NOTE 7 – SHAREHOLDERS EQUITY

Common Stock

The Company’s common stock has no par value and each holder of common stock is entitled to one vote for each share (though certain voting restrictions may exist on non‑vested restricted stock) held.

During the six months ended June 30, 2018 and 2017 the Company sold 67,242 and 13,579 shares of its common stock through two Private Placement Memorandums (“PPM”) resulting in proceeds to the Company of $1.9 million and $0.4 million, respectively (net of issuance costs of $0.1 million and an immaterial amount, respectively). The 67,242 shares issued during the six months ended June 30, 2018 included a Make Whole Right. See Note 1 – Organization and Summary of Significant Accounting Policies for further information relating to the Make Whole Right and the issuance of shares to the holders of the Make Whole Rights.

Stock‑Based Compensation Plans

As of June 30, 2018, there were a total of 606,183 shares available for issuance under the First Western Financial, Inc. 2016 Omnibus Inventive Plan (“the 2016 Plan”). As of June 30, 2018, if the 553,939 options outstanding under the First Western 2008 Stock Incentive Plan (“the 2008 Plan”) are forfeited, cancelled or terminated with no consideration paid to the Company, those amounts will be transferred to the 2016 Plan and increase the number of shares eligible to be granted under the 2016 Plan to a maximum of 1,160,122 shares.

Stock Options

The Company did not grant any stock options during the six months ended June 30, 2018 and 2017.

During the six months ended June 30, 2018 and 2017, the Company recognized stock‑based compensation expense of $0.3 million and $0.4 million associated with stock options. As of June 30, 2018, the Company has $0.9 million of unrecognized stock‑based compensation expense related to stock options which are unvested. That cost is expected to be recognized over a weighted‑average period of approximately two and one quarter years.

The following summarizes activity for nonqualified stock options for the six months ended June 30, 2018:


				Weighted
		Weighted		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
Outstanding at beginning of year	592,714	$	29.24
Granted	—		—
Exercised	—		—
Forfeited or expired	(38,775)		26.50
Outstanding at end of period	553,939	$	29.44	5.0	(a)
Options fully vested / exercisable at June 30, 2018	440,762	$	30.92	4.5	(a)

(a)

Nonqualified stock options outstanding at the end of the period and those fully vested / exercisable had immaterial aggregate intrinsic values.

As of June 30, 2018 and December 31, 2017, there were 440,762 and 458,942 options, respectively, that were exercisable. Exercise prices are between $20.00 and $40.00 per share, and the options are exercisable for a period of ten‑years from the original grant date and expire on various dates between 2021 and 2026.

Share Awards

Pursuant to the 2016 Plan, the Company can grant associates and non‑associate directors long‑term cash and stock‑based compensation. During the six months ended June 30, 2018, the Company granted certain associates restricted stock units which are earned over time or based on various performance measures and convert to common stock upon vesting, which are summarized here and expanded further below:

The following summarizes the activity for the Time Vesting Units, the Financial Performance Units and the Market Performance Units for the six months ended June 30, 2018:


	Time	Financial	Market
	Vesting	Performance	Performance
	Units	Units	Units
Outstanding at beginning of year	179,990	20,840	21,467
Granted	20,587	—	—
Vested	(23,282)	—	—
Forfeited	(8,098)	(1,941)	(1,617)
Outstanding at end of period	169,197	18,899	19,850
Units fully vested at June 30, 2018	—	—	—

During the six month period ended June 30, 2018, the Company issued 16,969 shares of common stock upon the settlement of Time Vesting Units. The remaining 6,313 shares were surrendered with a combined market value at the dates of settlement of $0.2 million to cover employee withholding taxes.

Time Vesting Units

The Time Vesting Units are granted to full‑time associates and board members at the date approved by the Company’s board of directors. Time Vesting Units with a five‑year service period were granted in 2018. There were 20,587 awards that vest in equal installments of 50% on the third and fifth anniversaries of the grant date assuming continuous employment through the scheduled vesting dates. The Time Vesting Units granted in 2018 have a weighted‑average grant‑date fair value of $28.50 per unit. During the six months ended June 30, 2018, the Company recognized compensation expense of $0.5 million for the Time Vesting Units. As of June 30, 2018, there was $4.3 million of unrecognized compensation expense related to the Time Vesting Units, which is expected to be recognized over a weighted‑average period of four years.

Financial Performance Units

The Financial Performance Units were granted to certain key associates and are earned based on the Company achieving various financial performance metrics beginning on the grant date and ending on December 31, 2019. If the Company achieves the financial metrics, which include various thresholds from 0% up to 150%, then the Financial Performance Units will have a subsequent two‑year service period vesting requirement ending on December 31, 2021. There were no Financial Performance Units granted during the six months ended June 30, 2018. As of June 30, 2018, the Company is accruing at the maximum threshold for 50% of the awards and the target threshold for the remainder. The maximum shares that can be issued at 150% as of June 30, 2018 was 28,348 shares. During the six month period ended June 30, 2018, the Company recognized an immaterial amount of compensation expense for the Financial Performance Units. As of June 30, 2018, there was $0.4 million of unrecognized compensation expense related to the Financial Performance Units which is expected to be recognized over a weighted‑average period of three and one-half years.

Market Performance Units

Market Performance Units were granted to certain key associates and are earned based on growth in the value of the Company’s common stock, and were dependent on the Company completing an initial public offering of stock during a defined period of time. If the Company’s common stock is trading at or above certain prices, over a three‑year performance period ending on June 30, 2020, the Market Performance Units will be determined to be earned and vest following the completion of a subsequent service period ending on June 30, 2022.

At June 30, 2018, the likelihood an initial public offering would occur was outside the Company’s control. As such, the Company was not able to estimate a probability associated with meeting the Market Performance Units performance condition. Further, the existence of a market condition as a vesting requirement for the Market Performance Units affects the determination of the grant date fair value. Therefore, as of June 30, 2018, a grant date fair value had not been determined and zero stock‑based compensation expense for the Market Performance Units had been recognized. As of June 30, 2018, the value of unrecognized stock‑based compensation expense related to Market Performance Units which are unvested could not be determined. See Note 1 – Organization and Summary of Significant Accounting Policies – Subsequent Events for additional information regarding the Company’s initial public offering.