Stock-based Payments and Director Fees

Pursuant to the terms of the Management Agreement, the Company pays a portion of the base fee to the Manager in shares of its common stock with the number of shares determined based on the higher of the most recently reported book value or the average of the closing prices of its common stock on the NYSE on the five business days after the date on which the most recent regular quarterly dividend to holders of its common stock is paid. The Company recognized a base management fee to the Manager for the year ended December 31, 2018 of $6.0 million, of which the Company recorded $2.8 million in expense, payable in 198,856 shares of its common stock. The Company also recorded an incentive fee of $0.1 million, of which $24,000 is payable in 1,549 shares of its common stock. The shares issued to the Manager are restricted securities subject to transfer restrictions, and were issued in private placement transactions, with 52,556 shares still issuable at December 31, 2018. See Note 10 — Related party transactions.

In addition, each of the Company’s independent directors received an annual retainer of $75,000, payable quarterly, half of which was paid in shares of the Company’s common stock on the same basis as the stock portion of the management fee payable to the Manager and half in cash.

The following table sets forth the Company’s stock-based management fees and independent director fees ($ in thousands except share amounts):

Stock-based Management Fees and Director Fees



	For the year ended December 31,
	2018			2017			2016
	Number of shares	Amount of expense recognized⁽¹⁾		Number of shares	Amount of expense recognized⁽¹⁾		Number of shares	Amount of expense recognized⁽¹⁾
Management fees	200,405	$	2,813	150,652	$	2,335	70,957	$	1,068
Independent director fees	9,628	—		9,708	150		6,648	100
	210,033	$	2,813	160,360	$	2,485	77,605	$	1,168


(1)	All management fees and independent director fees are fully expensed in the period in which the underlying expense is incurred.

Restricted Stock

Each independent director is issued a restricted stock award of 2,000 shares of the Company’s common stock subject to a one-year vesting period upon initial appointment to the Company’s Board. On August 17, 2016, the Company granted 153,000 shares of restricted stock to employees of its Manager and Servicer, which was reduced in 2017 by forfeitures of 4,000 shares and in 2018 by forfeitures of 2,666 shares. On July 24, 2017, the Company granted 39,000 shares of restricted stock to employees of its Manager and Servicer, and on July 31, 2018, the Company granted 36,500 shares of restricted stock to employees of its Manager and Servicer. The shares vest over three years, with one third of the shares vesting on each of the first, second and third anniversaries of the grant date. The shares may not be sold until the third anniversary of the grant date. The 2017 grant also includes a provision whereby the shares vest automatically upon the death of the grantee. Grants of restricted stock use grant date fair value of the stock as the basis for measuring the cost of the grant.

In the first quarter of 2018, the Company’s Board of Directors approved a grant of 3,000 shares of stock to each independent director, with subsequent issuance in the second quarter of 2018. Half of the shares vested immediately upon issuance and the other half are subject to a one-year vesting period.

The following table sets forth the activity in the Company’s restricted stock plans ($ in thousands, except per share amounts):



	Total Grants			Activity			Non-vested shares at December 31, 2018			Fully-vested shares at December 31, 2018
Year ended December 31, 2018	Total shares granted	Total expected cost of grant		Shares granted during the year	Grant expense recognized for the year		Shares	Per share grant fair value		Shares	Per share grant date fair value
Directors’ Grants⁽¹⁾	12,000	$	162	12,000	$	148	6,000	$	13.48	6,000	$	13.48
Employee and Service Provider Grant, granted 2016^(2,5)	146,334	1,976		—	629		47,889	13.50		98,445	13.50
Employee and Service Provider Grant, granted 2017⁽³⁾	39,000	544		—	180		26,000	13.95		13,000	13.95
Employee and Service Provider Grant, granted 2018⁽⁴⁾	36,500	496		36,500	69		36,500	13.58		—	—
Totals	233,834	$	3,178	48,500	$	1,026	116,389	$	13.62	117,445	$	13.55


(1)	Half of the 12,000 shares granted vest immediately while the remaining shares vest ratably over a one-year from grant date. Weighted average remaining life of unvested shares at December 31, 2018 is 0.2 years


(2)	Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at December 31, 2018 is 0.6 years.


(3)	Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at December 31, 2018 is 1.6 years.


(4)	Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at December 31, 2018 is 2.6 years.


(5)	Total is shown net of 2017 forfeitures of 4,000 shares and 2018 forfeitures of 2,666.



	Total Grants			Activity			Non-vested shares at December 31, 2017			Fully-vested shares at December 31, 2017
Year ended December 31, 2017	Total shares granted	Total expected cost of grant		Shares granted during the year	Grant expense recognized for the year		Shares	Per share grant fair value		Shares	Per share grant date fair value
Directors’ Grants⁽¹⁾	10,000	$	146	—	$	14	—	$	—	10,000	$	14.61
Employee and Service Provider Grant, granted 2016^(2,4)	149,000	2,027		—	675		99,333	13.50		49,667	13.50
Employee and Service Provider Grant, granted 2017⁽³⁾	39,000	542		39,000	76		39,000	13.95		—	—
Totals	198,000	$	2,715	39,000	$	765	138,333	$	13.83	59,667	$	13.69


(1)	Vesting period is one year from grant date. Grant is fully vested at December 31, 2017.


(2)	Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at December 31, 2017 is 1.6 years.


(3)	Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at December 31, 2017 is 2.6 years.


(4)	Total is shown net of 2017 forfeitures of 4,000 shares.



	Total Grants			Activity			Non-vested shares at December 31, 2016			Fully-vested shares at December 31, 2016
Year ended December 31, 2016	Total shares granted	Total expected cost of grant		Shares granted during the year	Grant expense recognized for the year		Shares	Per share grant fair value		Shares	Weighted average grant date fair value
Directors’ Grants⁽¹⁾	10,000	$	146	2,000	$	16	2,000	$	13.79	8,000	$	13.79
Employee and Service Provider Grant, granted 2016⁽²⁾	153,000	2,053		153,000	278		153,000	13.50		—	—
Totals	163,000	$	2,199	155,000	$	294	155,000	$	13.50	8,000	$	13.79


(1)	Vesting period is one year from grant date. Weighted average remaining life of grant at December 31, 2016 is 0.5 years


(2)	Vesting is ratable over three-year period from grant date. Weighted average remaining life of grant at December 31, 2016 is 2.6 years.