18. Stock-based compensation

The Company has the following stock compensation plans that form part of its employees’ and Directors’ remuneration:

Employee Share Incentive Plan (Preferred Shares)

The Company awards shares of its preferred stock for $nil consideration under its Employee Share Incentive Plan to eligible employees, other than Directors and Officers, after four consecutive years of employment. If these employees remain with the Company for an additional four consecutive years, they can convert these preferred shares into shares of common stock on a one for one basis. In addition, at the time the preferred shares are granted, the employees receive options to purchase an equal number of shares of preferred stock at a discount to the average trading price of the Company’s common stock for the first seven days of the October immediately preceding the date of the preferred stock grant. If these options are exercised, the shares of preferred stock obtained may also be converted to shares of common stock if the employee remains with the Company for an additional four consecutive years. Each employee’s option to purchase shares of preferred stock must be exercised within 30 days of the grant date, which is the 90th day after the date of the independent registered public accountants firm’s audit opinion on the Company’s consolidated financial statements. Shares of preferred stock not subsequently converted to shares of common stock are redeemable only at the discretion of the Company. Shares of preferred stock granted under this plan during the years ended December 31, 2017, 2016 and 2015, totaled 9,441, 8,421 and 8,615, respectively, and an equal number of preferred stock options were granted in each of these years.

Employee Share Option Plan (Common Stock Options)

The Company has an employee stock option plan for certain long-serving employees of the Company. Under the plan, these employees are granted in each calendar year, as long as the employee is a participant in the Employee Share Incentive Plan, options to purchase common shares. The price at which the option may be exercised will be the closing market price on the grant date, which is the 40th day after the date of the Company’s Annual Shareholder Meeting. The number of options each employee is granted is equal to five times the sum of (i) the number of preferred shares which that employee receives for $nil consideration and (ii) the number of preferred share options which that employee exercises in that given year. Options may be exercised during the period commencing on the fourth anniversary of the grant date and ending on the thirtieth day after the fourth anniversary of the grant date. Options granted under this plan during the years ended December 31, 2017, 2016, and 2015, totaled 3,390, 3,980 and 4,030, respectively.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate stock option exercises and forfeitures within its valuation model. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

2008 Equity Incentive Plan

On May 14, 2008, the Company’s stockholders approved the 2008 Equity Incentive Plan (the “2008 Plan”) and reserved 1,500,000 shares of the Company’s Class A common shares for issuance under this plan. All Directors, executives and key employees of the Company or its affiliates are eligible for participation in the 2008 Plan which provides for the issuance of options, restricted stock and stock equivalents at the discretion of the Board.

Non-Executive Directors’ Share Plan

This stock grant plan provides part of Directors’ remuneration. Under this plan, non-Executive Directors receive a combination of cash and common stock for their participation in Board meetings. The number of shares of common stock granted is calculated based upon the market price of the Company’s common stock on October 1 of the year preceding the grant. Common stock granted under this plan during the years ended December 31, 2017, 2016 and 2015 totaled 17,158, 15,192 and 10,514 shares, respectively. The Company recognized stock-based compensation for these share grants of $210,151, $179,573 and $143,218 for the years ended December 31, 2017, 2016 and 2015, respectively.

The Company measures and recognizes compensation expense at fair value for all share-based payments, including stock options. Stock-based compensation for the Employee Share Incentive Plan, Employee Share Option Plan and the 2008 Equity Incentive Plan totaled $152,166, $152,078 and $143,951 for the years ended December 31, 2017, 2016 and 2015, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of income.

The significant weighted average assumptions for the years ended December 31, 2017, 2016 and 2015 were as follows:

	2017			2016			2015
Risk free interest rate		1.12	%		0.43	%		0.41	%
Expected option life (years)		1.1			1.4			1.4
Expected volatility		37.24	%		33.49	%		33.74	%
Expected dividend yield		2.41	%		2.29	%		2.35	%

A summary of the Company’s stock option activity for the year ended December 31, 2017 is as follows:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (1)
Outstanding at beginning of period		17,600	$	12.02
Granted		12,831		9.42
Exercised		(2,129)		8.35
Forfeited/expired		(16,217)		10.18
Outstanding as of December 31, 2017		12,085	$	12.38	2.22 years	$	3,658
Exercisable as of December 31, 2017		-	$	0.00	- years	$	-

(1)

The intrinsic value of a stock option represents the amount by which the fair value of the underlying stock, measured by reference to the closing price of the common shares of $12.60 on the Nasdaq Global Select Market on December 31, 2017, exceeds the exercise price of the option.

As of December 31, 2017, 12,085 non-vested options were outstanding, with weighted average exercise price of $12.38, and average remaining contractual life of 2.22 years. The total remaining unrecognized compensation costs related to unvested stock-based arrangements were $20,702 as of December 31, 2017 and are expected to be recognized over a weighted average period of 2.22 years.

As of December 31, 2017, unrecognized compensation costs relating to redeemable preferred stock outstanding were $172,244 and are expected to be recognized over a weighted average period of 1.18 years.

The following table summarizes the weighted average fair value of options at the date of grant and the intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015:

	2017		2016		2015
Options granted with an exercise price below market price on the date of grant:
Employees — preferred stock	$	4.11	$	4.48	$	4.19
Overall weighted average		4.11		4.48		4.19

Options granted with an exercise price at market price on the date of grant:
Management employees	$	-	$	-	$	-
Employees — common stock		3.23		3.13		3.39
Overall weighted average		3.23		3.13		3.39

Options granted with an exercise price above market price on the date of grant:
Management employees	$	-	$	-	$	-
Employees — preferred stock		-		-		-
Overall weighted average		-		-		-

Total intrinsic value of options exercised	$	8,942	$	73,753	$	87,371

Executive Long-Term Incentive Compensation

The Board of Directors approved changes to the long-term incentive compensation for the Company’s executive officers effective for 2015 and thereafter to better align the interests of its executive officers with those of its shareholders. The revised long-term compensation plan includes a combination of performance and non-performance-based grants of common stock from the shares of Company stock provided for issuance under the 2008 Equity Incentive Plan.

The non-performance-based stock grants vest in one third increments at the end of each year over a three-year period. Non-performance-based stock grants under this plan totaled 26,958, 17,833 and 9,964 for the years ended December 31, 2017, 2016 and 2015, respectively and were issued in 2018, 2017 and 2016, respectively. The Company recognized $302,121, $189,368 and $120,500 in stock-based compensation expense related to the non-performance stock grants under the long-term compensation plan for the years ended December 31, 2017, 2016, and 2015, respectively.

The performance-based grants may be earned at the end of each year based upon the relative level of achievement of three-year cumulative financial performance targets. The initial three-year measurement period for the performance-based stock grants began January 1, 2015 and ended December 31, 2017. A total of 13,028 shares of common stock were granted effective December 31, 2017 for this initial three-year measurement period based upon the Company’s financial performance relative to the cumulative financial performance targets and the Company recognized $139,139 in stock-based compensation for the year ended December 31, 2017 related to these grants.