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Stock-Based Compensation

12 Months Ended

Mar. 27, 2022

Note 16. Stock-Based Compensation

The Company’s selling, general and administrative expenses for the fiscal years ended March 27, 2022, March 28, 2021, and March 29, 2020 includes $1,338,900, $1,211,000, and $1,174,600, respectively, of stock compensation expense. Provision for income taxes for the fiscal years ended March 27, 2022, March 28, 2021, and March 29, 2020 includes $365,500, $255,600, and $386,100, respectively, of income tax benefits related to our stock-based compensation arrangements. Stock compensation expense is primarily related to our PSUs, RSUs, and Stock Options, granted or outstanding under the Company’s Third Amended and Restated Stock and Incentive Plan (the “1994 Plan”) and 2019 Stock and Incentive Plan (the “2019 Plan” and together with the 1994 Plan, the “Plans”), which was approved at the Annual Meeting of Shareholders held on July 25, 2019. No additional awards may be granted under the 1994 Plan, although awards outstanding under the 1994 Plan remain outstanding and governed by its terms. As of March 27, 2022, 344,371 shares were available for issue in respect of future awards under the 2019 Plan.

Performance Stock Units: Under a program established by the Board of Directors, PSUs have been granted under the Plans to selected employees. Each PSU entitles the participant to earn Tessco common stock, but only after certain performance measures are reached and individual performance targets are met over a defined performance cycle. Performance cycles, which are fixed for each grant at the date of grant, are one year. Once earned, shares vest and are issued over a specified period of time determined at the time of the grant, provided that the participant remains employed by or associated with the Company at the time of share issuance. Performance targets are set by the Board of Directors in advance for the complete performance cycle at levels designed to grow shareholder value. If actual performance does not reach the minimum annual or threshold targets, no shares are issued. In accordance with ASC 718, the Company records compensation expense on its PSUs over the service period, based on the number of shares management estimates will ultimately be issued. Accordingly, the Company determines the periodic financial statement compensation expense based upon the stock price at the PSU grant date, net of the present value of dividends expected to be paid on Tessco common stock before the PSU vests, management’s projections of performance over the performance period, and the resulting amount of estimated share issuances. As discussed in Note 2 above, the Company accounts for forfeitures as they occur rather than estimate expected forfeitures. To the extent that forfeitures occur, stock-based compensation related to the restricted awards may be different from the Company’s expectations.

The following table summarizes the activity under the Company’s PSU program for fiscal years 2022, 2021 and 2020:


	2022			2021			2020
		Weighted			Weighted			Weighted
		Average Fair			Average Fair			Average Fair
	Shares	Value at Grant		Shares	Value at Grant		Shares	Value at Grant
Unvested shares available for issue under outstanding PSUs, beginning of period	13,552	$	14.57	68,355	$	15.00	98,306	$	14.55
PSUs Granted	96,603		7.32	—		—	51,616		15.93
PSUs Vested	(7,930)		13.89	(21,690)		14.21	(29,036)		14.09
PSUs Forfeited/Cancelled	(2,186)		13.79	(33,113)		15.69	(52,532)		9.82
Unvested shares available for issue under outstanding PSUs, end of period	100,039	$	10.44	13,552	$	14.57	68,355	$	15.00

As of March 27, 2022, the remaining unrecognized compensation cost related to PSUs earned was immaterial as the fiscal year 2022 PSUs will vest on or about May 15, 2022. Total fair value of shares vested during fiscal years 2022, 2021 and 2020 was $57,900, $103,300 and $780,400, respectively.

The PSUs canceled during fiscal year 2022 primarily related to the fiscal year 2018 and 2019 PSU issuances. The PSUs were canceled due to the employee leaving the Company prior to vesting. Per the provisions of the 2019 Plan, the shares related to these forfeited and canceled PSUs were added back to the 2019 Plan and became available for future issuance under the 2019 Plan.

The remaining 100,039 shares covered by PSUs outstanding at the end of fiscal year 2022 were earned based on fiscal years 2022, 2021 and 2020 performance, but were not yet vested as of March 27, 2022. Assuming the respective participants remain employed by, or affiliated with the Company, these shares will vest on or about May 15, 2022.

Restricted Stock/Restricted Stock Units: On May 10, 2019, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 21,000 RSU, ratably to the then six non-employee directors, including the then Chairman of the Board of the Company. These RSU awards provide for the issuance of shares of the Company’s common stock in four equal installments beginning on May 10, 2020, and continuing on the same date in 2021, 2022 and 2023, provided that the director remains associated with the Company on each such date (or meets other criteria as prescribed in the applicable award agreement).

On May 15, 2020, July 24, 2020, and November 12, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 30,000 RSU awards to the then non-employee directors of the Company. These RSU awards provide for the issuance of shares of the Company’s common stock in accordance with a vesting schedule. These awards provide for vesting and that shares will be issued 25% on or about each of May 1 of 2021, 2022, 2023 and 2024, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a remaining period of approximately one year.

In addition, and also on May 15, 2020 and July 24, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 72,202 shares of restricted stock to non-employee directors of the Company, of which 56,805 were earned and vested, in lieu of their annual cash retainer for fiscal 2021. The amount of shares issued was the cash equivalent of the required retainers on the approval date.

Changes in the composition of the Board during fiscal year 2022, in connection with or occurring during the term of a consent solicitation initiated by certain of our stockholders during the year resulted in the accelerated vesting of 30,000 of the current and prior year RSUs discussed in the previous two paragraphs and the issuance of a corresponding number of shares of Common Stock to departing directors.

