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Stock-Based Compensation

12 Months Ended

Oct. 31, 2023

Stock-Based Compensation

Stock-Based Compensation

12. Stock-Based Compensation

The 2020 Equity Incentive Plan

In April 2021, our shareholders approved the Calavo Growers, Inc. 2020 Equity Incentive Plan (the 2020 Plan). All directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of Calavo and its subsidiaries are eligible to receive awards under the 2020 Plan. This is a five-year plan, with up to 1,500,000 shares issuable through December 9, 2025.

Restricted Stock Awards (RSAs)

On November 3, 2022, our former Chief Executive Officer (CEO) entered into an amendment to his employment agreement, which changed $100,000 of his guaranteed STIP cash bonus for fiscal 2022 to $100,000 worth of unrestricted Calavo common stock. On December 22, 2022, our CEO was granted 3,321 shares of unrestricted common stock. The closing share price of our common stock at the grant date was $30.12.

On December 1, 2022, our 10 directors were granted 3,478 restricted shares each (for a total of 34,780 shares). These shares have full voting rights and participate in dividends as if unrestricted. The closing share price of our stock on such grant date was $34.51. Two directors did not seek reelection in April of 2023, and, consequently, 1,678 shares for each director (for a total of 3,356 shares) vested and became unrestricted while 1,800 shares for each director (for a total of 3,600 shares) were forfeited. As of November 1, 2023, the remaining 27,824 shares vested and became unrestricted. The total recognized stock-based compensation expense for these grants was $1.1 million for the year ended October 31, 2023.

On March 7, 2023, our former CEO was terminated. As part of his Separation Agreement, the remaining 19,329 restricted shares that were granted as part of his original employment agreement were immediately vested. The total stock-based compensation expense recognized was $0.8 million for the year ended October 31, 2023.

The total recognized stock-based compensation expense for restricted stock awards was $2.3 million for each of the years ended October 31, 2023 and 2022. As of October 31, 2023, there was less than $0.1 million of unrecognized stock-based compensation costs related to non-vested RSAs, which the Company expects to recognize over a weighted-average period of 0.3 years.

A summary of restricted stock activity, related to our 2011 Plan and 2020 Plan, is as follows (in thousands, except for per share amounts):


				Weighted-Average			Aggregate
		Number of Shares		Grant Price			Intrinsic Value
Outstanding at October 31, 2022		67		$	45.01
Granted		38		$	34.13
Vested		(72)		$	41.85
Forfeited		(4)		$	37.85
Outstanding at October 31, 2023		29		$	35.24		$	747

Restricted Stock Units (RSUs) and Performance Restricted Stock Units (PRSUs)

On December 1, 2022, we issued RSUs and PRSUs for officers and other members of management as part of our long-term incentive plan. The RSUs are time-based and vest annually in equal amounts over a three-year period. The PRSUs are based on three-year cumulative performance targets of net sales, adjusted EBITDA and return on invested capital and vest entirely at the third anniversary. We granted 66,325 RSUs and 66,325 PRSUs at a grant price of $34.51.

On March 7, 2023, our former CEO was terminated. As part of his Separation Agreement, 7,421 RSUs and 13,687 PRSUs immediately vested. The accelerated stock-based compensation expense recognized was $0.5 million for the year ended October 31, 2023. With his termination, 8,574 PRSUs and 11,285 RSUs were forfeited. In June of 2023, two of our Senior Vice Presidents departed the Company and, pursuant to their employment agreements, 10,311 RSUs immediately vested. The accelerated stock-based compensation expense recognized was $0.3 million for the year ended October 31, 2023. With these departures 6,123 PRSUs and 6,123 RSUs were forfeited.

On November 1, 2023, each of our 8 directors were granted 4,929 RSUs each (for a total of 39,432 RSUs) at a price of $24.35 and will vest in one year.

The total recognized stock-based compensation expense for RSUs was $1.6 million and $0.7 million for the year ended October 31, 2023 and 2022, respectively. As of October 31, 2023, there was $1.2 million of unrecognized stock-based compensation costs related to non-vested RSUs, which the Company expects to recognize over a weighted-average period of 1.8 years.

