Employee Stock Benefit Plans

We have a stock-based employee compensation plan. We account for stock-based compensation in accordance with FASB ASC Topic 718, “Compensation - Stock Compensation” and FASB ASC Topic 505-50, “Equity - Equity Based Payment to Non-Employees”, which requires the measurement and recognition of compensation expense for all share-based awards to our employees and directors. Share-based compensation cost is measured based on the fair value of the equity or liability instruments issued. FASB ASC 718 and FASB ASC 505-50 apply to all of our outstanding unvested share-based payment awards.

Equity Participation Plan Program Description

We have two equity participation plans, the Amended and Restated Libbey Inc. 2006 Omnibus Incentive Plan and the Libbey Inc. 2016 Omnibus Incentive Plan, which we refer to as the Omnibus Plans. Up to a total of 2,960,000 and 1,200,000 shares of Libbey Inc. common stock are authorized for issuance as equity-based compensation under the 2006 and 2016 Omnibus Plans, respectively. Under the Omnibus Plans, grants of equity-based compensation may take the form of stock options, stock appreciation rights, performance shares or units, restricted stock or restricted stock units or other stock-based awards. Employees and directors are eligible for awards under these plans. During 2016, there were grants of 351,590 stock options, 298,909 restricted stock units, and 16,299 cash settled restricted stock units. During 2015, there were grants of 108,297 stock options, 219,010 restricted stock units, and 1,025 cash settled restricted stock units. All option grants have an exercise price equal to the fair market value of the underlying stock on the grant date. The vesting period of options, stock appreciation rights, restricted stock units and cash settled restricted stock units outstanding as of December 31, 2016, is generally four years. Awards are subject to alternate vesting plans for death, disability, retirement eligibility and involuntary termination. Dividends are not payable on shares underlying options, stock appreciation rights or unvested restricted stock units. All grants of equity-based compensation are amortized over the vesting period in accordance with FASB ASC 718 expense attribution methodology. The impact of applying the provisions of FASB ASC 718 is a pretax compensation expense of $4.8 million, $5.9 million and $5.3 million in selling, general and administrative expenses in the Consolidated Statements of Operations for 2016, 2015 and 2014, respectively.

Non-Qualified Stock Option Information

The Black-Scholes option-pricing model was used to estimate the grant-date fair value for stock options. The exercise price of each stock option equals the closing market price of our common stock on the date of grant. The maximum term is ten years. The following table summarizes non-qualified stock option disclosures for 2016, 2015 and 2014:



Year ended December 31, (dollars in thousands, except options and assumptions)	2016		2015		2014
Stock options granted	351,590		108,297		233,054
Stock option compensation expense included in the Consolidated Statements of Operations	$	705	$	1,674	$	1,591
Weighted-average grant-date fair value of options granted using the Black-Scholes model	$	4.20	$	14.72	$	10.86
Weighted average assumptions for stock option grants:
Risk-free interest	1.30%		1.68%		1.90%
Expected term	6.3 years		6.4 years		6.5 years
Expected volatility	33.14%		39.92%		42.81%
Dividend yield	2.69%		1.16%		0.00%


•	The risk-free interest rate is based on the U.S. Treasury yield curve at the time of grant and has a term equal to the expected life.


•	The expected term represents the period of time the options are expected to be outstanding. We use the actual historical exercise activity for determining the expected term.

•

Expected volatility is calculated based on a rolling average of the daily stock closing prices of a peer group of companies with a period equal to the expected life of the award. The peer group is used due to the Company having a period of history when we were more highly leveraged which is not relevant in evaluating expected volatility. The peer group was established using the criteria of similar industry, size, leverage and length of history.


•	The dividend yield is calculated as the ratio based on our most recent historical dividend payments per share of common stock at the grant date to the stock price on the date of grant.

Information with respect to our stock option activity for 2016, 2015 and 2014 is as follows:



Stock Options	Shares		Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value (in thousands)
Outstanding balance at January 1, 2014	988,780		$	14.07	5.0	$	6,856
Granted	233,054		$	23.92
Exercised	(363,459	)	$	12.57		$	5,218
Canceled	(24,365	)	$	20.58
Outstanding balance at December 31, 2014	834,010		$	17.28	6.7	$	11,808
Granted	108,297		$	36.90
Exercised	(241,122	)	$	13.85		$	5,722
Canceled	(44,514	)	$	25.43
Outstanding balance at December 31, 2015	656,671		$	21.22	6.8	$	2,103
Granted	351,590		$	17.23
Exercised	(100,813	)	$	13.90		$	379
Canceled	(262,225	)	$	23.73
Outstanding balance at December 31, 2016	645,223		$	19.17	6.6	$	1,407
Exercisable at December 31, 2016	300,288		$	18.43	4.3	$	816

Intrinsic value for share-based instruments is defined as the difference between the current market value and the exercise price.

