NOTE 6. SHARE–BASED COMPENSATION

On the Effective Date, in connection with the Plan, the Company adopted the 2018 Omnibus Incentive Plan (the “2018 Plan”), pursuant to which employees, directors, consultants and other service providers of the Company and its subsidiaries are eligible to receive stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards. An aggregate of 689,362 shares of the Company’s common stock are reserved for issuance under the 2018 Plan. To the extent that an award under the 2018 Plan is expired, forfeited or cancelled for any reason without having been exercised in full, the unexercised award would then be available again for grant under the 2018 Plan.

The Compensation Committee of the Company’s Board of Directors (the “Board”) (or any properly delegated subcommittee thereof) or a committee of at least two people as the Board may appoint or, if no such committee or subcommittee has been appointed by the Board, the Board (the “Committee”) will administer the 2018 Plan. The Committee has broad authority under the 2018 Plan to, among other things: (i) select participants; (ii) determine the types of awards that participants are to receive and the number of shares or the amount of cash that are to be subject to such awards and grant such awards; and (iii) determine the terms, conditions and restrictions of awards, including the applicable performance criteria relating to the award.

During the year ended December 31, 2019, the Company granted 322,172 restricted stock units under the 2018 Plan. Of the restricted stock units granted during the year ended December 31, 2019, 150,000 restricted stock units are subject to a graded vesting over a three year period, of which 50,008 restricted stock units vested in the three months ended June 30, 2019; 36,141 restricted stock units are subject to vesting upon future events (such as divestitures); 30,188 restricted stock units vested during the three months ended June 30, 2019 as a result of the closing of the San Juan divestiture; 72,384 restricted stock units vested during the three months ended September 30, 2019 as a result of the closing of the Barnett and Mid-Continent divestitures; 4,406 restricted stock units vested during the three months ended December 31, 2019 as a result of the closing of the Permian Basin divestiture; 9,872 restricted stock units are scheduled to vest on June 5, 2020; and 19,181 were subject to vesting upon future events (such as divestitures) but were forfeited prior to the future event becoming probable. See Note 8 for additional information about the divestitures. The weighted average fair value of the restricted stock units granted during the year ended December 31, 2019 was $15.24 with a total fair value of approximately $4.9 million. A total of 24,920 restricted stock units were forfeited during the year ended December 31, 2019. Approximately 0.3 million shares remain available for grant under the 2018 Plan as of December 31, 2019.

During the seven months ended December 31, 2018, the Company granted 54,800 restricted stock units under the 2018 Plan, which vested during September 2018 as a result of the closing of a divestiture. During the seven months ended December 31, 2018, the Company also granted 6,500 restricted stock units under the 2018 Plan to members of the Board which vested on June 5, 2019. The weighted average fair value of the restricted stock units granted during the seven months ended December 31, 2018 was $20.33 with a total fair value of approximately $1.2 million.

The following table summarizes the activity related to these awards of restricted stock units for the year ended December 31, 2019 and for the seven months ended December 31, 2018:


	Year Ended December 31, 2019			Seven Months Ended December 31, 2018
	Number	Weighted Average		Number	Weighted Average
	of	Grant Date		of	Grant Date
	Restricted Stock Units	Fair Value		Restricted Stock Units	Fair Value
Nonvested awards as of beginning of period	6,500	$	23.20	—	$	—
Granted	322,172		15.24	61,300		20.33
Vested	(166,210)		15.56	(54,800)		19.99
Forfeited	(24,920)		15.25	—		—
Nonvested awards as of end of period	137,542	$	15.23	6,500	$	23.20

The Company recognized compensation cost related to these restricted stock units of $2.5 million and $1.1 million for the year ended December 31, 2019 and the seven months ended December 31, 2018, respectively. These costs are included in “General and administrative expenses” in the consolidated statements of operations. As of December 31, 2019, there was $1.6 million of total unrecognized compensation cost related to unvested shares of time-based restricted stock units, which is expected to be recognized over a weighted average period of 1.4 years. As of December 31, 2019, there was also $0.6 million of total unrecognized compensation costs related to unvested restricted stock units with vesting subject to future events, which will not be recognized until those future events are probable.

