SHARE-BASED COMPENSATION

The Company has a stock incentive plan for directors, employees and consultants as detailed in Note 9 above.

Employee and Director Restricted Shares

As part of its stock incentive plan, the Company issues restricted shares for which the fair value is equal to the price of the Company’s Class A ordinary shares on the grant date. Compensation based on the grant date fair market value of the shares is expensed on a straight line basis over the applicable vesting period, net of any estimated forfeitures.

For the year ended December 31, 2017, 125,371 (2016: 153,648, 2015: 78,685) Class A ordinary shares were issued to employees pursuant to the Company’s stock incentive plan. The majority of these shares contain certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment and transferability. The restricted shares cliff vest after three years from the date of issuance, subject to the grantee’s continued service with the Company. During the vesting period, the holder of the restricted shares retains voting rights and is entitled to any dividends declared by the Company.

For the year ended December 31, 2017, the Company also issued to non-employee directors an aggregate of 41,396 (2016: 39,288, 2015: 28,215) restricted Class A ordinary shares as part of their remuneration for services to the Company. Each of these restricted shares issued to non-employee directors contains similar restrictions to those issued to employees and will vest on the earlier of the first anniversary of the date of the share issuance or the Company’s next annual general meeting, subject to the grantee’s continued service with the Company.

For the year ended December 31, 2017, 46,943 (2016: 11,897, 2015: 9,621) restricted shares were forfeited by employees who left the Company prior to the expiration of the applicable vesting periods. For the year ended December 31, 2017, in accordance with U.S. GAAP, no stock compensation expense (2016: $0.5 million, 2015: $0.1 million) relating to the forfeited restricted shares was reversed. The restricted shares forfeited during the year ended December 31, 2017 included 46,319 restricted shares relating to the Company’s former Chief Executive Officer (the “former CEO”) who resigned from the Company prior to the expiration of the applicable vesting periods. For the year ended December 31, 2017, no stock compensation expense was reversed relating to the former CEO’s forfeited shares since $0.4 million of stock compensation expense was reversed during the fourth quarter of 2016, when it was deemed likely that these restricted shares would be forfeited.

The Company recorded $3.3 million of share-based compensation expense, net of the reversal for forfeitures, relating to restricted shares for the year ended December 31, 2017 (2016: $3.1 million, 2015: $3.6 million). As of December 31, 2017, there was $3.5 million (2016: $2.9 million, 2015: $3.7 million) of unrecognized compensation cost relating to non-vested restricted shares which are expected to be recognized over a weighted average period of 1.6 years (2016: 1.6 years, 2015: 1.6 years). For the year ended December 31, 2017, the total fair value of restricted shares vested was $4.5 million (2016: $3.1 million, 2015: $3.2 million).

The following table summarizes the activity for unvested outstanding restricted share awards during the years ended December 31, 2017 and 2016:



	Number of non-vested restricted shares		Weighted average grant date fair value
Balance at December 31, 2015	307,013		$	29.74
Granted	192,936		21.53
Vested	(122,620	)	25.66
Forfeited	(11,897	)	29.97
Balance at December 31, 2016	365,432		26.76
Granted	166,767		21.60
Vested	(153,746	)	28.97
Forfeited	(46,943	)	24.57
Balance at December 31, 2017	331,510		$	23.45

Employee and Director Stock Options

For the year ended December 31, 2017, 480,000 Class A ordinary share purchase options were granted to the Company’s CEO, pursuant to his employment contract (2016 and 2015: 57,386 and 40,683, respectively, to the former CEO). These options vest 16.7% each on the anniversary thereof in 2018, 2019, 2020, 2021, 2022 and 2023, and expire 10 years after the grant date. The grant date fair value of these options was $9.60 per share (2016: $8.71 per share, 2015: $12.29), based on the Black-Scholes option pricing model.

For the year ended December 31, 2017, 42,250 Class A ordinary share purchase options were granted to the Company’s former interim Chief Executive Officer, pursuant to his consulting agreement. These options vested 100% on the date of the grant. The weighted average grant date fair value of these options was $9.90 per share based on the Black-Scholes option pricing model.

The estimate of expected volatility for options granted during 2017, 2016 and 2015 was based on the daily historical trading data of the Company’s Class A ordinary shares from the date that these shares commenced trading on May 24, 2007 to July 31, 2017.

