NOTE 14. EQUITY COMPENSATION PLAN

2014 Equity Compensation Plan

At our annual meeting of stockholders held on May 22, 2014, our stockholders approved the adoption of the 2014 Equity Compensation Plan, or the 2014 Equity Plan, which replaced the Anworth Mortgage Asset Corporation 2004 Equity Compensation Plan, or the 2004 Equity Plan, due to its expiration. We filed a registration statement on Form S‑8 on August 5, 2014 to register up to an aggregate of 2,000,000 shares of our common stock to be issued pursuant to the 2014 Equity Plan. The 2014 Equity Plan decreases the aggregate share reserve from 3,500,000 shares that were available under the 2004 Equity Plan to 2,000,000 shares of our registered common stock available under the 2014 Equity Plan. The 2014 Equity Plan authorizes our board of directors, or a committee of our board of directors, to grant DERs or phantom shares, which qualify as performance-based awards under Section 162(m) of the Code. Unlike the 2004 Equity Plan, however, the 2014 Equity Plan does not provide for automatic increases in the aggregate share reserve or the number of shares remaining available for grant and only provides for the granting of DERs or phantom shares. During the year ended December 31, 2019, we issued to our independent directors an aggregate of 8,000 restricted stock units (or phantom shares) with associated grants of 8,000 DERs in the aggregate under the 2014 Equity Plan. These restricted stock units (or phantom shares) do not vest until our independent directors terminate their service on our Board.

In August 2016, we granted to various officers and employees an aggregate of 146,552 performance-based restricted stock units (or phantom shares) with no associated grants of DERs. During the period commencing on the day immediately following the three-year anniversary of the grant date and ending on the ten-year anniversary of the grant date, the restricted stock units will vest on the last day of any month when the total return to stockholders (meaning the aggregate of our common stock price appreciation and dividends declared, assuming full reinvestment of such dividends) exceeds 10% per annum. During the period commencing on the grant date and ending on the last day of the calendar month after the three-year anniversary of the grant date, the restricted stock units will vest immediately upon the grantee’s involuntary termination of service for any reason other than for cause. The closing price of the Company’s common stock on the grant date was $4.96. The amount expensed on these grants during 2019 was approximately $62 thousand. At December 31, 2019, these grants have been fully expensed.

In December 2017, we issued to various officers and employees an aggregate of 162,613 performance-based restricted stock units (or phantom shares) with no associated grants of DERs. During the period commencing on the day immediately following the three-year anniversary of the grant date and ending on the ten-year anniversary of the grant date, the restricted stock units shall vest on the last day of any month when the total return to stockholders (meaning the aggregate of our common stock price appreciation and dividends declared, assuming full reinvestment of such dividends) exceeds 10% per annum. During the period commencing on the grant date and ending on the last day of the calendar month after the three-year anniversary of the grant date, the restricted stock units will vest immediately upon the grantee’s involuntary termination of service for any reason other than for cause. The closing price of the Company’s common stock on the grant date was $5.66. During the year ended December 31, 2019, the amount expensed on these grants was approximately $16 thousand. The unrecognized stock expense on these grants at December 31, 2019 was approximately $136 thousand.

Certain of our former officers have previously been granted restricted stock and other equity incentive awards, including dividend equivalent rights, in connection with their service to us. In connection with the Externalization, certain of the agreements under which our former officers have been granted equity awards were modified so that such agreements will continue with respect to our former officers after they became officers and employees of our Manager. As a result, these awards and any future grants will be accounted for as non-employee awards. In addition, as officers and employees of our Manager, they will continue to be eligible to receive equity incentive awards under equity incentive plans in effect now or in the future. In accordance with the Externalization effective as of December 31, 2011, the DERs previously granted to all of our officers were terminated under the 2007 Dividend Equivalent Rights Plan and were reissued under the 2004 Equity Plan with the same amounts, terms and conditions. The 2004 Equity Plan was subsequently replaced by the 2014 Equity Plan.

There have been no stock option transactions that are outstanding under the 2014 Equity Plan during 2019, 2018, and 2017.

The following table summarizes information about restricted stock units transactions during the year ended December 31, 2019:


							Weighted
		Unvested				Unvested	Average
Grant		Units at	Restricted	Units		Units at	Remaining
Date Fair		December 31,	Units	Vested in	Units	December 31,	Contractual
Value		2018	Granted	2019	Forfeited	2019	Life (Years)
$	4.96	154,552	—	—	146,552	8,000	1
$	5.66	162,613	—	—	—	162,613	8
		317,165	—	—	146,552	170,613

The fair value of the aforementioned stock-based award was estimated using the Black-Scholes model with the following weighted-average assumptions:


	2016		2017
	Grant		Grant
Assumptions:
Dividend yield	13.1	%	13.1	%
Expected volatility	27.7	%	27.7	%
Risk-free interest rate	3.8	%	3.8	%
Expected lives	3 years		10 years

We recognize the expense related to restricted stock units over a vesting period ranging from three to ten years. During the years ended December 31, 2019, 2018, and 2017, we expensed approximately $78 thousand, $98 thousand, and $82 thousand, respectively, related to the restricted stock units grants.

At our May 24, 2007 annual meeting of stockholders, our stockholders adopted the Anworth Mortgage Asset Corporation 2007 Dividend Equivalent Rights Plan, or the 2007 DER Plan. A dividend equivalent right, or DER, is a right to receive amounts equal in value to the dividend distributions paid on a share of our common stock. DERs are paid in either cash or shares of our common stock, whichever is specified by our Compensation Committee at the time of grant, at such times as dividends are paid on shares of our common stock during the period between the date a DER is issued and the date the DER expires or earlier terminates. The Compensation Committee may impose such other conditions to the grant of DERs as it may deem appropriate. The maximum term for DERs is ten years from the date of grant. On December 17, 2019, our Board approved a grant of 114,178 DERs to replace an equal amount of DERs that were scheduled to expire in December 2019, which were issued under the 2014 Equity Plan. This grant has only a one-year term, whereas all of the prior grants have a five-year term from the date of the grant. These DERs are not attached to any stock and only have the right to receive the same cash distribution per common share distributed to our common stockholders during the term of the grant. At December 31, 2019, there were 746,611 DERs issued and outstanding, which are held by the directors and officers of our Company and employees of our Manager. During the years ended December 31, 2019, 2018, and 2017, we paid or accrued $301 thousand, $392 thousand, and $430 thousand, respectively, related to DERs granted.