NOTE 9 - EQUITY-BASED COMPENSATION

Our currently outstanding equity-based awards were issued under our Equity Plan, which provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and other equity-based award or incentive awards. Effective June 15, 2015, we adopted the Amended Equity Plan. The more significant changes to the Equity Plan that are reflected in the Amended Equity Plan are summarized as follows:

The share authorization is amended to provide that the maximum aggregate number of shares of common stock that may be issued under awards granted pursuant to the Amended Equity Plan is 3,500,000 shares.

The Amended Equity Plan is designed so that awards granted thereunder can qualify as “performance-based compensation” under Section 162(m) of the IRC.

The Amended Equity Plan generally provides that awards will not be fully vested or exercisable for at least three years after their grant unless the award will be earned on account of meeting performance objectives in which case the period will be at least one year.

No equity-based awards have been issued under the Amended Equity Plan. Stock options granted may be either incentive stock options or non-qualified stock options. Vesting terms may vary with each grant, and stock option terms are generally five to ten years. We have outstanding equity-based awards in the form of stock options and restricted stock awards. All of our existing equity-based awards are classified as equity awards.

Resignation of Executive Chairman of the Board of Directors

On July 30, 2015, Kerry W. Boekelheide, Executive Chairman of the Board of Directors (“Board”) of the Company informed the Board that he was stepping down from his position with the Company effective July 30, 2015. In connection with Mr. Boekelheide’s departure, the Company entered into a severance and release agreement with Mr. Boekelheide, which included accelerated vesting of all restricted shares of common stock and options previously granted to Mr. Boekelheide (all of the options will remain exercisable, in whole or in part, until October 29, 2015 and, if not exercised on or prior to that date, will be forfeited). In accordance with this agreement, 75,200 stock options, 56,481 performance-based restricted shares and 46,673 time-based restricted shares vested during the quarter ended September 30, 2015. On October 28, 2015, Mr. Boekelheide exercised the vested stock options on a cashless basis resulting in a net issuance of 99,738 shares of our common stock. Additional stock-based compensation expense of $1.1 million was recorded during the quarter ended September 30, 2015 related to these award modifications.

Stock Options

Stock option activity for the nine months ended September 30, 2015 is as follows:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms		Aggregate Intrinsic Value (Current Value Less Exercise Price)
		(per share)		(in years)		(in thousands)
Outstanding at December 31, 2014	846,000	$	9.75	6.2		$	2,276
Granted	—	—
Exercised	—	—
Forfeited	—	—

Outstanding at September 30, 2015	846,000	$	9.75	3.0	(1)	$	1,624

Exercisable at September 30, 2015	752,000	$	9.75	2.7		$	1,444

(1)

The accelerated vesting of Mr. Boekelheide’s stock options resulted in a significant decrease in the weighted average remaining contractual terms of outstanding stock options at September 30, 2015.

Time-Based Restricted Stock Awards

On March 3, 2015, we granted time-based restricted stock awards for 149,410 shares of common stock to our executive officers and management. Of the total awards issued, 37,230 vest based on continued service on March 9, 2018, or upon a change in control. The remaining awards vest over a three year period based on continued service (25% on March 9, 2016 and 2017 and 50% on March 9, 2018), or upon a change in control.

On April 24, 2015, we granted a time-based restricted stock award for 16,930 shares of common stock to one of our executive officers. The award vests ratably over a three year period based on continued service on the first, second and third anniversaries of the grant date.

The holders of these grants have the right to vote the related shares of common stock and receive all dividends declared and paid whether or not vested.

The fair value of time-based restricted stock awards is calculated based on the market value of our common stock on the date of grant.

The following table summarizes time-based restricted stock award activity under our Equity Plan for the nine months ended September 30, 2015:

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Current Value
			(per share)		(in thousands)
Non-vested December 31, 2014	181,116		$	9.81	$	2,253
Granted	166,340		13.53
Vested	(97,445	)	10.46
Forfeited	—		—

Outstanding at September 30, 2015	250,011		$	12.03	$	2,918

Performance-Based Restricted Stock Awards

On March 3, 2015, we granted performance-based restricted stock awards for 154,505 shares of common stock to certain of our executive officers. Our performance-based restricted stock awards are market-based awards and are accounted for based on the fair value of our common stock on the grant date. The fair value of the performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model.

These awards vest based the Company’s percentile ranking within the SNL U.S. REIT Hotel Index at the end of the period beginning on January 1, 2015 and ending on the earlier of December 31, 2017, or upon a change in control. The awards require continued service during the measurement period and are subject to the other conditions described in the Equity Plan or award document.

The number of shares the executive officers may earn under these awards range from zero shares to twice the number of shares granted based on the Company’s percentile ranking within the index at the end of the measurement period. The holders of these grants have the right to vote the granted shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards. Further, if additional shares are earned based on the Company’s percentile ranking within the index, dividend payments will be issued as if the additional shares had been held throughout the measurement period.

The following table summarizes performance-based restricted stock activity under the Equity Plan for the nine months ended September 30, 2015:

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Current Value
			(per share)		(in thousands)
Non-vested December 31, 2014	384,558		$	6.75	$	4,784
Granted	154,505		18.78
Vested	(184,666	)	6.86
Forfeited	(46,030	)	5.10

Outstanding at September 30, 2015	308,367		$	12.95	$	3,599

Director Stock Awards

Our non-employee directors have the option to receive shares of our common stock in lieu of cash for their director fees. In the nine months ended September 30, 2015, we issued 4,716 shares of our common stock in lieu of cash for director fees, and we made an annual grant of 30,440 shares of common stock to our non-employee directors. The fair value of director stock awards is calculated based on the market value of our common stock on the date of grant.

Equity-Based Compensation Expense

Equity-based compensation expense included in Corporate General and Administrative expenses in the condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014 were as follows (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2015		2014		2015		2014
Stock options	$	256	$	146	$	551	$	527
Time-based restricted stock	820		233		1,396		727
Performance-based restricted stock	864		548		1,568		1,202
Director stock	20		148		453		387

	$	1,960	$	1,075	$	3,968	$	2,843

We recognize equity-based compensation expense ratably over the vesting period of the equity awards granted. The amount of expense may be subject to adjustment in future periods due to a change in the forfeiture assumptions or modification of previously granted awards.

Unrecognized equity-based compensation expense for all non-vested awards was $4.9 million at September 30, 2015 as follows (in thousands):

	Total		2015		2016		2017		2018
Stock options	$	136	$	82	$	54	$	—	$	—
Time-based restricted stock	2,215		295		1,009		799		112
Performance-based restricted stock	2,546		389		1,133		1,024		—

	$	4,897	$	766	$	2,196	$	1,823	$	112