A combined summary of RSU activity, related to our 2020 Plan, is as follows (in thousands, except for per share amounts):


		Number of Shares		Weighted-Average			Aggregate
		Represented		Grant Price			Intrinsic Value
Outstanding at October 31, 2022		52		$	39.17
Granted		68		$	34.46
Vested		(32)		$	39.25
Forfeited		(37)		$	35.65
Outstanding at October 31, 2023		51		$	35.36		$	1,284

At the end of each reporting period, the Company will adjust compensation expense for the PRSUs based on its best estimate of attainment of the specified performance targets. The cumulative effect on current and prior periods of a change in the estimated number of PRSUs that are expected to be earned will be recognized as an adjustment in the period of the adjustment. As of October 31, 2023, the Company determined that it was not probable that any of the PRSUs for the 2022 or 2023 three-year cumulative performance grant would vest. The Company recorded a net reversal of approximately $0.3 million of previously amortized stock-based compensation for the year months ended October 31, 2023, for all PRSUs. The total recognized stock-based compensation expense for PRSUs was $0.2 million and $0.1 million for the year ended October 31, 2023 and 2022, respectively.

The summary of PRSU activity, related to our 2020 Plan, is as follows (in thousands, except for per share amounts):


		Number of Shares		Weighted-Average			Aggregate
		Represented		Grant Price			Intrinsic Value
Outstanding at October 31, 2022		31		$	37.49
Granted		66		$	34.51
Vested		(14)		$	35.65
Forfeited		(33)		$	35.35
Adjusted for performance factor		(50)		$	35.22
Outstanding at October 31, 2023		—		$	—		$	—

Stock Options

Stock options are granted with exercise prices of not less than the fair market value at grant date, generally vest over one to five years and generally expire two to five years after the vest date. We settle stock option exercises with newly issued shares of common stock.

We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest.

In March 2023, the Company agreed to award our newly appointed CEO a stock option to purchase 500,000 shares of the Company’s common stock pursuant to the 2020 Equity Incentive Plan, which will vest in the following four tranches upon satisfaction of the milestones described below (the “Milestones”):

(i) 200,000 shares subject to the option shall vest and become exercisable on March 10, 2024;

(ii) 100,000 shares subject to the option shall vest and become exercisable (1) if the closing price per share of the Company’s common stock, as reported by The Nasdaq Stock Market, is greater than or equal to $50.00 (the “Target Share Price”), and (2) the average closing price per share of the Company’s common stock for any thirty (30) day period

following achievement of the Target Share Price (the “Thirty-day Average Share Price”), is greater than or equal to $50.00, as reported by Nasdaq;

(iii) 100,000 shares subject to the option shall vest and become exercisable (1) upon achievement of the Target Share Price, and (2) the Thirty-day Average Share Price is greater than or equal to $60.00, as reported by Nasdaq; and

(iv) 100,000 shares subject to the option shall vest and become exercisable (1) upon achievement of the Target Share Price, and (2) the Thirty-day Average Share Price is greater than or equal to $70.00, as reported by Nasdaq;

provided, however, that satisfaction of each Milestone is subject to our newly appointed CEO continuing as the President and CEO of the Company through each vesting event; and provided further that regardless of when he achieves the Milestones set forth in subsections (ii) through (iv) above, the applicable tranche shall only vest on or after March 10, 2024.

We measure the fair value of our stock option awards on the date of grant. The following assumptions were used in the estimated grant date fair value calculations for stock options:


		March 2023
Risk-free interest rate		4.31	%
Expected volatility		35.0	%
Dividend yield		1.6	%
Expected life (years)		3.0

The expected stock price volatility rates were based on the historical volatility of our common stock. The risk free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant for periods approximating the expected life of the option. The expected life represents the average period of time that options granted are expected to be outstanding, as calculated using the simplified method described in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107.

The Black-Scholes-Merton and lattice-based option valuation models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because options held by our directors and employees have characteristics significantly different from those of traded options, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of these options. For the market award, we determined both the fair value and derived service period using a Monte Carlo simulation model on the closing date.

Based on the above details and assumptions, we valued these options at $1.8 million. We will amortize this amount on a straight-line basis over the derived service period.

The total recognized stock-based compensation expense for options was $1.3 million for the year ended October 31, 2023. As of October 31, 2023, there was $0.7 million of unrecognized stock-based compensation costs related to options, which the Company expects to recognize over a weighted-average period of 0.4 years.

A summary of stock option activity, related to our 2011 and 2020 Management Incentive Plan, is as follows (in thousands, except for per share amounts):


				Weighted-Average			Aggregate
				Exercise			Intrinsic
		Number of Shares		Price			Value
Outstanding at October 31, 2022		27		$	44.67
Exercised		(2)		$	23.48
Granted		500		$	24.39
Outstanding at October 31, 2023		525		$	25.44		$	475
Exercisable at October 31, 2023		17		$	49.52		$	—