As of December 31, 2016, $0.8 million of unrecognized compensation expense related to nonvested stock options is expected to be recognized within the next 1.9 years on a weighted-average basis. The total fair value of shares vested during 2016, 2015 and 2014 is $1.6 million, $1.7 million and $1.1 million, respectively. Shares issued for exercised options are issued from treasury stock, when available.

The following table summarizes our nonvested stock option activity for 2016, 2015 and 2014:



Nonvested Stock Options	Shares		Weighted-Average Value (per Share)
Nonvested at January 1, 2014	342,276		$	9.07
Granted	233,054		$	10.86
Vested	(113,550	)	$	9.37
Forfeited	(23,265	)	$	9.73
Nonvested at December 31, 2014	438,515		$	9.91
Granted	108,297		$	14.72
Vested	(161,923	)	$	10.55
Forfeited	(42,887	)	$	11.32
Nonvested at December 31, 2015	342,002		$	10.95
Granted	351,590		$	4.20
Vested	(169,703	)	$	9.42
Forfeited	(178,954	)	$	8.41
Nonvested at December 31, 2016	344,935		$	6.14

Stock Appreciation Rights Information

The exercise price of each stock appreciation right equals the closing market price of our common stock on the date of grant. The maximum term is ten years. Stock appreciation rights are settled in cash for the difference between the market price on the date of exercise and the exercise price. Awards that are settled in cash are subject to liability accounting. Accordingly, the fair value of such awards is remeasured at the end of each reporting period until settled or expired. The Company entered into a CEO Retention Award Agreement pursuant to which the Company issued 240,829 stock appreciation rights to our former CEO on December 16, 2013. On January 11, 2016, vesting of all unvested retention stock appreciation rights otherwise scheduled to vest on December 31, 2018 was accelerated as a result of the departure of our former CEO.

The Black-Scholes option-pricing model was used to estimate the grant-date fair value. The following table summarizes stock appreciation rights disclosures for 2016, 2015 and 2014:



Year ended December 31, (dollars in thousands, except stock appreciation rights and assumptions)	2016			2015			2014
Stock appreciation rights granted	—			—			2,600
Stock appreciation rights compensation expense (credit) included in the Consolidated Statements of Operations	$	(462	)	$	(273	)	$	736
Weighted-average grant-date fair value of stock appreciation rights granted using the Black-Scholes model							$	10.45
Weighted average assumptions for stock appreciation rights granted:
Risk-free interest							1.92%
Expected term							6.5 years
Expected volatility							43.14%
Dividend yield							0.00%

The risk-free interest rate, expected term, expected volatility and dividend yield assumptions are calculated consistent with our non-qualified stock option awards.

Information with respect to our stock appreciation right activity for 2016, 2015 and 2014 is as follows:



Stock Appreciation Rights	Shares		Weighted Average Exercise Price		Weighted-Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value (in thousands)
Outstanding Balance at January 1, 2014	250,979		$	21.07	10	$	—
Granted	2,600		$	23.02
Exercised	(6,475	)	$	14.98
Canceled	(2,875	)	$	16.99
Outstanding balance at December 31, 2014	244,229		$	21.27	9	$	2,483
Outstanding balance at December 31, 2015	244,229		$	21.27	8	$	14
Outstanding balance at December 31, 2016	244,229		$	21.27	0.1	$	4
Exercisable at December 31, 2016	243,079		$	21.27	0.1	$	4

As of December 31, 2016, the amount of unrecognized compensation expense related to nonvested stock appreciation rights is immaterial. The total fair value of shares vested during 2016, 2015 and 2014 was immaterial.

