Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

STOCK-BASED COMPENSATION:

CNX's Equity Incentive Plan provides for grants of stock-based awards to key employees and to non-employee directors. Amendments to the Equity Incentive Plan have been adopted and approved by the Board of Directors and the Company's Shareholders since the commencement of the Equity Incentive Plan. Most recently, in May 2016, the Company's Shareholders adopted and approved a 10,550,000 increase to the total number of shares available for issuance, which brought the total number of shares of common stock that can be covered by grants in accordance with the terms of the Equity Incentive Plan, after adjustment for the separation of the coal business from the gas business on November 28, 2017, to 48,915,944. At December 31, 2018, 6,461,878 shares of common stock remained available for grant under the plan. The Equity Incentive Plan provides that the aggregate number of shares available for issuance will be reduced by one share for each share relating to stock options and by 2.0 and 1.62 for each share relating to Performance Share Units (PSUs) or Restricted Stock Units (RSUs), respectively. No award of stock options may be exercised under the Equity Incentive Plan after the tenth anniversary of the grant date of the award.

For those shares expected to vest, CNX recognizes stock-based compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term. Options and RSUs vest over a three-year term. PSUs granted in 2015 vested over a three-year term while PSUs granted in 2016-2018 vest over a five-year term at 20% per year subject to performance conditions. If an employee leaves the Company, all unvested shares are forfeited. CNX recognizes forfeitures as they occur. The vesting of all awards will accelerate in the event of death and disability and may accelerate upon a change in control of CNX. The total stock-based compensation expense recognized relating to CNX shares during the years ended December 31, 2018, 2017 and 2016 was $18,930, $16,983 and $19,316, respectively. The related deferred tax benefit totaled $4,979, $6,114 and $7,272, for the years ended December 31, 2018, 2017 and 2016, respectively.

As of December 31, 2018, CNX has $31,419 of unrecognized compensation cost related to all non-vested stock-based compensation awards, which is expected to be recognized over a weighted-average period of 2.63 years. When stock options are exercised, and restricted and performance stock unit awards become vested, the issuances are made from CNX's common stock shares.

Pursuant to the terms of the CNX Equity Plan and the outstanding awards, in the event of certain changes in the outstanding common stock of CNX or its capital structure, including by reason of a spin-off, the administrator of the CNX Equity Plan is required to appropriately adjust the number, exercise price, kind of shares, performance goals or other terms and conditions of Awards granted thereunder. In connection with the Separation, the Board of Directors of CNX has determined that it is appropriate that the outstanding awards be equitably adjusted pursuant to the terms of the CNX Equity Plan and/or converted into awards issued under the CONSOL Energy Inc. (CEIX) Equity Incentive Plan, such that the intrinsic value of the outstanding awards immediately following the separation remains the same as the intrinsic value of such awards immediately prior to the Separation. The separation resulted in a modification of the equity plans but did not have a material impact on the financial statements as of the date of Separation (See Note 5 - Discontinued Operations for more information).

Stock Options:

CNX examined its historical pattern of option exercises in an effort to determine if there were any discernible activity patterns based on certain employee populations. From this analysis, CNX identified two distinct employee populations and used the Black-Scholes option pricing model to value the options for each of the employee populations. The expected term computation presented in the table below is based upon a weighted average of the historical exercise patterns and post-vesting termination behavior of the two populations. The risk-free interest rate was determined for each vesting tranche of an award based upon the calculated yield on U.S. Treasury obligations for the expected term of the award. A combination of historical and implied volatility is used to determine expected volatility and future stock price trends. The total fair value of options granted during the years ended December 31, 2018 and 2017, and 2016 was $143, $353, and $19,305 respectively, based on the following assumptions and weighted average fair values:



	December 31,			December 31,			December 31,
	2018			2017			2016
Weighted average fair value of grants	$	6.50		$	6.19		$	5.73
Risk-free interest rate	2.66		%	1.66		%	1.13		%
Expected dividend yield	—		%	—		%	0.27		%
Expected forfeiture rate	—		%	—		%	2.00		%
Expected volatility	52.68		%	50.85		%	61.09		%
Expected term in years	3.71			3.71			4.90

