Long-Term Incentive Plans

9 Months Ended

Sep. 30, 2022

Share-based Payment Arrangement [Abstract]

Long-Term Incentive Plans

Note 10. Long-Term Incentive Plans

On June 11, 2019, our Board of Directors approved the Midwest Holding Inc. Long-Term Incentive Plan (the “2019 Plan”) that reserves up to 102,000 shares of our voting common stock for award issuances. It provides for the grant of options, restricted stock awards, restricted stock units, stock appreciation rights, performance units, performance bonuses, stock awards and other incentive awards to eligible employees, consultants and eligible directors, subject to the conditions set forth in the 2019 Plan. Shareholder approval of the plan occurred on June 11, 2019. All awards are required to be established, approved, and/or granted by the compensation committee of our Board.

On November 16, 2020, our Board of Directors adopted a new equity incentive plan titled the 2020 Long-Term Incentive Plan (the "2020 Plan") that reserves up to 350,000 shares of voting common stock for award issuances. The terms of the 2020 Plan are essentially the same as the 2019 Plan. On June 29, 2021, the 2020 Plan was approved by the shareholders. On June 14, 2022, the board approved the addition of 150,000 shares of voting common stock to be added to the 2020 Plan for future awards and these shares were approved by our stockholders.

In accordance with the stockholder-approved equity incentive plans above, we have granted stock options to employees and directors for the purchase of common stock at exercise prices at the date of the grants and restricted stock unit awards. We calculate the fair value and compensation at grant date using the Black Scholes Model. Stock options become exercisable under various vesting schedules (typically two to four years) and generally expire in ten years after the date of grant. Using the Black Scholes Model, we calculate compensation expense for option share units on a straight-line basis over the requisite service periods, accounting for forfeitures as they occur.

Restricted Stock and Restricted Stock Units

On November 16, 2020, the Company awarded 18,597 shares of restricted stock, and on November 11, 2021, it awarded 5,089 restricted stock units (“RSUs”).

The restricted stock award of 18,597 shares had a grant date fair value of $41.25 per share and was subject to time-based vesting requirements of one-fourth increments sixty days after each of the first four anniversary dates of the grant date.  The recipient of the award resigned on March 31, 2022, and received a total of 5,812 vested shares in connection with his termination of employment, while the remaining 12,785 shares of restricted stock were forfeited.  

The 5,089 RSUs were granted to our non-employee directors and had a grant date fair value of $24.34 per share and vested on June 14, 2022, the date of the Company’s 2022 annual meeting of stockholders.  The RSU compensation expense was calculated using the grant date fair value and is amortizing on a straight-line basis over the requisite service periods.  Total compensation recognized in connection with the RSUs was approximately $0.4 million with none recognized in the third quarter of 2022.

On June 14, 2022, the Company granted 18,718 RSUs to our non-employee directors with a grant date fair value of $11.22 per share. The RSUs will vest at the earlier of the date of our 2023 annual meeting of stockholders or June 14, 2023.

The compensation expense relating to these awards was calculated using the grant date fair value and is amortized on a straight-line basis over the requisite service periods.

The table below identifies the assumptions used in the Black Scholes Model to calculate the compensation expense:

	September 30,	December 31,
	2022	2021
Expected volatility	4.16% - 4.26%	4.4% - 66.3%
Weighted-average volatility	35.4%	38.9%
Expected term (in years)	2 - 7	2 - 7
Risk-free rate	1.79% - 3.49%	.8% - 1.5%

For the three months ended September 30, 2022 and 2021, we amortized the compensation expense related to the 2019 and 2020 Plans over the vesting tranches which resulted in expenses and a decrease in additional paid in capital of approximately $0.7 million and an increase in additional paid in capital of approximately $1.0 million, respectively.

For the nine months ended September 30, 2022, and 2021, we amortized the compensation expense related to the 2019 and 2020 Plans over the vesting tranches which resulted in expenses and a decrease in additional paid in capital of approximately $0.3 million and an increase of approximately $2.8 million, respectively.

The tables below show the outstanding options, restricted stock, and restricted stock units under the 2019 and 2020 Plans as of September 30, 2022, and December 31, 2021, respectively:

	September 30, 2022
	Stock Options Outstanding	Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Nonvested stock options and restricted
stock unit awards at December 31, 2021	317,217	$	25.80	$	40.13
Options granted	88,367		8.18		15.65
Restricted stock units granted	18,718		—		—
Adjustment to prior year options granted	65,414		—		—
Vested	(19,950)		19.42		37.44
Forfeited	(185,828)		29.18		41.05
Ending Balance at September 30, 2022	283,938	$	17.22	$	34.14

	December 31, 2021
	Stock Options Outstanding	Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Nonvested stock options and restricted
stock unit awards at December 31, 2021	100,972	$	22.91	$	34.70
Options granted	333,880		19.25		42.84
Restricted stock units granted	5,089		—		—
Vested	(85,957)		17.32		30.20
Forfeited	(36,767)		23.91		40.42
Ending Balance at December 31, 2021	317,217	$	25.80	$	40.13

(1) Restricted stock and restricted stock units do not have an exercise price.

The tables below show the outstanding vested and nonvested stock options and restricted stock units as of September 30, 2022, and December 31, 2021

		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)
Outstanding, Non vested options	267,894	$	34.11	8.8
Outstanding, Vested options	25,826		34.41	6.9
Outstanding, Non vested restricted	16,044
Outstanding, Vested restricted	1,163
Outstanding at September 30, 2022	310,927	$	34.14	8.6

			Weighted Average Exercise Price Per Share	Weighted Average Remaining Contractual Life (Years)
Outstanding, Non vested options	379,488	$	38.51	9.8
Outstanding, Vested options	85,957		43.91	10.0
Outstanding, Non vested restricted	23,686		44.05	8.5
Outstanding, Vested restricted	-		-	-
Outstanding at December 31, 2021	489,131	$	38.62	9.2