In October 2019, the Company paid a dividend of $7.00 per share to the holders of record of common stock as of the close of business on October 18, 2019. As a result, in accordance with the terms of the 2018 Plan, the Company paid a dividend of $7.00 per restricted stock unit, amounting to $50 thousand in the aggregate, that vested in December 2019. The Company also accrued a liability of $0.7 million for dividends of $7.00 per share for outstanding restricted stock unit expected to vest as of December 31, 2019. This amount is payable upon the vesting of those restricted stock unit awards.

Series A Preferred Stock

In connection with the Restructuring and in reliance on the exemption from the registration requirements of the Securities Act provided by Section 1145 of the Bankruptcy Code, Harvest issued 21,000 shares of Series A Preferred Stock pursuant to Preferred Stock Purchase Agreements, dated as of the Effective Date. The Company estimated the fair value of the Series A Preferred Stock as of December 31, 2019 and December 31, 2018 at $0.2 million. The fair value of the preferred stock award was recognized on a straight–line basis over the service period, and the Company accounted for forfeitures as they occurred. The 21,000 shares of Series A Preferred Stock vested during June 2019. During the year ended December 31, 2019 and the seven months ended December 31, 2018, the Company recognized $65 thousand and $88 thousand of compensation cost related to this preferred stock, respectively. These costs are included in “General and administrative expenses” in the consolidated statement of operations.

The Series A Preferred Stock is entitled to receive mandatory and cumulative dividends payable semi-annually in arrears with respect to each dividend period ending on and including the last calendar day of each six-month period ending June 4 and December 4, at a rate per share of Series A Preferred Stock equal to 8.0% per annum. In the event that dividends due to each share of Series A Preferred Stock have not been paid for a period of two consecutive Dividend Periods (as defined in the Certificate of Designations), the holders of the Series A Preferred Stock, as an independent class, shall be entitled to nominate and vote to appoint one director of the Board of Directors of the Company. Holders of shares of Series A Preferred Stock have no right, by virtue of their status as holders of shares of Series A Preferred Stock, to vote on any matters on which holders of shares of New Common Stock are entitled to vote.

Predecessor Equity-Based Compensation

EV Management had two long–term incentive plans, the 2006 Long-Term Incentive Plan (the “2006 Plan”) and the 2016 Long-Term Incentive Plan (the “2016 Plan” and together, the “Plans”) for employees, consultants and directors of EV Management and its affiliates who performed services for EVEP. The 2006 Plan expired on September 20, 2016, and on August 30, 2016, the unitholders approved the adoption of the 2016 Plan, which replaced the 2006 Plan with respect to future awards. The 2016 Plan provided for the issuance of up to 5,000,000 units and allowed for the award of unit options, phantom units, performance units, restricted units and deferred equity rights. These equity–based awards consisted only of phantom units as of May 31, 2018.

EVEP accounted for phantom units as equity awards since it had determined that these awards would likely be settled by issuing common units. Compensation cost was recognized for these phantom units on a straight–line basis over the service period and was net of forfeitures. These phantom units were subject to graded vesting over a four year period. However, the Partnership elected to settle the awards which vested in January 2018 with cash payments.

There were no phantom unit awards issued during the five months ended May 31, 2018 or the year ended December 31, 2017.

Activity related to these phantom units is as follows:


	Number	Weighted Average
	of	Grant Date
	Phantom Units	Fair Value
Nonvested phantom units as of December 31, 2017	1,511,920	$	4.54
Granted	—		—
Vested	(1,460,234)		4.58
Forfeited	(51,686)		3.42
Nonvested phantom units as of May 31, 2018	—	$	—

For the Predecessor, the total grant date fair value of the phantom units vested in 2018 and 2017 was $6.7 million and $6.3 million, respectively.

The Predecessor recognized compensation cost related to these phantom units of $1.0 million during the five months ended May 31, 2018 under the normal vesting schedule. The Predecessor recognized compensation cost related to these phantom units of $4.3 million in 2017. These costs are included in “General and administrative expenses” in the consolidated statements of operations.

On June 4, 2018, EVEP’s emergence from bankruptcy, which constituted a change of control, resulted in the immediate acceleration of all unvested phantom units. As a result, the total unrecognized compensation cost of $2.8 million was recognized as of May 31, 2018. These costs are included in “General and administrative expenses” in the consolidated statements of operations.