NOTE 7 - STOCK COMPENSATION PLAN

Equity Incentive Plan

On May 28, 2019, the Company's 2019 Equity Incentive Plan (the “2019 EIP”) was approved by stockholders of the Company. Under the 2019 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 incentive stock options (“ISO”) and non-qualified stock options, is 340,000, plus any awards that are forfeited under the 2009 Equity Incentive Plan (the “2009 Plan”) after the effective date of the 2019 EIP, which was May 28, 2019. Under the 2009 Plan, there are 468,382 shares that are subject to outstanding and/or unexercised awards that have been granted and, if forfeited after May 28, 2019, such shares will be available to be granted under the 2019 EIP. The 2009 Plan expired on May 18, 2019 and, accordingly, the 628,719 shares that were unauthorized and unissued under the 2009 Plan have expired and may not be granted (and such shares of stock did not roll over to the 2019 EIP).

Under the terms of the 2019 EIP, a stock option agreement 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 2019 EIP uses 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 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.

A summary of the status of the Company’s stock options and the changes during the nine months ended September 30, 2019 is presented below:


	Nine Months Ended September 30, 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)			4.63

There was no unrecognized compensation cost related to stock options at September 30, 2019 and December 31, 2018.

There was no compensation cost related to stock options for the three and nine months ended September 30, 2019 and 2018.

The following table summarizes information about stock options outstanding at September 30, 2019:


	Options Outstanding
Range of Average	Number Outstanding at	Weighted Average	Weighted Average		Weighted Average Intrinsic Price per Share
Exercise Prices	September 30, 2019	Remaining Contractual Life	Exercise Price		at September 30, 2019
$10 – 20	231,000	4.63	$	18.00	$	21.33
$21 – 30	—	—	$	—	$	—
$10 – 30	231,000	4.63	$	18.00	$	21.33

There were no stock options exercised during the nine months ended September 30, 2019.

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 award agreement. Restricted stock awards are subject to forfeiture if the holder is not employed by the Company on the vesting date.

As of September 30, 2019, there was $2.2 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 2.26 years.

Total compensation cost that has been charged against income for restricted stock awards for the three months ended September 30, 2019 and 2018 was $340,000 and $150,000, respectively. Total compensation cost that has been charged against income for restricted stock awards was $903,000 and $311,000 for nine months ended September 30, 2019 and September 30, 2018, respectively. In addition, 38,900 restricted shares were granted to members of the Board of Directors in lieu of retainer fees for three years of service. These shares vest one-third each year for three years beginning January 1, 2019. Total expense for these awards was $100,000 and $300,000 for the three and nine months ended September 30, 2019, respectively.

As of September 30, 2019, there was $900,000 of unrecognized expense related to Directors’ fees. The cost is expected to be recognized over a weighted-average period of 2.25 years.

The following table summarizes the changes in the Company’s non-vested restricted stock awards for the nine months ended September 30, 2019:


	Nine Months Ended September 30, 2019
		Weighted Average
	Number of Shares	Grant Date Fair Value

Outstanding, beginning of period	53,957	$	21.46
Granted	106,423		35.36
Forfeited	(964)		29.15
Vested	(17,998)		25.71
Outstanding at end of period	141,418	$	31.33

The total fair value of shares vested was $637,000 during the nine months ended September 30, 2019.

Performance Based Stock Awards

During the first quarter of 2018, the Company established a long term incentive award program under the 2009 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. 90,000 PRSUs were awarded under the program. The earned units will be granted at the end of the three-year performance period.

The following table summarizes the changes in the Company’s non-vested PRSU awards for the nine months ended September 30, 2019 (dollars in thousands, except share information):


	For the nine months ended
	September 30, 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	$	1,072,508

Total compensation cost that has been charged against income for this plan was $358,000 and $1.1 million for the three and nine months ended September 30, 2019, respectively.

Total compensation cost that has been charged against income for this plan was $346,000 and $908,000 for the three and nine months ended September 30, 2018, respectively.