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STOCK COMPENSATION PLAN

6 Months Ended

Jun. 30, 2023

STOCK COMPENSATION PLAN

STOCK COMPENSATION PLAN

NOTE 8 — STOCK COMPENSATION PLAN

Equity Incentive Plan

At June 30, 2023, the Company maintained three stock compensation plans, the 2022 Equity Incentive Plan (the “2022 EIP”), the 2019 Equity Incentive Plan (the “2019 EIP”) and the 2009 Equity Incentive Plan (the “2009 EIP”). The 2019 EIP expired on May 31, 2022 but has outstanding restricted stock awards and PRSUs subject to vesting schedules. The 2009 EIP has also expired but at June 30, 2023, has outstanding stock options that may still be exercised.

The 2022 EIP was approved on May 31, 2022 by stockholders of the Company. Under the 2022 EIP, the maximum number of shares of stock that may be delivered to participants in the form of restricted stock, restricted stock units and stock

options, including ISOs and non-qualified stock options, is 174,918, subject to adjustment as set forth in the 2022 EIP, plus any awards that are forfeited under the 2019 EIP after March 15, 2022.

Stock Options

Under the terms of the 2022 EIP, a stock option cannot have an exercise price that is less than 100% of the fair market value of the shares covered by the stock option on the date of grant. In the case of an ISO granted to a 10% stockholder, the exercise price shall not be less than 110% of the fair market value of the shares covered by the stock option on the date of grant. In no event shall the exercise period exceed ten years from the date of grant of the option, except, in the case of an ISO granted to a 10% stockholder, the exercise period shall not exceed five years from the date of grant. The 2022 EIP contains a double trigger change in control feature, providing for an acceleration of vesting upon an involuntary termination of employment simultaneous with or following a change in control.

The fair value of each stock option award was estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities based on historical volatilities of the Company’s common stock are not significant. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

A summary of the status of the Company’s stock options and the changes during the year is presented below:


		Six months ended
		June 30, 2023
				Weighted
		Number of		Average
		Options		Exercise Price
Outstanding, beginning of period		220,200		$	18.00
Granted		—			—
Exercised		—			—
Cancelled/forfeited		—			—
Outstanding, end of period		220,200		$	18.00
Options vested and exercisable at end of period		220,200		$	18.00

Weighted average remaining contractual life (years)		0.92
Weighted average intrinsic value	$	16.73

On August 15, 2016, the Company made a loan to an executive officer of the Company, which was subsequently extended on August 15, 2021, in the amount of $780,000 and having an interest rate of 2.1% per annum (the “2021 Loan”). On March 6, 2023, the Company purported to make a loan to this executive officer in the amount of $7.5 million with a fixed interest rate of 5.7% per annum (the “2023 Loan”), and the executive officer used substantially all of the proceeds of the 2023 Loan to pay the exercise price in connection with the exercise of certain existing stock options (the “Option Shares”) and satisfy withholding tax obligations in connection with such exercise (the “Option Exercise”).

In connection with the preparation of the proxy statement for the Company’s annual meeting of stockholders, the Company’s management and Executive Committee of the Board of Directors, along with outside counsel, reevaluated the 2023 Loan as well as the 2021 Loan. As part of this reevaluation, the Company determined that the 2023 Loan and the 2021 Loan were likely impermissible under applicable law and/or regulations. As a result of these determinations, and to the extent that the 2023 Loan and the Option Exercise were not void as a matter of law, on April 26, 2023, the Company and the executive officer entered into a Rescission Agreement (the “Rescission Agreement”). The Rescission Agreement provided, among other things, (i) that the 2023 Loan and the Option Exercise would be rescinded and deemed null and void, (ii) that payments made in respect of the 2023 Loan, if any, would be returned, and (iii) that any dividends received by the executive officer in respect of the Option Shares have been returned or repaid to the Company. In connection with the entry into the Rescission Agreement, the executive officer repaid, in full, the 2021 Loan. The aggregate amount of

extensions of credit to the Company’s directors, executive officers, principal stockholders and their associates was $0 and $780,000 at June 30, 2023 and December 31, 2022, respectively.

There was no unrecognized compensation cost related to stock options at June 30, 2023 and December 31, 2022. There was no compensation cost related to stock options during the three and six months ended June 30, 2023 and 2022 and 2022.

Restricted Stock Awards and Restricted Stock Units

The Company issued restricted stock awards and restricted stock units under the 2022 EIP, 2019 EIP and the 2009 EIP (collectively, “restricted stock grants”) to certain key personnel. Each restricted stock grant vests based on the vesting schedule outlined in the restricted stock grant agreement. Restricted stock grants are subject to forfeiture if the holder is not employed by the Company on the vesting date.

In the first quarter of 2023 and 2022, 170,998 and 72,025 restricted stock grants were issued to certain key personnel, respectively. One-third of these shares vest each year for three years beginning on March 1, 2024 and March 1, 2023, respectively. Total compensation cost that has been charged against income for restricted stock grants was $1.6 million and $2.9 million for the three and six months ended June 30, 2023, respectively. Total compensation cost that has been charged against income for restricted stock grants was $1.3 million and $2.0 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, there was $12.6 million of total unrecognized compensation expense related to the restricted stock awards. The cost is expected to be recognized over a weighted-average period of 2.15 years.

In January 2023, 27,500 restricted shares were granted to members of the Board of Directors. These shares vest in January 2024. In January 2022, 11,126 restricted shares were granted to members of the Board of Directors. These shares vested in January 2023. In January 2019, 38,900 restricted shares were granted to members of the Board of Directors in lieu of retainer fees for three years of service. Total expense for these awards was $388,000 and $777,000 for the three and six months ended June 30, 2023, respectively. Total expense for these awards was $297,000 and $595,000 for the three and six months ended June 30, 2022, respectively. As of June 30, 2023 total unrecognized expense for these awards was $777,000.

The following table summarizes the changes in the Company’s restricted stock grants:


		Six months ended
		June 30, 2023
				Weighted
				Average
		Number of		Grant Date
		Shares		Fair Value
Outstanding, beginning of period		129,562		$	86.01
Granted		198,498			56.04
Forfeited		(14,838)			61.50
Vested		(64,990)			84.28
Outstanding at end of period		248,232		$	63.96

Performance-Based Stock Units

During the second quarter of 2021, the Company established a long-term incentive award program under the 2019 EIP. Under the program, 90,000 PRSUs were awarded. During the second quarter of 2022, 20,800 PRSUs were forfeited and reissued pursuant to the 2022 EIP. The weighted average service inception date fair value of the outstanding awarded shares was $6.0 million. At the beginning of 2023 and 2022, 29,200 and 30,000 PRSUs, respectively, vested as all performance criteria were met. The remaining 30,800 PRSUs are scheduled to vest in February 2024, provided certain performance criteria are met in fiscal year 2023. All vested shares will not be delivered until the first quarter of 2024. Total compensation cost that has been charged against income for the PRSUs was $544,000 and $1.1 million for the three

and six months ended June 30, 2023, respectively. Total compensation cost that has been charged against income for the PRSUs was $478,000 and $951,000 for the three and six months ended June 30, 2022, respectively.