NOTE 13 – 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 from February 27, 2017 through June 30, 2018:


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

Director Group	150,000	145,000	5 years	$	9.98	$	632,200
Employee Group	1,767,495	1,713,289	5 years	$	10.51	$	7,829,731
Total		1,858,289

The Company’s calculations of the fair value of stock options granted through June 30, 2018 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 as of June 30, 2018:


Weighted average expected life		6.5 years
Risk-free interest rate		2.28% to 2.63%
Expected volatility		37.6% to 39.9%
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 United States 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.

A summary of option activity under the Plan as of June 30, 2018 and changes during the six 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, 2018	1,655,995	$	10.36	9.3	$	6,505
Granted	253,000		11.20	10.0		—
Exercised	(5,000)		9.98	—		—
Forfeited or expired	(45,706)		10.44	—		—
Outstanding as of June 30, 2018	1,858,289		10.48	8.9		33

Exercisable as of June 30, 2018	280,395	$	9.98	8.7	$	2

The stock options’ maximum contract term is ten years.

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 from June 1, 2017 through June 30, 2018:


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

Employee Group	1,569,371	995,751	5 years	$	16,619,639

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.

A summary of restricted stock unit awards activity under the Plan as of June 30, 2018 and changes during the six months then ended are as follows:


	Units	Weighted Average Grant Date Fair Value (Per Unit)

Outstanding as of January 1, 2018	763,591	$	9.98
Granted	560,503		11.66
Exercised	(105,733)		9.36
Forfeited	(222,610)		11.54
Outstanding as of June 30, 2018	995,751	$	10.64

Aggregate stock-based compensation expense, net of forfeitures, was $0.9 million and $0.5 million during the three months ended June 30, 2018 and 2017, respectively, and $1.8 million and $0.5 million during the six months ended June 30, 2018 and 2017, respectively. These expenses are included as a component of salaries, wages and employee benefits on the accompanying consolidated statements of operations and comprehensive loss. As of June 30, 2018, there was $6.6 million and $9.9 million of unrecognized stock-based compensation expense related to stock options and restricted stock units, respectively. This expense will be recognized over the weighted average periods of 4.0 years for stock options and 4.3 years for restricted stock units.