884	)	14.51		(8,021		)
Outstanding at December 31, 2015	3,443,991		15.17		52,240
Granted	—		—		—
Canceled	(24,700	)	14.83		(366		)
Exercised	(500,345	)	9.97		(4,989		)
Outstanding at December 31, 2016	2,918,946		16.06		$	46,885

The following table summarizes information about stock options outstanding at December 31, 2016:



	Stock Options Outstanding				Stock Options Vested
Range of Exercise Prices	Number of Awards	Remaining Life (yrs)	Weighted-Average Exercise Price Per Share		Number of Awards	Remaining Life (yrs)	Weighted-Average Exercise Price Per Share
$5.07 - $8.02	248,225	1.74	$	7.16	248,225	1.74	$	7.16
$9.27 - $11.35	752,150	2.66	10.19		752,150	2.66	10.19
$12.04 - $24.79	1,918,571	3.24	19.52		1,918,571	3.24	19.52
$5.07 - $24.79	2,918,946	2.97	16.06		2,918,946	2.97	16.06

The aggregate intrinsic value for stock options outstanding and vested awards was $21.3 million and $21.3 million, respectively, at December 31, 2016. For the years ended December 31, 2016, 2015 and 2014, the total intrinsic value of options exercised by officers, directors and employees was $4.0 million, $1.4 million and $5.4 million, respectively. Intrinsic value for stock options is calculated as the difference between the exercise price of the underlying awards and the price of our common stock as of the reporting date. Cash received from stock options exercised for the years ended December 31, 2016, 2015 and 2014 was $5.0 million, $8.1 million and $13.7 million, respectively. The tax benefit realized for the tax deduction from the exercise of stock options by officers, directors, employees and agents for the years ended December 31, 2016, 2015 and 2014, was $0.0 million, $0.0 million and $1.0 million, respectively.

We have deferred compensation arrangements with certain officers, directors, and consultants, whereby these individuals agreed to take our common stock at a future date in lieu of cash payments at the time of service. The common stock is to be issued in conjunction with a "trigger event," as that term is defined in the individual agreements. At December 31, 2016 and 2015, these individuals have earned, and we have reserved for future issuance, 364,000 and 366,072 shares of common stock, respectively, pursuant to these arrangements. No deferred compensation arrangements were in effect during 2016. We incurred expense of $102,000 and $127,000 for the years ended December 31, 2015 and 2014, respectively, under these arrangements.

We have deferred compensation agreements with certain officers whereby these individuals may defer certain salary and bonus compensation which is deposited into the American Equity Officer Rabbi Trust (Officer Rabbi Trust). The amounts deferred for certain employees are invested in assets at the direction of the employee. The assets of the Officer Rabbi Trust are included in our assets and a corresponding deferred compensation liability is recorded. The deferred compensation liability is recorded at the fair market value of the assets in the Officer Rabbi Trust with the change in fair value included as a component of compensation expense. The deferred compensation liability related to these agreements was $3.5 million and $3.7 million at December 31, 2016 and 2015, respectively. The Officer Rabbi Trust held 102,932 shares and 103,251 shares of our common stock at December 31, 2016 and 2015, respectively, which are treated as treasury shares.

During 1997, we established the American Equity Investment NMO Deferred Compensation Plan ("NMO Deferred Compensation Plan") whereby agents could earn common stock in addition to their normal commissions. The NMO Deferred Compensation Plan was effective until December 31, 2006 at which time it was suspended. Awards were calculated using formulas determined annually by our Board of Directors. These shares are being distributed at the end of the vesting and deferral period of nine years. We recognize commission expense and an increase to additional paid-in capital as share-based compensation when the awards vest. All outstanding shares issued under this plan were fully vested at December 31, 2010. At December 31, 2016 and 2015, the total number of undistributed vested shares under the NMO Deferred Compensation Plan was 0 and 223,454, respectively. These shares are included in the computation of earnings per share and earnings per share—assuming dilution.

We have a Rabbi Trust, the NMO Deferred Compensation Trust (the "NMO Trust"), which has purchased shares of our common stock to fund the amount of vested shares under the NMO Deferred Compensation Plan. The common stock held in the NMO Trust is treated as treasury stock. The NMO Trust distributed 215,273, 313,108 and 349,568 shares during 2016, 2015 and 2014, respectively. The number of shares held by the NMO Trust at December 31, 2016 and 2015, was 15,058 and 230,012, respectively.