A summary of the status of stock options granted is presented below:



				Weighted
				Average
			Weighted	Remaining	Aggregate
			Average	Contractual	Intrinsic
			Exercise	Term (in	Value (in
	Shares		Price	years)	thousands)
Outstanding at December 31, 2017	6,192,315		$21.51
Granted	21,924		$15.55
Exercised	(240,887	)	$6.87
Forfeited	(36,662	)	$6.87
Expired	(493,770	)	$65.40
Outstanding at December 31, 2018	5,442,920		$18.74	4.79	$	12,485
Exercisable at December 31, 2018	4,529,180		$21.09	4.31	$	8,431

At December 31, 2018, there are 5,442,920 employee stock options outstanding under the Equity Incentive Plan. Non-employee director stock options vest one year after the grant date. There are 457,481 stock options outstanding under these grants.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between CNX's closing stock price on the last trading day of the year ended December 31, 2018 and the option's exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2018. This amount varies based on the fair market value of CNX's stock. The total intrinsic value of options exercised for the years ended December 31, 2018 and 2017 was $2,077 and $1,067, respectively. There were no options exercised for the year ended December 31, 2016.

Cash received from option exercises for the years ended December 31, 2018 and 2017 was $1,714, $1,002, respectively. There was no cash received from option exercises for the year-ended December 31, 2016. The tax impact from option exercises totaled $569 and $205 for the years ended December 31, 2018 and 2017 respectively.

Restricted Stock Units:

Under the Equity Incentive Plan, CNX grants certain employees and non-employee directors RSU awards, which entitle the holder to receive shares of common stock as the award vests. Non-employee director RSUs vest at the end of one year. Compensation expense is recognized over the vesting period of the units, described above. The total fair value of RSUs granted during the years ended December 31, 2018, 2017 and 2016 was $13,768, $14,328 and $493, respectively. The total fair value of restricted stock units vested during the years ended December 31, 2018, 2017 and 2016 was $6,437, $12,805 and $19,095, respectively. The following table represents the nonvested restricted stock units and their corresponding fair value (based upon the closing share price) at the date of grant:



	Number of		Weighted Average
	Shares		Grant Date Fair Value
Nonvested at December 31, 2017	937,462		$16.01
Granted	984,286		$13.99
Vested	(446,759	)	$17.23
Forfeited	(47,838	)	$14.31
Nonvested at December 31, 2018	1,427,151		$14.30

Performance Share Units:

Under the Equity Incentive Plan, CNX grants certain employees performance share unit awards, which entitle the holder to shares of common stock subject to the achievement of certain market and performance goals. Compensation expense is recognized over the performance measurement period of the units in accordance with the provisions of the Stock Compensation Topic of the FASB Accounting Standards Codification for awards with market and performance vesting conditions. The total fair value of performance share units granted during the years ended December 31, 2018, 2017 and 2016 was $8,570, $9,789 and $24,283, respectively. The total fair value of performance share units vested during the years ended December 31, 2018 and 2017 was

$7,547 and $17,646, respectively. There were no performance share units vested during the year ended December 31, 2016. The following table represents the nonvested performance share units and their corresponding fair value (based upon the Monte Carlo Methodology or the closing share price) on the date of grant:



	Number of		Weighted Average
	Shares		Grant Date Fair Value
Nonvested at December 31, 2017	1,273,042		$25.53
Granted	476,121		$18.00
PSUs issued as a result of 200% payout	275,829		$23.75
Vested	(551,657	)	$23.75
Forfeited	(128,350	)	$27.03
Nonvested at December 31, 2018	1,344,985		$19.93

Performance Options:

Under the Equity Incentive Plan in 2010, CNX granted certain employees performance options, which entitled the holder to shares of common stock subject to the achievement of certain performance goals. Compensation expense was recognized over the vesting period of the options. The Black-Scholes option valuation model was used to value each tranche separately. There have been no performance options granted since 2010. There were 927,268 performance options outstanding and exercisable at a weighted average exercise price of $39.00 and a weighted average remaining contractual term of 1.42 years as of December 31, 2018.