Note 12—Stock-Based Compensation

On January 8, 2018, the Company engaged Hunt through the execution of a management agreement with the External Manager (the “Management Agreement”) to externally manage the Company’s operations. All employees of the Company were hired by the External Manager. The Company has stock-based compensation plans (“Plans”) for non-employee Directors (“Non-employee Directors’ Stock-Based Compensation Plans”) and stock-based incentive compensation plans for employees (“Employees’ Stock-Based Compensation Plans”).

The following table provides information related to total compensation expense that was recorded for these Plans:


	For the year ended
	December 31,
(in thousands)	2019		2018
Employees’ Stock-Based Compensation Plans	$	─	$	961
Non-employee Directors’ Stock-Based Compensation Plans		595		655
Total	$	595	$	1,616

Employees’ Stock-Based Compensation Plans

At December 31, 2019, there were 571,066 share awards available to be issued under Employees’ Stock-Based Compensation Plans. While each existing Employees’ Stock-Based Compensation Plan has been approved by the Board, not all of the Plans have been approved by the Company’s shareholders. The Plans that have not been approved by the Company’s shareholders are currently restricted to the issuance of only stock options. As a result, of the 571,066 shares available under the plans, 73,556 are available to be issued in the form of either stock options or shares, while the remaining 497,510 shares available for issuance must be issued in the form of stock options. Since the Company has no employees, the Company does not expect to issue any of these shares or options.

Employee Common Stock Options

The Company measures the fair value of unvested options with time-based vesting and all vested options (both time-based and performance based) using a lattice model for purposes of recognizing compensation expense. Because options granted with stock price targets contain a “market condition” under FASB’s Accounting Standards Codification Topic 718, a Monte Carlo simulation is used to simulate future stock price movements for the Company.

The following table provides information related to option activity under the Employees’ Stock-Based Compensation Plans:

Weighted-average

Remaining

Weighted-average

Contractual

Aggregate

Number of

Exercise Price

Life per option

Intrinsic

Period End

(in thousands, except per option data)

Options

per Option

(in years)

Value (2)

Liability (3)

Outstanding at January 1, 2018

410

1.56

3.4

9,322

9,342

Exercised in 2018 (1)

(410)

1.56

Outstanding at December 31, 2018 and December 31, 2019

─

⁽¹⁾

When exercised, stock options were net share settled. For the year ended December 31, 2018, 410,000 stock options were exercised, which resulted in a $9.3 million reduction to the Company’s reported “Other liabilities” within its Consolidated Balance Sheets at December 31, 2018. Of the 410,000 stock options that were exercised, the Company issued 220,279 common shares for the year ended December 31, 2018, and 189,721 stock options were tendered to the Company by their holders for the payment of related withholding taxes and exercise price.

⁽²⁾

Intrinsic value is based on outstanding options.

⁽³⁾

Only options that were amortized based on a vesting schedule have a liability balance. There were 410,000 options at January 1, 2018, that fit this profile.

Non-Employee Directors’ Stock-Based Compensation Plans

The Non-employee Directors’ Stock-based Compensation Plans authorize a total of 1,130,000 shares for issuance, of which 384,160 were available to be issued at December 31, 2019. The Non-employee Directors’ Stock-based Compensation Plans provide for grants of non-qualified common stock options, common shares, restricted shares and deferred shares.

The Non-employee Directors’ Stock-based Compensation Plans provide for directors to be paid $120,000 per year for their services. In addition, the Chairman receives an additional $20,000 per year, the Audit Committee Chair receives an additional $15,000 per year and the other committee chairs receive an additional $10,000 per year. Under this plan, 50% of such compensation is paid in cash and the remaining sum through common share-based grants.

The table below summarizes non-employee director compensation, including cash, vested options and common and deferred shares, for services rendered for the years ended December 31, 2019 and December 31, 2018. The directors are fully vested in the deferred shares at the grant date.


				Common		Deferred		Weighted-average
				Shares		Shares		Grant Date		Options		Directors' Fees
		Cash		Granted		Granted		Share Price		Vested		Expense
December 31, 2019	(1)	$	297,500		2,222		7,194	$	31.59		─	$	595,000
December 31, 2018			327,500		─		12,182		26.88		─		655,000

⁽¹⁾

During the third quarter of 2019, one of the Company’s directors retired.