Stock Compensation

On August 8, 2017, the Company adopted a stock-based incentive plan (the “FGL Incentive Plan”) that permits the granting of awards in the form of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, unrestricted stock, performance-based awards, dividend equivalents, cash awards and any combination of the foregoing. The Company’s Compensation Committee is authorized to grant up to 15,006 thousand equity awards under the Incentive Plan. At September 30, 2018, 1,171 thousand equity awards are available for future issuance.

FGL Incentive Plan

On May 15, 2018 FGL granted 13,835 thousand stock options to certain officers of the Company. The following table summarizes the vesting conditions for these options:



Vesting mechanism	Vest Dates	Number of options subject to these vesting conditions
Service	Each March 15 from 2019 through 2023; subject to continued service	3,937
Service and return on equity performance	March 15 2020, 2021 and 2022 subject to continued service and targeted return on equity	4,949
Service and stock price performance	Each March 15 from 2019 through 2023; subject to continued service and target stock price goals being achieved	4,949

The total fair value of the options granted in the nine months ended September 30, 2018 was $29. The fair value of the awards is expensed over the service period, which generally corresponds to the vesting period.

At September 30, 2018, the intrinsic value of stock options outstanding or expected to vest was $0. At September 30, 2018, the weighted average remaining contractual term of stock options outstanding or expected to vest was 7 years. At September 30, 2018 there were no options that were exercisable or vested.

A summary of the Company’s outstanding stock options as of September 30, 2018, and related activity during the nine months ended September 30, 2018, is as follows (share amount in thousands):



Stock Option Awards	Options	Weighted Average Exercise Price
Stock options outstanding at December 31, 2017	—	$	—
Granted	13,835	10.00
Exercised	—	—
Forfeited or expired	—	—
Stock options outstanding at September 30, 2018	13,835	10.00
Exercisable at September 30, 2018	—	—
Vested or projected to vest at September 30, 2018	13,835	10.00

To value the options granted with service and return on equity performance vesting conditions, we used a Black Scholes valuation model. To value the options granted with stock price market performance vesting conditions, we used a Monte Carlo simulation. The following inputs and assumptions were used in the determination of the grant date fair values for each.



	Black-Scholes Model		Monte Carlo Model
	Serviced based	ROE Performance based	Stock Price Performance based	Source of input/ assumption
Weighted average fair value per options granted	$2.2	$2.35	$1.77	N/A
Risk-free interest rate	2.95%	2.98%	3.02%	US Treasury Curve
Assumed dividend yield	—%	—%	—%	Internal projection
Expected option term	5.5 years	6.0 years	N/A	Internal model
Contractual term	N/A	N/A	7.0 years	N/A
Volatility	25.00%	25.00%	25.72%	Predecessor and peer group experience
Early exercise multiple	N/A	N/A	2.8	Hull White model
Cost of equity	N/A	N/A	10.50%	Capital asset pricing model - 20 year risk free rate

The Company granted 112 thousand restricted shares to directors in the nine months ended September 30, 2018. These shares will vest on December 31, 2018. The total fair value of the restricted shares granted in the nine months ended September 30, 2018 was $1.

A summary of the Company’s nonvested restricted shares outstanding as of September 30, 2018, and related activity during the nine months ended, is as follows (share amount in thousands):



Restricted Stock Awards	Shares	Weighted Average Grant Date Fair Value
Nonvested restricted shares outstanding at December 31, 2017	—	$	—
Granted	112	10.01
Vested	—	—
Forfeited	—	—
Nonvested restricted shares outstanding at September 30, 2018	112	10.01

Management Incentive Plan

In the nine months ended September 30, 2018, the Company granted 374 thousand phantom units to members of management under a management incentive plan (the "Management Incentive Plan"). The phantom units are settled in cash, and therefore the Management Incentive Plan is classified as a liability plan. The value of this plan is classified within "Other liabilities" on the unaudited Condensed Consolidated Balance Sheets and is adjusted each period, with a corresponding adjustment to “Acquisition and operating expenses, net of deferrals”, to reflect changes in the Company’s stock price. The total fair value of the restricted shares granted in the nine months ended September 30, 2018 was $3.

One half of the phantom units vest in three equal installments on each March 15^th from 2019 to 2021, subject to awardees continued service with the Company. The other half will begin vesting on March 15, 2020 and cliff vest on March 15, 2021 based on continued service and attainment of a performance metric: adjusted operating income return on equity.

At September 30, 2018, the liability for phantom units of $0 was based on the number of units granted, the elapsed portion of the service period and the fair value of the Company’s common stock on that date which was $8.95.

A summary of the Management Incentive Plan nonvested phantom units outstanding as of September 30, 2018, and related activity during the nine months ended, is as follows (share amount in thousands):



Phantom units	Shares		Weighted Average Grant Date Fair Value
Phantom units outstanding at December 31, 2017	—		$	—
Granted	374		8.95
Vested	—		—
Forfeited or expired	(13	)	8.96
Phantom units outstanding at September 30, 2018	361		8.95

The Company recognized total stock compensation expense related to the FGL Incentive Plan and Management Incentive Plan is as follows:



	Three months ended		Nine months ended
	September 30, 2018		September 30, 2018
FGL Incentive Plan
Stock options	$	2	$	3
Restricted shares	1		1
	3		4
Management Incentive Plan
Phantom units	—		—
	—		—
Total stock compensation expense	3		4
Related tax benefit	1		1
Net stock compensation expense	$	2	$	3

The stock compensation expense is included in "Acquisition and operating expenses, net of deferrals" in the unaudited Condensed Consolidated Statements of Operations.

Total compensation expense related to the FGL Incentive Plan and Management Incentive Plan not yet recognized as of September 30, 2018 and the weighted-average period over which this expense will be recognized are as follows:



	Unrecognized Compensation Expense		Weighted Average Recognition Period in Years
FGL Incentive Plan
Stock options	$	26	3
Restricted shares	—		0
	26
Management Incentive Plan
Phantom units	3		2
	3
Total unrecognized stock compensation expense	$	29	3