The Company recorded stock-based compensation expense of $2.4 million for the year ended December 31, 2022. A portion of the Company's stock-based awards are liability-classified. Accordingly, changes in the market value of the Company's common stock may result in a stock-based benefit in certain periods. A stock-based compensation liability of $3.3 million as of December 31, 2022 was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

All Lawson stock-based equity compensation awards that were issued and outstanding prior to the Merger Date were treated like they were acquired concurrent with the Mergers in accordance with the acquisition method of accounting for reverse acquisitions. Refer to Note 1 – Nature of Operations and Basis of Presentation for additional information about the Mergers. No stock-based compensation expense was recorded during 2021 and there was no stock-based compensation liability as of December 31, 2021. There were no shares related to stock-based compensation outstanding prior to the Merger Date.

On October 17, 2022, the Board of Directors approved and adopted the Distribution Solutions Group, Inc. Equity Compensation Plan, as amended and restated, effective October 17, 2022, and as amended November 10, 2022 (the “Amended and Restated Equity Plan”). The Amended and Restated Equity Plan provides for the grant of nonqualified and incentive stock options, stock awards and stock units to officers and employees of the Company. The Amended and Restated Equity Plan also provides for the grant of option rights and restricted stock to non-employee directors. Non-employee directors are limited to grants of no more than 30,000 shares of common stock in any calendar year and other than non-employee directors are limited to grants of no more than 250,000 shares of common stock in any calendar year. The Amended and Restated Equity Plan is administered by the Compensation Committee of the Board of Directors, or its designee, which as administrator of the plan, has the authority to select plan participants, grant awards, and determine the terms and conditions of the awards. As of December 31, 2022, the Company had approximately 1,222,773 shares of common stock still available under the Amended and Restated Equity Plan.

SPRs entitle the recipient to receive a cash payment equal to the excess of the market value of Company common stock over the SPR exercise price when the SPRs are surrendered. Expense, equal to the fair market value of the SPR at the date of grant and remeasured each reporting period, is recorded ratably over the vesting period. Compensation expense is included in Selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). The outstanding SPRs were granted with approximately a seven year life and vest over one to three years beginning on the first anniversary of the date of the grant. The SPRs are liability classified and included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

On December 31, 2022, the SPRs outstanding were re-measured at fair value using the Black-Scholes valuation model. This model requires the input of subjective assumptions that may have a significant impact on the fair value estimate. The weighted-average fair value of SPRs outstanding as of December 31, 2022 was $15.30 per SPR using the following assumptions:

The expected volatility was based on the historic volatility of the Company's stock price commensurate with the expected life of the SPR. The risk-free rate of return reflects the interest rate offered for zero coupon treasury bonds over the expected life of the SPR. The expected life represents the period of time that options granted are expected to be outstanding and was calculated using the simplified method allowed by the SEC, which approximates our historical experience. The estimated annual dividend was based on the recent dividend payout trend.

Compensation expense of $0.8 million was recorded in Selling, general and administrative expense for the year ended December 31, 2022. Cash in the amount of $5.2 million was paid for SPR exercises in 2022. A liability of $2.7 million reflecting the estimated fair value of future pay-outs is included as a component of Accrued expenses and other liabilities in the Consolidated Balance Sheets.


	Number of SPRs	Weighted Average Exercise Price
Outstanding on December 31, 2021	—	$	—
Shares acquired concurrent with Mergers	575,536	26.66

Exercised	(399,352)	28.75

Outstanding on December 31, 2022	176,184	15.30

Exercisable on December 31, 2022	176,184	15.30

Restricted stock awards ("RSAs") generally vest over a one to three year period beginning on the first anniversary of the date of the grant. Upon vesting, the vested restricted stock awards are exchanged for an equal number of the Company’s common stock. The participants have no voting or dividend rights with the restricted stock awards. The restricted stock awards are valued at the closing price of the common stock on the date of grant and the expense is recorded ratably over the vesting period.

Compensation expense of $0.8 million related to the RSAs was recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) for 2022. Activity related to the Company’s RSAs during the year ended December 31, 2022 was as follows:

As of December 31, 2022, there was $1.1 million of total unrecognized compensation cost related to RSAs that will be recognized over a weighted average period of 1.2 years. The awards granted in 2022 had a weighted average grant date fair value of $37.49 per share.

Market Stock Units ("MSUs") are exchangeable for between 0% to 150% of the Company's common shares at the end of the vesting period based on the trailing 60-day average closing price of the Company's common stock. The value of the MSUs was determined using a geometric brownian motion model that, based on certain variables, generates a large number of random trials simulating the price of the Company common stock over the measurement period. Expense of $0.3 million related to MSUs was recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) during the year ended December 31, 2022. Activity related to the Company’s MSUs during 2022 was as follows:


	Number of Market Stock Units	Maximum Shares Potentially Issuable
Outstanding on December 31, 2021	—	—
Shares acquired concurrent with Mergers	118,057	168,156

Cancelled	(17,109)	(25,664)
Exchanged for common shares	(19,480)	(25,199)
Outstanding on December 31, 2022	81,468	117,293

Stock options vest through the fifth anniversary from the grant date. Each option can be exchanged for one share of the Company's common stock at the stated exercise price. Upon vesting, stock options are recognized as a component of equity. Activity related to the Company’s stock options during the year ended December 31, 2022 was as follows:


	Number of Stock Options	Weighted Average Exercise Price
Outstanding on December 31, 2021	—	$	—
Shares acquired concurrent with Mergers	80,000	27.70
Granted	248,000	85.75

Exercised	(40,000)	41.38
Outstanding on December 31, 2022	288,000	77.59

Exercisable on December 31, 2022	40,000	27.01

Compensation expense of $0.3 million was recorded in Selling, general and administrative expense for the year ended December 31, 2022. Unrecognized compensation related to stock options as of December 31, 2022 was $2.0 million, which is expected to be recognized over a weighted-average period of 2.7 years. There were 248,000 unvested and 40,000 fully vested stock options outstanding on December 31, 2022 with a weighted average exercise price of $27.01.

The expected volatility was based on the historic volatility of the Company's stock price commensurate with the expected life of the stock options. The risk-free rate of return reflects the interest rate offered for zero coupon treasury bonds over the expected life of the stock options. The expected life represents the period of time that options granted are expected to be outstanding and was calculated using the simplified method allowed by the SEC, which approximates our historical experience. The estimated annual dividend was based on the recent dividend payout trend.

Performance Awards ("PAs") are exchangeable for between 0% to 150% of the Company's common shares, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics at the end of the vesting period. The PAs are liability classified and included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. Expense of $0.2 million related to the PAs was recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) for 2022. Unrecognized compensation related to PAs as of December 31, 2022 was $0.2 million, which is expected to be recognized over a weighted-average period of 1.0 year.