2016 Annual Report for Norwegian Cruiseline Holdings - F-23

plan. The exchange for NCLH ordinary shares and restricted shares, per the Management Exchange Agreement, resulted in no incremental
expense after applying the modification accounting treatment as substantially all key terms and conditions remained consistent.
As a result of a Secondary Equity Offering during August 2015, the last hurdle amount specified in the profits sharing agreement was reached and
as such all outstanding PBUs vested.
The termination of employment may result in forfeiture of any non-vested TBUs. TBUs that were vested can be either continued by the Company
or cancelled and paid to the employee. Cancellation could take place any time after termination but not before two years after the grant date.
Amended and Restated 2013 Performance Incentive Plan ("Restated 2013 Plan")
In January 2013, the Company adopted the 2013 Performance Incentive Plan which provided for the issuance of up to 15,035,106 of NCLH's
ordinary shares pursuant to awards granted under the plan, with no more than 5,000,000 shares being granted to one individual in any calendar
year. In May 2016, the plan was amended and restated pursuant to approval from the Board of Directors and Company's shareholders. Among
other things, under the Restated 2013 Plan, the number of the Company's ordinary shares that may be delivered pursuant to all awards granted
under the plan was increased by an additional 12,430,000 shares to a new maximum aggregate limit of 27,465,106 shares. Additionally, the
expiration date of the Restated 2013 Plan was extended to March 30, 2026. Share options under the plan are granted with an exercise price equal
to the closing market price of NCLH shares at the date of grant. The vesting period for time-based options is typically set at 3, 4 or 5 years with a
contractual life ranging from 7 to 10 years. The vesting period for time-based restricted share units is generally 3 years. In connection with an
amendment to our President and Chief Executive Officer's employment agreement in August 2015, the Company awarded time-based,
performance-based and market-based options and restricted stock unit awards to our President and Chief Executive Officer which vest upon the
satisfaction of the specified performance period or the achievement of certain performance and market-related metrics during the term of the
award agreements. Forfeited awards will be available for subsequent awards under the Restated 2013 Plan.
Share Option Awards
In March 2016, we granted 1.0 million share option awards to our employees at an exercise price of $50.31 with a contractual term of ten years.
The share options vest equally over three years.
The fair value of each time-based option award is estimated on the date of grant using the Black-Scholes option-pricing model. The estimated fair
value of the share options, less estimated forfeitures, is amortized over the vesting period using the straight-line vesting method. The assumptions
used within the option-pricing model for the time-based awards are as follows:
Dividend yield
Expected share price volatility
Risk-free interest rate
Expected term

2016

2015

2014

-%
30.36%-33.01%
1.20%-1.48%
6.00 years

-%
32.32%-45.33%
1.34%-1.92%
6.00-6.50 years

-%
48.30%-49.90%
1.80%-2.02%
6.25 years

Expected volatility was determined based on the historical share prices in our industry. The risk-free rate was based on U.S. Treasury zero coupon
issues with a remaining term equal to the expected option term at grant date. The expected term was calculated under the simplified method. Our
forfeiture assumption is derived from historical turnover rates and those estimates are revised as appropriate to reflect the actual forfeiture results.
The performance-based awards awarded to our President and Chief Executive Officer are subject to performance conditions such that the number
of awards that ultimately vest depends on the adjusted earnings per share ("Adjusted EPS") and adjusted return on invested capital ("Adjusted
ROIC") achieved by the Company during the performance period compared to targets established at the award date. Because the terms of the
performance-based awards provide discretion to make certain adjustments to the performance calculation, the service inception date of these
awards precedes the grant date. Accordingly, the Company recognizes compensation expense beginning on the service inception date and
remeasures the fair value of the awards until a grant date is established. The estimate of the awards' fair value will be fixed in the period in which
the grant date occurs, and cumulative compensation expense will be adjusted based on the fair value calculated using the Black-Scholes optionpricing model at the grant date. The fair value for the option awards for which a grant date has not been established is estimated on the last date of
the reporting period using the Black-Scholes option-pricing model. The estimated fair value of the share options is amortized over the requisite
service period using the straight-line vesting method. The assumptions used within the option-pricing model for the performance-based awards
for which share-based compensation expense was recognized during 2016 and 2015 are as follows:
Dividend yield
Expected share price volatility
Risk-free interest rate
Expected term

2016

2015

-%
25.97%-30.21%
1.01%-1.93%
4.38-5.13 years

-%
29.31%-29.86%
1.76%
4.88-5.38 years

Table of Contents for the Digital Edition of 2016 Annual Report for Norwegian Cruiseline Holdings