NOTE 12 – STOCK-BASED COMPENSATION

On February 27, 2017, the Company and Hennessy’s common stockholders approved the 2017 Omnibus Incentive Plan (the Plan), whereby the Company may grant awards of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance awards. Under the Plan, the Company is authorized to issue up to 4.5 million shares of common stock. All awards granted were authorized under the Plan.

Stock Options

The following table summarizes stock option grants under the Plan during the nine months ended September 30, 2017:


Grantee Type	# of Options Granted	Issued and Outstanding	Vesting Period	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value

Director Group	150,000	150,000	5 years	$	9.98	$	654,000
Employee Group	1,305,500	1,296,500	5 years	$	9.99	$	5,652,740
Total		1,446,500

NOTE 12 – STOCK-BASED COMPENSATION – (Continued)

The Company’s calculations of the fair value of stock options granted during the nine months ended September 30, 2017 were made using the Black-Scholes option-pricing model. The fair value of the Company’s stock option grants was estimated utilizing the following assumptions for the nine months ended September 30, 2017:


Weighted average expected life		6.5 years
Risk-free interest rate		1.95% to 2.09%
Expected volatility		40.4% to 40.6%
Expected dividend yield		0.00%

Since the Company does not have a sufficient history of exercise behavior, expected term is calculated using the assumption that the options will be exercised ratably from the date of vesting to the end of the contractual term for each vesting tranche of awards. Risk-free interest rate is based on the U.S. Treasury yield curve for the period of the expected term of the stock option. Expected volatility is calculated using an index of publicly traded peer companies.

Restricted Stock Units

Restricted stock units are nontransferable until vested and the holders are entitled to receive dividends with respect to the non-vested units. Prior to vesting, the grantees of restricted stock units are not entitled to vote the shares. Restricted stock unit awards vest in equal annual increments over the vesting period.

The following table summarizes restricted stock unit grants under the Plan during the nine months ended September 30, 2017:


Grantee Type	# of Restricted Stock Units Granted	Vesting Period	Grant Date Fair Value

Employee Group	876,123	5 years	$	8,340,691

All stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized on a straight-line basis as expense over the employees’ requisite service period. Forfeitures will be recorded as a cumulative adjustment to stock-based compensation expense in the period forfeitures are incurred.

Stock Options

A summary of option activity under the Plan as of September 30, 2017 and changes during the nine months then ended are as follows:


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value (in thousands)

Outstanding as of January 1, 2017	—	$	—	—	$	—
Granted	1,455,500		9.99	10.0		—
Exercised	—		—	—		—
Forfeited or expired	(9,000)		9.98	—		20
Outstanding as of September 30, 2017	1,446,500		9.99	9.4		4,425

Exercisable as of September 30, 2017	—	$	—	—	$	—

NOTE 12 – STOCK-BASED COMPENSATION – (Continued)

Restricted Stock Units

A summary of restricted stock unit awards activity under the Plan as of September 30, 2017 and changes during the nine months then ended are as follows:


	Units	Weighted Average Grant Date Fair Value (Per Unit)

Outstanding as of January 1, 2017	—	$	—
Granted	876,123		9.52
Vested	—		—
Forfeited	(155,334)		9.66
Outstanding as of September 30, 2017	720,789	$	9.49

Aggregate stock-based compensation charges were $0.7 million and $1.2 million during the three and nine months ended September 30, 2017 and included as a component of salaries, wages and employee benefits on the accompanying consolidated statements of operations. As of September 30, 2017, there was $5.6 million of unrecognized stock-based compensation expense related to stock options which will be recognized over a weighted average period of 4.4 years.