STOCK COMPENSATION PLAN

6 Months Ended

Jun. 30, 2020

STOCK COMPENSATION PLAN

STOCK COMPENSATION PLAN

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 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 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 is 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 six months ended June 30, 2020 is presented below:

	Six Months Ended June 30, 2020
	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)			3.88

There was no unrecognized compensation cost related to stock options for the six months ended June 30, 2020 or the year ended December 31, 2019.

There was no compensation cost related to stock options for the six months ended June 30, 2020 and 2019.

The following table summarizes information about stock options outstanding at June 30, 2020:

	At June 30, 2020
Range of Average		Weighted Average	Weighted Average		Weighted Average
Exercise Prices	Number Outstanding at	Remaining Contractual Life	Exercise Price		Intrinsic Price per Share
$10 – 20	231,000	3.88	$	18.00	$	14.08
$21 – 30	—	—	$	—	$	—
$10 – 30	231,000	3.88	$	18.00	$	14.08

There were no stock options exercised during the six months ended June 30, 2020.

Restricted Stock Awards and Restricted Stock Units

The Company issued restricted stock awards under the 2009 Plan and restricted stock units under the 2019 Plan (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 2020, 60,307 restricted stock units were issued to certain key personnel. These shares vest one-third each year for three years beginning December 15, 2020. No restricted stock units were granted in the second quarter of 2020.

Total compensation cost that has been charged against income for restricted stock grants was $484,000 and $334,000 for three months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019 compensation cost that has been charged against income for restricted stock grants was $839,000 and $564,000, respectively. As of June 30, 2020, there was $3.1 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 2.17 years.

Additionally, on January 1, 2019, 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 on December 31, 2019. Total expense for these awards was $100,000 for the three months ended June 30, 2020 and 2019 and $200,000 for six months ended June 30, 2020 and 2019. As of June 30, 2020, there was $600,000 of unrecognized expense related to these grants. The cost is expected to be recognized over a weighted-average period of 1.50 years.

The following table summarizes the changes in the Company’s restricted stock grants for the six months ended June 30, 2020:

	Six Months Ended June 30, 2020
		Weighted Average
	Number of Shares	Grant Date Fair Value
Outstanding, beginning of period	104,838	$	29.86
Granted	60,307		45.29
Forfeited	(20,354)		35.87
Vested	(19,541)		19.39
Outstanding at end of period	125,250	$	37.95

The total fair value of shares vested was $744,000 during the six months ended June 30, 2020.

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, 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, in each case as compared to 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 six months ended June 30, 2020:

	June 30, 2020
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

Total compensation cost that has been charged against income for this plan was $358,000 for the three months ended June 30, 2020 and 2019 and $715,000 for six months ended June 30, 2020 and 2019.