STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2020

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE 12 – STOCK-BASED COMPENSATION

Under the 2017 Omnibus Incentive Plan (the Plan), 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. As of June 30, 2020, the Company has no common stock reserved for future issuances of stock options and restricted stock units under the Company’s 2017 Omnibus Incentive Plan. During the six months ended June 30, 2020, the Company issued 1,402,000 of stock options and 1,761,900 of performance stock units (PSUs) classified as a liability due to the lack of shares available to be issued and can ultimately be cash-settled through the grant of cash-settled restricted stock units or stock appreciation rights if there is not a sufficient number of shares available. Equity awards generally vest annually on a pro-rata basis over a three to five-year period on the

anniversary of each grant date. The Company also grants awards to our directors under the Plan. The awards granted to directors vest ratably over periods of one to five years annually on the anniversary of each grant date.

Stock-based compensation cost with equity classification 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 are recorded as a cumulative adjustment to stock-based compensation expense in the period forfeitures occur. Aggregate stock-based compensation charges, net of forfeitures, were $1.1 million and $0.9 million during the three months ended June 30, 2020 and 2019, respectively, and $2.0 million and $1.9 million during the six months ended June 30, 2020 and 2019, respectively. These expenses are included as a component of salaries, wages and employee benefits on the accompanying consolidated statements of operations and comprehensive income (loss). As of June 30, 2020, there was $3.4 million and $3.7 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 2.4 years for stock options and 1.9 years for restricted stock units.

Stock-based compensation cost with liability classification is revalued on each balance sheet date with the corresponding adjustment to stock-based compensation recorded in the consolidated statements of operations and comprehensive income (loss). As of June 30, 2020, the company recorded $0.1 million and $0.5 million liability balance for option and PSUs, respectively.

Stock Options

The following table summarizes stock option grants:

Grantee Type	# of Options Granted	Issued and Outstanding*	Vesting Period	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value (Per Option)
Director Group	150,000	100,000	5 years	$	9.98	$	4.36
Employee Group	4,444,630	3,958,624	3-5 years	$	5.65	$	2.44
Total		4,058,624

*Included 1,402,000 stock option classified as liability granted to employee group.

The Company’s calculations of the fair value of stock options granted as equity classification during the six months ended June 30, 2020 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:

Weighted average expected life	6.0 years
Risk-free interest rate	0.43%
Expected volatility	41.04%
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. The 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.

During the six months ended June 30, 2020, the Company issued 1,402,000 of stock options classified as liability and the fair value was calculated using Black-Scholes option-pricing model. The following inputs and assumptions were used to calculate the fair value of the liability classification of the options outstanding:

	As at
	June 30, 2020
Weighted average expected life	2.8 years
Risk-free interest rate	0.18%
Expected volatility	83.0% to 83.6%
Expected dividend yield	0.00%

A summary of option activity as of June 30, 2020 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 millions)
Outstanding as of January 1, 2020	2,308,924	$	8.39	8.0	$	0.2
Granted	1,811,900		1.41
Forfeited or expired	(62,200)		10.84
Outstanding as of June 30, 2020	4,058,624	$	5.29	8.5	$	5.0
Exercisable as of June 30, 2020	976,531	$	9.76	7.0	$	—
Vested and expected to vest as of June 30, 2020	4,058,624	$	5.29	8.5	$	5.0

The stock options’ maximum contract term is ten years. The total weighted average fair value of options granted during the six months ended June 30, 2020 and 2019 was $1.1 million and $0.6 million, respectively.

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:

Grantee Type	# of Restricted Stock Units Granted	Issued and Outstanding	Vesting Period	Weighted Average Grant Date Fair Value (Per Unit)
Director Group	893,996	772,784	1-2 years	$	2.75
Employee Group	1,568,655	293,717	5 years	$	10.59
Total		1,066,501

A summary of restricted stock unit awards activity under the Plan as of June 30, 2020 and changes during the six months then ended are as follows:

	Units	Weighted Average Grant Date Fair Value (Per Unit)
Non-vested as of January 1, 2020	1,180,882	$	5.44
Granted	108,498		2.77
Vested	(176,531)		7.91
Forfeited	(46,348)		10.10
Non-vested as of June 30, 2020	1,066,501	$	4.55

Performance Stock Units

PSUs become eligible for vesting upon the achievement of specific market-based conditions based on the performance of per share price of the Company’s common stock and subject to final vesting based on the participant’s continued employment through the end of the requisite service periods. The grant date fair value of PSUs was determined using a Monte Carlo probability model and recognize the compensation expense ratably over the requisite service period with a corresponding liability. The liability is remeasured on each balance sheet date with corresponding adjustment to stock-based compensation recorded in the consolidated statements of operations and comprehensive income (loss).

During the six months ended June 30, 2020, the Company issued 1,761,900 of PSUs classified as a liability and the fair value was calculated using Monte Carlo probability model. The following inputs and assumptions were used to calculate the fair value of the PSUs:

	As at
	June 30, 2020
Term	2.4 to 2.8 years
Risk-free interest rate	0.17% to 0.18%
Expected volatility	83.0% to 89.4%
Expected dividend yield	0.00%

A summary of performance stock unit awards activity as of June 30, 2020 and changes during the six months then ended are as follows:

	Units	Weighted Average Grant Date Fair Value (Per Unit)
Non-vested as of January 1, 2020	—	$	—
Granted	2,150,400		0.82
Vested	—		—
Forfeited	—		—
Non-vested as of June 30, 2020	2,150,400	$	0.82