2016 Annual Report for Norwegian Cruiseline Holdings - F-25

Restricted Share Units ("RSUs")
In March 2016, we granted 1.2 million restricted share unit awards to our employees which vest equally over three years.
The fair value of the time-based and performance-based RSUs is equal to the closing market price of NCLH shares at the date of grant. The
performance-based RSUs 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 EPS and 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 share-based compensation expense beginning on the service inception date and remeasures the fair value of the awards until a grant
date occurs. The estimate of the awards' fair value will be fixed in the period in which the grant date occurs, and cumulative share-based
compensation expense will be adjusted based on the fair value at the grant date.
The fair value of the market-based RSUs awarded to our President and Chief Executive Officer is estimated using a Monte-Carlo model which
values financial instruments whose value is dependent on share price by sampling random paths for share price. The key inputs for the simulation
include current share price, risk free rate, and share price volatility. For each simulated path, the model checks if the simulated share price reaches
the vesting threshold during the performance period. For each path that reaches the vesting threshold, the payoff upon vesting is calculated. The
fair value of the equity grant is determined by averaging the expected payoff across all simulated paths and discounting the average to the
valuation date.
The below table summarizes the key inputs used in the Monte-Carlo simulation:
2015

Dividend yield
Expected share price volatility
Risk-free interest rate
Expected term

0%
30.00%
1.34%
Mid-point from vesting to assumed awards expiration

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 remaining term of the measurement period.
The following is a summary of the RSUs activity for the year ended December 31, 2016 (excludes the impact of 87,500 performance-based RSUs
as no grant date was established):
Number of
WeightedWeightedNumber of
WeightedPerformance- Average Grant Number of Average Grant
Time-Based Average Grant
Based
Date Fair
Market-Based
Date Fair
Awards
Date Fair Value
Awards
Value
Awards
Value

Non-vested as of January 1, 2016
Granted
Vested
Forfeited or expired
Non-vested as of December 31, 2016
Non-vested and expected to vest as of December 31,
2016

150,000 $
1,328,490 $
(50,000) $
(123,155) $
1,305,335 $

59.43
49.62
57.15
50.44
50.38

1,267,692 $

50.43

- $
12,500 $
(12,500) $
-
- $
-

-
50.00
50.00
-

50,000 $
-
-
-
50,000 $

59.43
-
-
-
59.43

50,000 $

59.43

As of December 31, 2016, there was $45.1 million, $0 and $0.4 million of total unrecognized compensation cost net of estimated forfeitures
related to non-vested time-based, non-vested performance-based awards with an established grant date and market-based RSUs, respectively. The
cost is expected to be recognized over a weighted-average period of 2.19 years, 0 years and 0.54 years, respectively, for the time-based,
performance-based and market-based RSUs. Total taxes paid pursuant to net share settlements in 2016 were $0.9 million.
Employee Stock Purchase Plan ("ESPP")
In April 2014, the Company's shareholders approved the ESPP. The purpose of the ESPP is to provide eligible employees with an opportunity to
purchase NCLH's ordinary shares at a favorable price and upon favorable terms in consideration of the participating employees' continued
services. A maximum of 2,000,000 of the Company's ordinary shares may be purchased under the ESPP. To be eligible to participate in an
offering period, on the Grant Date of that period, an individual must be customarily employed by the Company or a participating subsidiary for
more than twenty hours per week and for more than five months per calendar year. Participation in the ESPP is also subject to certain limitations.
The ESPP is considered to be compensatory based on: a) the 15% purchase price discount and b) the look-back purchase price feature. Since the
plan is compensatory, compensation expense must be recorded in the consolidated statements of operations on a straight-line basis over the sixmonth withholding period. As of December 31, 2016 and 2015, we had a $1.3 million and $1.1 million liability, respectively, for payroll
withholdings received.

F-25

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