NOTE 11 – 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 year ended December 31, 2018 and 2017, the Company sold 67,242 and 186,791 shares of its common stock through two Private Placement Memorandums (“PPM”) resulting in proceeds to the Company of $1.9 million and $5.3 million, respectively (net of issuance costs of $0.1 million and an immaterial amount, respectively).

As described in Note 10—Commitments and Contingencies, the Company settled a legal claim and as a result of the settlement, the Company received 8,580 shares of its common stock with an estimated fair value at the time of settlement of $0.2 million. As of December 31, 2017, the shares received as a result of the settlement are retired.

On July 23, 2018, the Company completed its initial public offering of 1,921,775 shares of its common stock at a price of $19.00 per share, which included 296,250 shares pursuant to the full exercise by the underwriters of their option to purchase additional shares of common stock from the Company, resulting in net proceeds of $32.5 million (net of issuance costs of $4.4 million).

Effective July 26, 2018, the Company redeemed at par value all of its outstanding shares of preferred stock, which consisted of 8,559 shares of Series A preferred stock, 428 shares of Series B preferred stock, 11,881 shares of Series C preferred stock, and 41,000 shares of Series D preferred stock. The aggregate redemption amount for the preferred stock was $25.0 million. The preferred stock was redeemed using the proceeds from the Company's completed initial public offering, which closed on July 23, 2018.

Certain of our common stock holders received Make Whole Rights pursuant to an Investor Agreement in connection with the conversion of Series D preferred stock into common stock and our private placement conducted from August 2017 to February 2018, which entitled the holder of such Make Whole Rights to, among other things, receive additional shares of our common stock (“Make Whole Shares”), subject to the satisfaction of the conditions of the Investor Agreements. As a result, the Company issued 128,978 Make Whole Shares on September 10, 2018. The Company’s issuance of the Make Whole Shares was exempt from the registration statement of the Securities Act pursuant to Section 4(a)(2) thereof.

Restricted Stock Awards

In 2017, the Company issued 105,264 shares of common stock (“Restricted Stock Awards”) with a value of $3.0 million to the sole member of EMC Holdings, LLC (“EMC”), subject to forfeiture based on his continued employment with the Company. Half of the common stock ($1.5 million or 52,632 shares) vests ratably over five-years as long as the sole member is employed with the Company. The remaining $1.5 million, or 52,632 shares, will be earned based on performance of the mortgage division of the Company.

As of December 31, 2018, the Restricted Stock Awards have a weighted-average grant date fair value of $28.50 per share. During the year ended December 31, 2018 and December 31, 2017, the Company has recognized compensation expense of $0.3 million and $0.1 million for the Restricted Stock Awards. As of December 31, 2018, the Company has $2.6 million of unrecognized stock-based compensation expense related to the shares issued, which is expected to be recognized over a weighted average period of three and three quarter years. Restricted Stock Awards of 10,526 vested during the year ended December 31, 2018.

Stock‑Based Compensation Plans

As of December 31, 2018, there were a total of 697,138 shares available for issuance under the First Western Financial, Inc. 2016 Omnibus Incentive Plan (“the 2016 Plan”). As of December 31, 2018, if the 465,947 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 1,163,085 shares.

Stock Options

The Company did not grant any stock options during the year ended December 31, 2018 and 2017.

During the year ended December 31, 2018 and 2017, the Company recognized stock‑based compensation expense of $0.5 million and $0.8 million. As of December 31, 2018, the Company has $0.6 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 one and a quarter years.

The following summarizes activity for nonqualified stock options for the year ended December 31, 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	(126,767)	$	29.91
Outstanding at end of period	465,947	$	28.84	4.5	(a)
Options fully vested / exercisable at December 31, 2018	402,872	$	29.54	4.2	(a)

(a)

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

As of December 31, 2018 and December 31, 2017, there were 402,872 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 2022 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 year ended December 31, 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 year ended December 31, 2018:


	Time	Financial	Market
	Vesting	Performance	Performance
	Units	Units	Units
Outstanding at beginning of year	179,990	20,840	21,467
Granted	42,442	250	250
Vested	(23,282)	-	-
Forfeited	(14,781)	(5,158)	(4,459)
Outstanding at end of period	184,369	15,932	17,258

During the year ended December 31, 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. The Company granted Time Vesting Units of 37,942 with a five‑year service period in 2018 and vest in equal installments of 50% on the third and fifth anniversaries and the remaining 4,500 Time Vesting Units granted in 2018 require a four year service period and vest in equal installments of 50% on the second and fourth 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 $21.33 per unit. During the years ended December 31, 2018 and December 31, 2017, the Company recognized compensation expense of $1.0 million and $0.4 million for the Time Vesting Units. As of December 31, 2018, there was $3.9 million of unrecognized compensation expense related to the Time Vesting Units, which is expected to be recognized over a weighted‑average period of two and a half years.

Financial Performance Units

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, 2020. 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 250 Financial Performance Units granted during the year ended December 31, 2018 and have a weighted-average grant date fair value of $21.00 per unit. As of December 31, 2018, the Company is accruing at the maximum threshold for 50% of the awards and the threshold for the remainder. The maximum shares that can be issued at 150% as of December 31, 2018 was 23,898 shares. During the years ended December 31, 2018 and December 31, 2017, the Company recognized $0.1 million each year of compensation expense for the Financial Performance Units. As of December 31, 2018, there was $0.3 million of unrecognized compensation expense related to the Financial Performance Units which is expected to be recognized over a weighted‑average period of three 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 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.

On July 23, 2018, the Company completed its initial public offering and the Market Performance Units performance condition was met. Subsequent to the performance condition there is also a market condition as a vesting requirement for the Market Performance Units which affects the determination of the grant date fair value. The Company estimated the grant date fair value using various valuation assumptions. During the year ended December 31, 2018, the Company recognized an immaterial amount of compensation expense for the Market Performance Units. As of December 31, 2018, there was an immaterial amount of unrecognized compensation expense related to the Market Performance Units which is expected to be recognized over a weighted‑average period of three and a half years.