13. Share-based Compensation

2018 Omnibus Incentive Plan

In June 2018, the Board approved the 2018 Omnibus Incentive Plan (the “Incentive Plan”) to become effective in connection with the offering. The Company has reserved an aggregate of 3.2 million shares of its Class A common stock for issuance of awards under the Incentive Plan. Participants in the Incentive Plan will be selected by the Compensation Committee from the executive officers, directors, employees and consultants of the Company. Awards under the Incentive Plan may be made in the form of stock options, stock appreciation rights, stock awards, restricted stock units, performance awards, performance units, and any other form established by the Compensation Committee pursuant to the Incentive Plan.

The following is a summary of the Incentive Plan restricted stock and restricted stock unit activity from June 13, 2018 to December 31, 2019:


		Weighted
	Number of	Average Grant
	Units	Date Fair Value
Unvested at June 13, 2018	—	$	—
Granted	287,232		14.30
Forfeited	(16,490)		16.00
Unvested at December 31, 2018	270,742	$	14.20
Granted	902,285		7.53
Vested	(125,621)		11.42
Forfeited	(139,318)		9.17
Unvested at December 31, 2019	908,088	$	8.73

Service based restricted stock grants vest over periods of one to five years and account for 648,088 of the unvested shares. Performance based awards account for 260,000 of the unvested shares and vest based upon achievement of certain performance goals, as defined by the Company. The Company recognized compensation expense related to service based awards of $2.2 million and $1.0 million during 2019 and 2018, respectively. The Company recognized compensation expense of $0.3 million related to performance awards. At December 31, 2019, the Company had $4.3 million in unrecognized compensation expense related to the service based restricted stock awards which is expected to be recognized over a weighted average period of approximately 2.6 years.

The following is a summary of the Incentive Plan stock option activity from June 13, 2018 to December 31, 2019:


		Weighted
	Number of	Average Grant
	Units	Date Fair Value
Unvested at June 13, 2018	—	$
Granted	192,203		6.09
Forfeited/Canceled	(14,943)		6.09
Unvested at December 31, 2018	177,260	$	6.09
Granted	244,785		4.41
Vested	(44,312)		6.09
Forfeited/Canceled	(18,474)		6.09
Unvested at December 31, 2019	359,259	$	4.95

The stock options vest over a period of four years and expire ten years from the date of grant. The Company recognized compensation expense of $0.6 million and $0.3 million during 2019 and 2018, respectively. The fair value of the stock option grant was estimated using the Black-Scholes method as of the grant date using the following assumptions:


		2019			2018
Strike price	$	9.40		$	16.00
Risk-free interest rate		2.50	%		2.91	%
Expected dividend yield		0	%		0	%
Expected volatility		45.65	%		32.67	%
Expected term (in years)		6.25			6.25

At December 31, 2019, the Company had $1.2 million in unrecognized compensation expense related to the stock option awards which is expected to be recognized over a period of approximately 2.9 years. As of December 31, 2019, 38,155 options were exercisable with an exercise price of $16.00 and a remaining contractual life of 8.5 years.

Stock Appreciation Rights

In June 2015, the Company approved the 2015 Stock Appreciation Rights Plan. The purpose of the plan was to attract and retain the best available personnel for positions of substantial responsibility and to provide incentive to employees to promote the success of the Company’s business. Each holder of an award had the right to receive a cash payment amounting to the difference between the grant price and the fair market value of the Company’s Class A common stock on the exercise date. These awards were subject to time-based and performance-based vesting conditions. For each grant, the number of shares awarded was determined based on a performance condition relating to certain financial results of the Company. Awards granted vested ratably over a service period of 5 years. The awards were accounted for as liability classified compensatory awards under ASC 710 and valued using the intrinsic value method, as permitted by ASC 718 for nonpublic entities, with changes to the value recognized as compensation expense during each reporting period.

