Long-Term Incentive Plans

3 Months Ended

Mar. 31, 2023

Note 11. Long-Term Incentive Plans

In 2019, the Board approved the Midwest Holding Inc. (“MHI”) Long-Term Incentive Plan (the “2019 Plan”) that reserves up to 102,000 shares of MHI 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. In 2019, the shareholders of MHI approved the 2019 Plan. All awards are required to be established, approved, and/or granted by the Compensation Committee of the Board.

In 2020, the Board adopted a new equity incentive plan titled the 2020 Long-Term Incentive Plan (the “2020 Plan”) that reserves up to 350,000 shares of MHI voting common stock for award issuances. The terms of the 2020 Plan are essentially the same as the 2019 Plan. In 2021, the shareholders of MHI approved the 2020 Plan. During 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 the shareholders of MHI.

Stock Options

In accordance with the stockholder-approved equity incentive plans above, the Company grants stock options to employees and directors for the purchase of common stock at exercise prices established at the date of the grants. Fair value and compensation at

grant date are calculated using the Black Scholes Model. Compensation expense for option shares is expensed on a straight-line basis over the requisite service periods, accounting for forfeitures as they occur. Stock options become exercisable under various vesting schedules (typically two to four years) and generally expire in ten years after the date of grant. The exercise price of the option is equal to the average daily market price of MHI’s common stock on the date of grant resulting in a grant date intrinsic value of $0.00.

Changes in outstanding options were as follows:


		Weighted Average Exercise Price Per Share		Range of Option Exercise Prices per Share	Total Outstanding	Outstanding, Non-vested	Vested and Exercisable
December 31, 2022	$	32.21	$	11.20 - 55.02	319,121	271,517	47,604
Granted		17.12		17.12	5,000	5,000	-
Prior year adjustment		11.20		11.20	750	750	-
Vested		38.14		55.02	-	(4,550)	4,550
Exercised		-		-	-	-	-
Forfeited		37.51		25.00 - 55.02	(2,400)	(2,400)	-
Expired		-		-	-	-	-
March 31, 2023	$	31.93	$	11.20 - 55.02	322,471	270,317	52,154

Option information segregated by ranges of exercise prices were as follows:


	March 31, 2023
	Total Outstanding Options				Vested and Exercisable
Range of Option Exercise Prices per Share	Options		Weighted Average Exercise Price per Share	Weighted Average Remaining Term	Options		Weighted Average Exercise Price per Share	Weighted Average Remaining Term

> $50.00	46,803	$	60.37	7.80	4,550	$	55.02	7.84
$40.00 - $49.99	91,709		57.46	7.94	36,042		41.25	7.79
$30.00 - $39.99	-		-	-	-		-	-
$20.00 - $29.99	21,090		31.18	7.55	7,277		25.00	7.08
$10.00 - $19.99	110,715		13.75	9.25	4,285		16.37	8.73
< $10.00	-	$	-	-	-	$	-	-

The weighted average exercise prices of vested and exercisable options as of March 31, 2023, were $38.14.

As of March 31, 2023, based on a closing stock price of $15.80 per share, the aggregate intrinsic (in-the-money) values of vested options and all options outstanding were $0.0 million and $0.3 million, respectively.

Restricted Stock and Restricted Stock Units

In 2020, the Company awarded 18,597 shares of restricted stock, had a grant date fair value of $41.25 per share and were 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 restricted stock compensation expense is calculated using the stock prices at grant date and amortizing on a straight-line basis over the requisite service periods. 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.

5,089 restricted stock units (“RSUs”) were granted to our non-employee directors in June 2021 with 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 compensation expense relating to these awards was calculated using the grant date fair value and is amortizing on a straight-line basis over the requisite service periods.

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.


	Total Outstanding Units			Vested Units
	Units		Weighted Average Grand Date Fair Value	Units		Weighted Average Grant Date Fair Value

December 31, 2022	17,207	$	13.84	1,163	$	50.00
Granted	-		-	-		-
Vested	-		-	-		-
Forfeited	-		-	-		-
Released	-		-	-		-
March 31, 2023	17,207	$	13.84	1,163	$	50.00

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


	March 31,	December 31,
	2023	2022
Volatility	287.29%	4.16% - 4.26%
Weighted-average volatility	287.3%	3.7%
Expected term (in years)	6.54	2 - 7
Risk-free rate	3.57%	0.02% - 2.15%

For the three months ended March 31, 2023 and 2022, we amortized the compensation expense related to the 2019 and 2020 Plans, from the stock grants above, over vesting tranches which resulted in expense and an increase in additional paid in capital of $0.3 million and less than $0.1 million, respectively.

The tables below shows the remaining non-vested shares under the 2019 and 2020 Plans as of March 31, 2023 and December 31, 2022, respectively:


	March 31, 2023
	Awards Outstanding	Weighted Average Grant-Date Fair Value		Weighted Average Exercise Price
Nonvested stock options and restricted
Stock unit awards at December 31, 2022	287,561	$	16.96	$	32.29
Options granted	5,000		16.56		17.12
Adjustment for Prior Year Options	750		$16.56		$11.20
Restricted stock units granted	-		-		-
Vested	(4,550)		34.95		55.02
Forfeited or expired	(2,400)		23.02		37.51
Ending Balance at March 31, 2023	286,361	$	16.93	$	31.93


	December 31, 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	117,367		9.57		14.92
Restricted stock units granted	18,718		—		—
Vested	(56,678)		21.12		36.53
Forfeited	(109,063)		23.82		38.87
Ending Balance at December 31, 2022	287,561	$	16.96	$	32.29

MIDWEST HOLDING INC. 10-Q