6.	STOCK-BASED COMPENSATION

Equity Incentive Plan

The 2019 Equity Incentive Plan (“Plan”) was approved by the Company’s Board of Directors on January 16, 2019 and by its shareholders on March 6, 2019. The purpose of this Plan is to: (i) attract and retain the best available personnel for positions of substantial responsibility, (ii) provide additional incentive to employees, directors and consultants, and (iii) promote the success of the Company’s business. This Plan permits the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, and other stock-based awards. The maximum aggregate number of shares of common stock that may be issued pursuant to all awards under the Plan is 2,300,000. The maximum aggregate number of shares that may be issued under the Plan may be increased annually by up to 3% of the total issued and outstanding common shares of the Company at the beginning of each fiscal year.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (“Black-Scholes”) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer company averages. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes in to account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on U.S. Treasury yield curve in effect at the time of the grant.

Options

A summary of activity in the Plan during the six months ended June 30, 2019 is presented in the table below:

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value

Six Months Ended June 30, 2019
Outstanding at beginning of year:		-	$	-		-	$	-
Granted		1,411,342		12.50		5.59		6,223
Exercised		-		-		-		-
Forfeited		-		-		-		-

Balance, June 30, 2019		1,411,342	$	12.50		5.59	$	6,223

Exercisable at end of period		-	$	-		-	$	-

Vested at end of period		1,206,900	$	11.53		5.96	$	6,223

A summary of assumptions used to calculate the fair values of the awards is presented below:

	Six Months Ended June 30, 2019

Expected volatility		24.88% to 28.64	%
Expected dividend yield		0.70	%
Expected term (years)		0.5 - 7.0 years
Risk-free interest rate		2.39% to 2.63	%
Weighted average grant date fair value	$	8.61

On January 16, 2019, the Company approved the conversion of its previously issued SARs to stock options. There were 1,401,000 outstanding SARs that were converted effective as of May 6, 2019, which are included in the tables above. The fair value of the SARs was $11.5 million at the conversion date. During the modification of these awards from liabilities to equity, the Company accelerated the expiration date, between two and four years, on 750,000 of the options. As a result, the fair value of the options after modification was $11.2 million. However, since the fair value of the new equity awards was less than the fair value of the liability awards, no adjustment was made to the income statement. The $11.5 million was reclassified from liabilities to equity.

Restricted Stock Awards and Units

A summary of activity in the Plan during the six months ended June 30, 2019 is presented in the table below:

	Number of Shares		Weighted- Average Grant Date Fair Value

Six Months Ended June 30, 2019
Outstanding at beginning of year:		-	$	-
Granted		52,764		21.32
Exercised		-		-
Forfeited		-		-

Balance, June 30, 2019		52,764	$	21.32

Exercisable at end of period		-	$	-

Vested at end of period		-	$	-

Restricted stock granted typically vests over five years, but vesting periods may vary. Compensation expense for these grants will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date.

The total unrecognized compensation cost for the awards outstanding under the Plan at June 30, 2019 was $2.0 million and will be recognized over a weighted average remaining period of 2.46 years.

Employment Agreement

Effective March 6, 2019, the Company entered into an employment agreement with its President. The employment agreement has an initial term of three years and will automatically renew for additional three-year terms, unless the Company or the President provides 90-days’ advance notice of non-renewal. In the event that the President’s employment is terminated by the Company without cause or by the President for good reason, each as defined in the employment agreement, the employment agreement provides that he will receive severance equal to two times the sum of his annual base salary and annual target cash incentive bonus and a lump sum payment equal to 24 months’ of the monthly premiums to continue existing healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). If such involuntary termination occurs within the 24-month period following a change in control, as defined in the employment agreement, in lieu of the foregoing, the severance due would be three times the sum of annual base salary and annual target cash incentive bonus and a lump sum payment equal to 36 months’ of the monthly premiums to continue existing healthcare coverage under COBRA. Additionally, any equity and phantom equity awards would fully vest upon any termination of employment by the Company without cause or by the President for good reason.