The following table summarizes our non-vested stock appreciation rights for 2016, 2015 and 2014:



Nonvested Stock Appreciation Rights	Shares		Weighted-Average Value (per Share)
Nonvested at January 1, 2014	248,041		$	10.36
Granted	2,600		$	10.45
Vested	(3,537	)	$	10.10
Forfeited	(2,875	)	$	9.66
Nonvested at December 31, 2014	244,229		$	10.37
Vested	(1,250	)	$	10.33
Nonvested at December 31, 2015	242,979		$	10.37
Vested	(241,829	)	$	10.38
Nonvested at December 31, 2016	1,150		$	9.88

Stock and Restricted Stock Unit Information

Under the Omnibus Plans, we grant non-employee members of our Board of Directors shares of stock. The shares granted to Directors are immediately vested and all compensation expense is recognized in our Consolidated Statements of Operations in the year the grants are made. In addition, we grant restricted stock units to select executives and key employees. Compensation expense for restricted stock is measured based on the closing market price of the stock at date of grant less the present value of expected dividends over the vesting period, as dividends are not payable on unvested restricted stock units.

A summary of the activity for stock and restricted stock units under the Omnibus Plans for 2016, 2015 and 2014 is presented below:



Year ended December 31, (dollars in thousands, except share amounts)	2016			2015			2014
Beginning nonvested balance	315,434			232,824			208,460
Granted	298,909			219,010			123,782
Vested	(165,372		)	(113,319		)	(92,070		)
Forfeited	(165,783		)	(23,081		)	(7,348		)
Ending nonvested balance	283,188			315,434			232,824

Weighted-average grant-date fair value per restricted stock unit	$	16.22		$	35.93		$	24.24

Compensation expense	$	3,019		$	4,199		$	2,340

The total fair value for shares vested during the years ended December 31, 2016, 2015 and 2014 was $3.0 million, $4.2 million and $2.2 million, respectively. As of December 31, 2016, there was $2.8 million of unrecognized compensation cost related to nonvested restricted stock units granted. That cost is expected to be recognized over a weighted average period of 1.8 years. Shares issued for unrestricted stock and restricted stock unit awards are issued from treasury stock, when available.

Cash Settled Restricted Stock Unit Information

Under the terms of the CEO Retention Award Agreement dated December 16, 2013, 115,687 cash settled restricted stock units were granted during the first quarter of 2014. Accordingly, awards that will be settled in cash are subject to liability accounting and the fair value of these awards will be remeasured at the end of each reporting period until settled. On January 11, 2016, vesting of all unvested retention cash settled restricted stock units otherwise scheduled to vest on December 31, 2018 was accelerated as a result of the departure of our former CEO.

A summary of the activity for cash settled restricted stock units is presented below:



Year ended December 31, (dollars in thousands, except share amounts)	2016			2015		2014
Beginning nonvested balance	116,712			115,687		—
Granted	16,299			1,025		115,687
Vested	(115,944		)	—		—
Ending nonvested balance	17,067			116,712		115,687

Weighted-average grant-date fair value per restricted stock unit	$	3.57		$	36.96	$	23.02

Compensation expense	$	1,504		$	317	$	616

During 2016, some equity awards for foreign employees were modified to cash settled restricted stock units. The weighted-average grant-date fair value noted above represents the incremental value at the date of modification. As of December 31, 2016, the amount of unrecognized compensation cost related to nonvested cash settled restricted stock units granted was immaterial. We paid $2.3 million to settle vested cash settled restricted stock units in 2016.

Employee 401(k) Plan Retirement Fund and Non-Qualified Deferred Executive Compensation Plans

We sponsor the Libbey Inc. Salary and Hourly 401(k) plans (the Plans) to provide retirement benefits for our U.S. employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plans provide for tax-deferred wage contributions for eligible employees.

For the Salary Plan, employees can contribute from 1 percent to 50 percent of their annual salary, up to the annual IRS limits. We match 100 percent on the first 6 percent on a per pay basis of pretax contributions. For the Hourly Plan, employees can contribute from 1 percent to 25 percent of their eligible annual pay up to the annual IRS limits. We match 50 percent of the first 6 percent of eligible earnings on a per pay basis that are contributed by employees on a pretax basis. Therefore, the maximum matching contribution that we may allocate to each participant's account did not exceed $15,900 for the Salary Plan or $7,950 for the Hourly Plan for the 2016 calendar year due to the $265,000 annual limit on eligible earnings imposed by the Internal Revenue Code. All matching contributions are invested according to the employees' deferral elections and vest immediately.

Effective January 1, 2009, we have a non-qualified Executive Deferred Compensation Plan (EDCP). Under the EDCP, executives and other members of senior management may elect to defer base salary, annual incentive compensation and equity-based compensation. We provide matching contributions on excess contributions (above the qualified 401(k) plan compensation limits) in the same manner as we provide matching contributions under our 401(k) plan.

Our matching contributions to all Plans totaled $3.4 million, $3.4 million and $3.1 million in 2016, 2015 and 2014, respectively.