Note 11 - Share-based Compensation

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

11. SHARE-BASED COMPENSATION

The Company’s directors and certain members of management receive a portion of their compensation in shares of the Company’s common stock granted under the Company’s 2017 Equity and Incentive Award Plan (“Equity Plan”).  

Share-based compensation is awarded annually to certain members of the Company’s management based on their achievement of predefined performance goals and objectives under the Equity Plan.  Such share-based compensation is comprised of an annual incentive paid in shares of common stock and a long-term incentive paid in restricted shares of common stock vesting quarterly over a period of three years. Share-based compensation is valued based on the average of the high and low share price on the date of grant. Shares are issued upon execution of agreements reflecting the grantee’s acceptance of the respective shares subject to the terms and conditions of the Equity Plan. Restricted shares issued under the Equity Plan have voting and regular dividend rights but cannot be disposed of until such time as they are vested. All unvested restricted shares are forfeited upon the grantee’s termination of directorship or employment from the Company. 

Directors receive both cash and equity compensation under the Equity Plan. Share-based compensation is comprised of restricted shares of common stock vesting quarterly over the directors’ annual period of service which are valued based on the average of the high and low share price on the date of grant. Shares are issued upon execution of agreements reflecting the grantee’s acceptance of the respective shares subject to the terms and conditions of the Equity Plan. Restricted shares issued under the Equity Plan have voting and regular dividend rights but cannot be disposed of until such time as they are vested. All unvested restricted shares are forfeited upon the grantee’s termination of directorship from the Company.  

Options to purchase shares of the Company’s common stock under the Equity Plan were granted to directors during the quarter ended June 30, 2023. The number of common shares subject to option for annual board service, board committee service, and continued service of the Chairman of the Board are 0.3 million shares, 0.1 million shares, and 0.4 million shares, respectively. Stock option grants are valued at the commitment date, based on the fair value of the equity instruments, and recognized as share-based compensation expense on a straight-line basis over its respective vesting periods. The option agreements provide for accelerated vesting if there is a change in control in ownership. 

For annual board service and board committee service, stock option grants have a contractual period of ten years and vest quarterly over 12 months. The exercise price per share is based on the average of the high and low share price on the date of grant, or $12.11 per share. The fair value of these grants using the Black-Scholes option-pricing model was $3.88 per share based on an expected term of 5.25 years, expected volatility of 28%, and a risk-free rate of 4.16%. During the year ended  December 31, 2023, 0.3 million of stock options vested and none were exercised or forfeited. There were 0.1 million of unvested share options, or $0.3 million of unrecognized compensation cost, related to annual board services and board committee services at December 31, 2023.

For continued service of the Board's Chairman, the stock option grant has a contractual period of ten years and vests annually as follows: 0.1 million shares on June 1, 2024, 0.1 million shares on June 1, 2025, and 0.1 million shares on June 1, 2026. The exercise price per share is based on the average of the high and low share price on the date of grant, or $9.08 per share. The fair value of the grant using the Black-Scholes option-pricing model was $3.94 per share based on an expected term of 6.12 years, expected volatility of 37%, and a risk-free rate of 3.49%. There were 0.4 million of unvested share options, or $1.2 million or unrecognized compensation cost, related to the continued service of the Board's Chairman at December 31, 2023.

The simplified method described in Staff Accounting Bulletin No. 107 was used by management due to the lack of historical option exercise behavior, Management does not anticipate future forfeitures to be material. The Company does not currently issue dividends.

Share-based compensation expense totaled $2.8 million and $1.3 million for the years ended December 31, 2023, and 2022, respectively. Included in these amounts were $1.2 million and $0.9 million of restricted common stock vested during the years ended December 31, 2023, and 2022, respectively, and $1.4 million of stock options vested during the year ended December 31, 2023.

In January 2024, an option to purchase 0.4 million shares of the Company’s common stock under the Equity Plan was granted to the Company's CEO. The stock option grant has a contractual period of ten years and vests annually as follows: 0.1 million shares on January 1, 2025, 0.1 million shares on January 1, 2026, and 0.1 million shares on January 1, 2027. The exercise price per share is based on the average of the high and low share price on the date of grant, or $15.75 per share. The stock option grant is valued at the commitment date, based on the fair value, and recognized as share-based compensation expense on a straight-line basis over its vesting period beginning in January 2024. The fair value of the grant using the Black-Scholes option-pricing model was $6.02 per share at January 1, 2024, based on an expected term of 6.00 years, expected volatility of 31%, and a risk-free rate of 3.82%.