NOTE 7 - STOCK COMPENSATION PLAN

Equity Incentive Plan

In May 2009 the Company approved the 2009 Equity Incentive Plan (the “2009 Plan”) as a successor to the 1999 Plan. The 2009 Plan permits the granting of restricted shares, incentive stock options (“ISO”), nonqualified stock options, stock appreciation rights, restricted share units and other stock-based awards to employees, directors, officers, consultants, advisors, suppliers and any other persons or entity whose services are considered valuable for up to 1,483,000 shares. Total remaining shares issuable under the 2009 Plan are 628,719 at March 31, 2019. The 2009 Plan expires on May 18, 2019. Under the terms of the 2009 Plan, each option agreement cannot have an exercise price that is less than 100% of the fair value of the shares covered by the option on the date of grant. In the case of an ISO granted to any 10% stockholder, the exercise price shall not be less than 110% of the fair value of the shares covered by the option on the date of grant.

In no event shall the exercise price of an option be less than the par value of the shares for which the option is exercisable. 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. In the event of a change in control, the Company may determine that any award then outstanding shall be assumed or an equivalent award shall be substituted by the successor company.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. 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. No options were granted during three and three months ended March 31, 2019 and 2018.

A summary of the status of the Company’s stock options and the change during the three months ended March 31, 2019 is presented below:


	Three Months Ended March 31, 2019
	Number of	Weighted Average
	Options	Exercise Price

Outstanding, beginning of period	231,000	$	18.00
Granted	—		—
Exercised	—		—
Cancelled/forfeited	—		—
Outstanding, end of period	231,000	$	18.00
Options vested and exercisable at end of period	231,000	$	18.00

Weighted average remaining contractual life (years)			5.13

There was no unrecognized compensation cost related to stock options granted under the 2009 Plan at March 31, 2019 and December 31, 2018.

There was no compensation cost related to stock option plan for the three months ended March 31, 2019 and 2018.

The following table summarizes information about stock options outstanding at March 31, 2019:


	Options Outstanding
Range of Average	Number Outstanding at	Weighted Average	Weighted Average
Exercise Prices	March 31, 2019	Remaining Contractual Life	Exercise Price
$10 – 20	231,000	5.13	$	18.00
$21 – 30	—	—	$	—
$10 – 30	231,000	5.13	$	18.00

There were no stock options exercised during the three months ended March 31, 2019 and 2018.

Restricted Stock Awards

The Company issued restricted stock awards to certain key personnel under the 2009 Plan. Each restricted stock award vests based on vesting schedule outlined in the reward agreement. Restricted stock awards are subject to forfeiture if the holder is not employed by the Company on the vesting date.

As of March 31, 2019, there was $2.9 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 2.63 years.

As of March 31, 2019, there was $1.1 million of unrecognized expense related to Directors’ fees. The cost is expected to be recognized over a weighted-average period of 2.75 years.

Total compensation cost that has been charged against income for restricted stock awards was $229,000 and $293,000 for the three months ended March 31, 2019 and March 31, 2018, respectively. In addition, 35,900 restricted shares were granted were to the Board of Directors in lieu of retainer fees for three years of service. These shares vest one-third each year over the years. Total expense for these awards was $100,000 in the first quarter of 2019.

The following table summarizes the changes in the Company’s non-vested restricted stock awards for the three months ended March 31, 2019:


	Three Months Ended March 31, 2019
		Weighted Average
	Number of Shares	Grant Date Fair Value

Outstanding, beginning of period	53,957	$	21.46
Granted	106,423		35.36
Forfeited	—		—
Vested	(12,998)		22.09
Outstanding at end of period	147,382	$	31.44

The total fair value of shares vested was $429,000 during the three months ended March 31, 2019.

Performance Based Stock Awards

During the first quarter of 2018, the Company established a long term incentive award program under the 2009 Equity Incentive Plan. For each award, threshold target Performance Restricted Share Units (“PRSUs”) are eligible to be earned over a three-year performance period based on personal performance and the Company’s relative performance on certain measurement goals that were established at the onset of the performance period. These awards were accounted for in accordance with guidance prescribed in ASC Topic 718, Compensation – Stock Compensation. During 2018, 90,000 PRSUs were awarded under the program. The earned units will be granted at the end of the three year performance period.

There were no additional PRSUs awarded during the three months ended March 31, 2019. The following table summarizes the changes in the Company’s non-vested PRSU awards for the three months ended March 31, 2019 (dollars in thousands, except share information):


	For the three months ended
	March 31, 2019

Weighted average service inception date fair value of award shares	$	4,064,295
Minimum aggregate share payout		12,000
Maximum aggregate share payout		90,000
Likely aggregate share payout		90,000
Compensation expense recognized	$	357,503

Total compensation cost that has been charged against income for this plan was $358,000 for the three months ended March 31, 2019. No compensation cost related to PRSUs was recognized in the first quarter of 2018.