In connection with the Closing, the Falcon Board of Directors adopted the Falcon Minerals Corporation 2018 Long-Term Incentive Plan (the “Plan”). An aggregate of 8.6 million shares of Class A Common Stock are available for issuance under the Plan. The Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. Common shares that are cancelled, forfeited, or withheld to satisfy exercise prices or tax withholding obligations will be available for delivery pursuant to other awards. Distribution equivalent rights (“DER”) are also available for grant under the Plan, either alone or in tandem with other specific awards, which will entitle the recipient to receive an amount equal to dividends paid on a Class A common share. The Plan is administered by the Falcon Board of Directors or a committee thereof.

In accordance with the Plan, the Falcon Board of Directors is authorized to issue restricted stock awards (“RSA”) to eligible employees and directors. The Company estimates the fair value of the RSAs as the closing price of the Company’s Class A Common Stock on the grant date of the award, which is expensed over the applicable vesting period. Each RSA that has been granted has a DER included in each agreement. Dividends paid in connection with the DERs are accounted for as a reduction in retained earnings

for those awards that are expected to vest. RSAs that are forfeited could cause a reclassification of any previously recognized DER payments from a reduction in retained earnings to additional compensation cost.

Under the Plan, the Falcon Board of Directors is authorized to issue performance stock units (“PSU”) to eligible employees and directors. The Company estimates the fair value and the derived service period of the PSUs utilizing a lattice model since the vesting requirements are a market-based condition (indexed to the Falcon stock price). The Company engaged a third-party consultant to calculate fair value and the derived service period of the grants at the time of issuance. The fair value of the PSUs is then amortized over the longer of the service condition or the derived service period attributable to each grant. All compensation cost for the PSUs will be recognized over the longer of the service condition or the derived service period, even if the market-condition is never satisfied as long as the award is not forfeited. The PSUs that have been granted to date do not have any DERs included in the agreements. PSUs that are forfeited could cause a reclassification of any previously recognized DER payments from a reduction in retained earnings to additional compensation cost.

We utilized a lattice model pricing model to measure the fair value of the PSUs. The derived service period equals the median time to achieve the hurdle in all simulations where the hurdle was achieved. Volatility assumptions are based on the average historical volatility of Falcon stock over the derived service period of the PSU. The risk-free interest rate is based on the U.S. Treasury rate in effect at the time of the grant over the derived service period of the PSU. The dividend yield is based on an annual dividend yield, taking in account historical dividends, over the derived service period of the PSU. The Company used the following weighted average assumptions to estimate the grant date fair value of the PSUs granted during the year ended December 31, 2020 and 2019:

	2020			2019
Stock price	$	2.24		$	9.05
Volatility		53.4	%		42.3	%
Risk-free rate		0.60	%		2.42	%
Dividend yield		9.10	%		8.84	%
Derived service period	3.00 years			2.35 - 4.00 years

The following table summarizes the activity in our unvested RSAs and PSUs for the years ended December 31, 2020 and 2019:

				Weighted Average				Weighted Average
	Restricted			Grant-Date		Performance Stock		Grant-Date
	Stock			Fair Value		Units		Fair Value
Unvested at December 31, 2018		-		$	-		-	$	-
Granted		419,640		$	8.14		1,413,334	$	3.45
Vested		(110,598	)	$	8.27		-	$	-
Forfeited		(25,125	)	$	7.97		-	$	-
Unvested at December 31, 2019		283,917		$	8.10		1,413,334	$	3.45
Granted		337,744		$	2.48		751,286	$	0.64
Vested		(143,466	)	$	7.31		-	$	-
Forfeited		(1,958	)	$	6.00		-	$	-
Unvested at December 31, 2020		476,237		$	4.36		2,164,620	$	2.48

For the years ended December 31, 2020 and 2019, the Company incurred $3.5 million and $2.5 million, respectively, of share-based compensation which is included in general, administrative, and other expenses in the accompanying consolidated statements of operations. The Company did not have any restricted shares granted before 2019 and therefore the Company did not incur any related expenses during any years prior to 2019. The unamortized estimated fair value of unvested RSAs and PSUs was $3.2 million at December 31, 2020. These costs are expected to be recognized as expense over a weighted average period of 1.3 years. In addition, for the years ended December 31, 2020 and 2019, the Company paid $0.1 million and $0.2 million, respectively, of DERs to RSA holders.