On April 29, 2021, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 12,000 RSU awards to the then current non-employee directors of the Company. These awards provide for the issuance of shares of the Company’s common stock in accordance with a vesting schedule. These awards will vest and shares will be issued 25% on or about each of April 29 of 2022, 2023, 2024 and 2025, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a remaining period of approximately three years.

Also on April 29, 2021, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 22,252 shares of restricted stock to non-employee directors of the Company in lieu of their annual cash retainer for fiscal 2022. The amount of shares issued was the cash equivalent of the required retainers on the approval date. These awards provide for the issuance of shares of the Company’s common stock subject to a risk of forfeiture that will lapse in whole or in part on July 1, 2022, generally depending on the length of continued service of the recipient on the Board for fiscal 2022. Dividends accruing in respect of the shares of restricted stock, if any, will accrue but will not be paid until July 1, 2022 and only in respect of those shares for which the risk of forfeiture has then lapsed. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a remaining period of approximately one year.

On May 25, 2021 and August 1, 2021, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 24,761 RSU awards to non-employee directors of the Company. These awards were

awarded in lieu of the directors’ receiving estimated cash payments that would otherwise be received for attendance at Board and Committee meetings during fiscal 2022 and provide for the vesting and issuance of shares of the Company’s common stock to the non-employee director on May 25, 2022, provided that the director remains associated with the Company (or meets service and other criteria as prescribed in the agreement) on that date.

As of March 27, 2022, the remaining unrecognized compensation cost, related to RSUs earned under all of the grants included above, was immaterial.

PSUs, RSUs and restricted stock awards are expensed based on the grant date fair value, calculated as the closing price of Tessco common stock as reported by Nasdaq on the date of grant minus, in the case of PSUs and RSUs, the present value of dividends expected to be paid on the common stock before the award vests, because dividends or dividend-equivalent amounts do not accrue and are not paid on unvested PSUs and RSUs.

The Company accounts for forfeitures as they occur rather than estimate expected forfeitures. To the extent that forfeitures occur, stock-based compensation related to the restricted awards may be different from the Company’s expectations.

Stock Options: The grant date value of the Company’s stock options has been determined using the Black-Scholes-Merton pricing model, based upon facts and assumptions existing at the date of grant. Expected stock price volatility is based on historical stock price changes over the expected term of the option. The expected term of the awards is based on the Company’s consideration of the contractual term of the stock option, as well as historical employment experience post-vesting. Stock options granted have exercise prices equal to the market price of the Company’s stock on the grant date. The stock options vest 25% after one year and then 1/36 per month for the following three years. During fiscal 2022, stock options for 183,500 shares were forfeited due to employee departures and option term expiration. The weighted-average remaining contractual term of options exercisable as of March 27, 2022, was 2.8 years.

The value of each option at the date of grant is amortized as compensation expense over the service period. This occurs without regard to subsequent changes in stock price, volatility or interest rates over time, provided the option remains outstanding. The following tables summarize the pertinent information for outstanding options.


	2022			2021
		Weighted			Weighted
		Average Fair			Average Fair
	Shares	Value at Grant		Shares	Value at Grant
Unvested options, beginning of period	383,670	$	1.47	465,374		2.38
Options Granted	194,500		3.62	240,000		2.05
Options Forfeited/Cancelled, net of vested options	(83,500)		5.64	(127,625)		3.13
Options Vested	(145,293)		2.20	(194,079)		3.28
Unvested options, end of period	349,377		2.83	383,670		1.47


				March 27, 2022
Grant Fiscal Year	Options Granted		Option Exercise Price	Options Outstanding	Options Exercisable
2022	194,500	$	7.22	174,500	-
2021	240,000	$	4.70	110,000	48,854
2020	405,000	$	13.54	307,000	194,018
2019	66,500	$	16.31	18,000	17,250
2018	230,000	$	15.12	60,000	60,000
2017	410,000	$	12.57	263,958	263,958
2016	100,000	$	22.42	-	-
Total				933,458	584,081


Grant Fiscal Year	Expected Stock Price Volatility		Risk-Free Interest Rate		Expected Dividend Yield		Average Expected Term	Resulting Black Scholes Value
2022	50.94	%	1.93	%	0.00	%	6.0	$	3.62
2021	46.82	%	1.17	%	0.00	%	4.0	$	2.05
2020	35.88	%	2.00	%	5.82	%	4.0	$	2.53

As of March 27, 2022, there was approximately $0.8 million of total unrecognized compensation costs related to these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately four years. 2,500 options were exercised during fiscal 2022 with a total value of $10,900 and the weighted average exercise price of these shares was $4.36. No options were exercised during fiscal 2021. The aggregate intrinsic value of stock options outstanding and stock options currently exercisable as of March 27, 2022, was $0.

Team Member Stock Purchase Plan: The Company has a Team Member Stock Purchase Plan that permits eligible employees to purchase up to an aggregate of 450,000 shares of the Company's common stock at 85% of the lower of the market price on the first day of a six-month period or the market price on the last day of that same six-month period. Expenses incurred for the Team Member Stock Purchase Plan during the fiscal years ended March 27, 2022, March 28, 2021, and March 29, 2020 were $54,400, $61,500, and $78,400, respectively. During the fiscal years ended March 27, 2022, March 28, 2021, and March 29, 2020, 30,169, 40,493, and 34,829 shares were sold to employees under this plan, having a weighted average market value of $5.21, $4.92 and $7.51, respectively.