The Company uses the Black-Scholes option pricing model to determine the valuation of its options and has applied the following weighted average assumptions:



	2017		2016		2015
Risk free rate	2.32	%	1.54	%	2.15	%
Estimated volatility	31.4	%	32.4	%	32.8	%
Expected term (in years)	10		10		10
Dividend yield	0	%	0	%	0	%
Forfeiture rate	0	%	0	%	0	%

At the present time, the Board of Directors does not anticipate that any dividends will be declared during the expected term of the options. The Company uses graded vesting for expensing employee stock options. The total compensation cost expensed for the year ended December 31, 2017 was $1.3 million (2016: $0.9 million, 2015: $0.5 million) which was solely related to the options granted to the CEO. At December 31, 2017, the total compensation cost related to non-vested options not yet recognized was $3.7 million (2016: $0.0 million) to be recognized over a weighted average period of 3.3 years (2016: 0.0 years) assuming the employees complete their service period for vesting of the options.

For the year ended December 31, 2017, 50,000 stock options were exercised by directors and employees (2016: 421,000, 2015: 250,000) resulting in 5,011 Class A ordinary shares being issued, net of shares surrendered as a result of the cashless exercise of stock options (2016: 156,022, 2015: 158,925). When stock options are granted, the Company reduces the corresponding number from the shares authorized for issuance as part of the Company’s stock incentive plan.

Employee and director stock option activity during the years ended December 31, 2017, 2016 and 2015 was as follows:



	Number of options		Weighted average exercise price		Weighted average grant date fair value		Intrinsic value ($ in millions)		Weighted average remaining contractual term
Balance at December 31, 2014	1,116,308		$	17.58	$	7.73	$	16.8	3.0 years
Granted	40,683		26.67		12.29
Exercised	(250,000	)	11.10		5.57		$	4.8
Balance at December 31, 2015	906,991		19.78		8.53		$	2.6	2.9 years
Granted	57,386		19.87		8.71
Exercised	(421,000	)	12.53		6.44		$	3.1
Balance at December 31, 2016	543,377		25.40		10.17		$	0.5	4.7 years
Granted	522,250		21.25		9.63
Exercised	(50,000	)	19.60		10.18		$	0.1
Balance at December 31, 2017	1,015,627		$	23.55	$	9.89	$	—	6.9 years

The following table summarizes information about options exercisable for the periods indicated:



	December 31, 2017		December 31, 2016		December 31, 2015
Number of options exercisable	535,627		472,042		851,020
Weighted average exercise price	$	25.66	$	25.73	$	19.22
Weighted average remaining contractual term	4.6		4.1		2.6
Intrinsic value ($ in millions)	$	—	$	0.4	$	2.6

During the year ended December 31, 2017, 113,585 (2016: 42,022, 2015: 38,998) options vested which had a weighted average grant date fair value of $10.29 (2016: $11.90, 2015: $12.82).

Employee Restricted Stock Units

The Company issues restricted stock units (“RSUs”) to certain employees as part of the stock incentive plan. The grant date fair value of the RSUs is equal to the price of the Company’s Class A ordinary shares on the grant date. Compensation cost based on the grant date fair market value of the RSUs is expensed on a straight line basis over the vesting period.

For the year ended December 31, 2017, 11,559 (2016: 7,444, 2015: 6,821) RSUs were issued to employees pursuant to the Company’s stock incentive plan. These shares contain certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment and transferability. Each of these RSUs cliff vest after three years from the date of issuance, subject to the grantee’s continued service with the Company. On the vesting date, the Company converts each RSU into one Class A ordinary share and issues new Class A ordinary shares from the shares authorized for issuance as part of the Company’s stock incentive plan.

The Company recorded $0.2 million of share-based compensation expense (recovery), net of forfeitures, relating to RSUs for the year ended December 31, 2017 (2016: $(0.1) million, 2015: $0.2 million). The recovery for the year ended December 31, 2016 was due to reversal of share-based compensation expense previously recorded on RSUs that were forfeited during 2016.

Employee RSU activity during the years ended December 31, 2017 and 2016 was as follows:



	Number of non-vested RSUs		Weighted average grant date fair value
Balance at December 31, 2015	22,170		$	30.55
Granted	7,444		21.56
Vested	(1,799	)	26.48
Forfeited	(11,881	)	29.60
Balance at December 31, 2016	15,934		27.52
Granted	11,559		21.65
Vested	(4,695	)	32.60
Balance at December 31, 2017	22,798		$	23.50

For the years ended December 31, 2017, 2016 and 2015, the general and administrative expenses included stock compensation expense (net of forfeitures) of $4.9 million, $4.0 million and $4.3 million, respectively, for the expensing of the fair value of stock options, restricted stock and RSUs granted to employees and directors, net of forfeitures.