In conjunction with the offering, the Company vested all remaining stock appreciation rights (“SARS”) and settled the resulting liabilities related thereto. As a result, the Company recorded additional compensation expense in the amount of $3.2 million in the second quarter of 2018.

The following is a summary of the Company’s SARS activity for 2018 and 2017:


	Number of	Grant Date
	Units	Exercise Price
Outstanding at December 31, 2016	72,500		9.95
Granted	—		—
Exercised	(2,175)		9.95
Canceled or expired	(5,075)		9.95
Outstanding at December 31, 2017	65,250		9.95
Granted	—		—
Exercised	(63,250)		9.95
Canceled or expired	(2,000)		9.95
Outstanding at December 31, 2018	—		—

The Company recognized compensation expense of $3.4 million and $0.3 million during 2018 and 2017, respectively.

Restricted Stock Units

In August 2008, the U.S. Xpress Enterprises board approved the 2008 Restricted Stock Plan that provided for restricted membership unit awards in New Mountain Lake in order to compensate the Company’s employees and to promote the success of the Company’s business.

Redeemable restricted units were subject to certain put rights at the option of the holder or upon the occurrence of an event that was not solely under the control of the Company. Under the terms of the stock plan, a portion of the units held by employees of the Company for at least nine months could be put back to the Company at the option of the holder during a specified period each year and under certain circumstances after termination. These equity instruments were redeemable at fair value and were classified as temporary equity on the 2017 consolidated balance sheets in accordance with ASC 480.

As part of the Reorganization (see Note 1), all of the redeemable restricted units of New Mountain Lake were converted into restricted stock units of the Company, with the same vesting schedules. Therefore, we refer to redeemable restricted units issued prior to the Reorganization as restricted stock units. At the time of conversion, the restricted stock unit amounts were reclassified to additional paid in capital. The following is a summary of the Company’s restricted stock unit activity for 2019, 2018 and 2017:


	Number of	Weighted
	Units	Average
Unvested at December 31, 2016	237,500	$	6.79
Granted	292,500		10.37
Vested	(69,333)		6.62
Forfeited	(14,667)		7.69
Unvested at December 31, 2017	446,000		9.14
Granted	—		—
Vested-pre IPO	(105,307)		7.74
Forfeited-pre IPO	(6,667)		7.52
Unvested at June 13, 2018	334,026		9.62
Conversion in connection with IPO	4.6666667
Unvested-post IPO	1,558,787		2.06
Vested-post IPO	(144,667)		2.67
Forfeited-post IPO	(12,446)		1.99
Unvested at December 31, 2018	1,401,674		2.00
Vested	(454,893)		1.70
Forfeited	(103,893)		2.15
Unvested at December 31, 2019	842,888	$	2.14

The vesting schedule for these restricted unit grants range from 3 to 7 years. The Company recognized compensation expense of $0.5 million, $0.9 million and $0.7 million during 2019, 2018 and 2017, respectively. At December 31, 2019, the Company had approximately $1.4 million in unrecognized compensation expense related to restricted units, which is expected to be recognized over a period of approximately 3.9 years. The fair value of the restricted units and corresponding compensation expense was determined using the income approach.

Employee Stock Purchase Plan

In June 2018, our Employee Stock Purchase Plan (the “ESPP”) became effective. The Company has reserved an aggregate of 2.3 million shares of its Class A common stock for issuance of under the ESPP. Eligible employees may elect to purchase shares of our Class A common stock through payroll deductions up to 15% of eligible compensation. The purchase price of the shares during each offering period will be 85% of the lower of the fair market value of our Class A common stock on the first trading day of each offering period or the last trading day of the offering period. The common stock will be purchased in January and July of each year. The first offering period commenced on January 1, 2019 and we recognized compensation expense of $0.2 million during 2019, associated with the plan. In July 2019, employees purchased 79,940 shares of the Company’s Class A common stock for $4.37 per share.