Salem Media Group, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock Incentive Plan

Stock Incentive Plan

12 Months Ended

Dec. 31, 2022

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Incentive Plan

NOTE 15. STOCK INCENTIVE PLAN

Our Amended and Restated 1999 Stock Incentive Plan (“Plan”) provides for grants of equity-based awards to employees,

non-employee

directors and officers, and advisors (“Eligible Persons”). A maximum of 8,000,000 shares are authorized under the Plan of which 2,540,311 were available for issuance at December 31, 2022. Insiders may participate in plans established pursuant to Rule

10b5-1

under the Exchange Act that allow them to exercise awards subject to

pre-established

criteria.

We recognize

non-cash

stock-based compensation expense based on the estimated fair value of awards in accordance with FASB ASC Topic 718

Compensation—Stock Compensation

. Stock-based compensation expense fluctuates over time as a result of the vesting periods for outstanding awards and the number of awards that actually vest.

The following table reflects the components of stock-based compensation expense recognized in the Consolidated Statements of Operations for the years ended December 31, 2022, and 2021:


	Year Ended December 31,
	2021			2022
	(Dollars in thousands)
Stock option compensation expense included in unallocated corporate expenses	$	99		$	83
Restricted stock shares compensation expense included in corporate expenses		—			54
Stock option compensation expense included in broadcast operating expenses		123			88
Stock option compensation expense included in digital media operating expenses		97			59

Total stock-based compensation expense, pre-tax	$	319		$	284
Tax expense from stock-based compensation expense		(83	)		(74	)

Total stock-based compensation expense, net of tax	$	236		$	210

Stock Option and Restricted Stock Grants

Eligible employees may receive stock option awards annually with the number of shares and type of instrument generally determined by the employee’s salary grade and performance level. Incentive and

non-qualified

stock option awards allow the recipient to purchase shares of our common stock at a set price, not to be less than the closing market price on the date of award, for no consideration payable by the recipient. The related number of shares underlying the stock option is fixed at the time of the grant. Options generally vest over a four-year period with a maximum term of five years from the vesting date. In addition, certain management and professional level employees may receive stock option awards upon the commencement of employment.

The Plan also allows for awards of restricted stock that contain transfer restrictions under which they cannot be sold, pledged, transferred, or assigned until the period specified in the award, generally from one to five years. Restricted stock awards are independent of option grants and are granted at no cost to the recipient other than applicable taxes owed by the recipient. The awards are considered issued and outstanding from the date of grant.

The fair value of each award is estimated as of the date of the grant using the Black-Scholes valuation model. The expected volatility reflects the consideration of the historical volatility of our common stock as determined by the closing price over a six to

ten-year

term commensurate with the expected term of the award. Expected dividends reflect the amount of quarterly distributions authorized and declared on our Class A and Class B common stock as of the grant date. The expected term of the awards is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rates for periods within the expected term of the award are based on the U.S. Treasury yield curve in effect during the period the options were granted. We have used historical data to estimate future forfeiture rates to apply against the gross amount of compensation expense determined using the valuation model. These estimates have approximated our actual forfeiture rates.

The weighted-average assumptions used to estimate the fair value of the stock options using the Black-Scholes valuation model were as follows for the years ended December 31, 2022, and 2021:


	Year Ended December 31, 2021			Year Ended December 31, 2022
Expected volatility		75.98	%		85.06	%
Expected dividends		—	%		—	%
Expected term (in years)		7.8			9.0
Risk-free interest rate		1.03	%		1.97	%

Activity with respect to the company’s option awards during the two years ended December 31, 2022, is as follows (Dollars in thousands, except weighted average exercise price and weighted average grant date fair value):


Options	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2021		2,291,020		$	3.23	$	1.52		4.3 years	$	—
Granted		270,000			2.14		1.55				—
Exercised		(475,657	)		2.31		1.08				728
Forfeited or expired		(159,946	)		6.71		4.70				—

Outstanding at December 31, 2021		1,925,417			3.01		1.37		4.4 years	$	1,310

Exercisable at December 31, 2021		924,292			4.25		1.93		2.4 years		83

Expected to Vest		950,568			3.05		1.38		4.4 years	$	1,248


Outstanding at January 1, 2022		1,925,417		$	3.01	$	1.37		4.4 years	$	1,310
Granted		127,500			3.01		2.44				—
Exercised		(42,913	)		2.27		1.12				52
Forfeited or expired		(303,664	)		5.16		2.75				3

Outstanding at December 31, 2022		1,706,340			2.68		1.23		4.2 years	$	—

Exercisable at December 31, 2022		968,590			3.30		1.37		2.6 years		—

Expected to Vest		700,494			2.70		1.24		4.2 years	$	—

Activity with respect to the company’s restricted stock awards during the year ended December 31, 2022, is as follows:


Restricted Stock Awards	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Non-Vested at January 1, 2021		107,990		$	1.85		1.67 years	$	156
Granted		—			—		—		—
Lapse of restrictions		(107,990	)		1.85		—		200
Forfeited or expired		—			—		—		—

Outstanding at December 31, 2021		—		$	—		—	$	—

Non-Vested at January 1, 2022		—		$	—		—	$	—
Granted		14,854			3.66		—		54
Lapse of restrictions		—			—		—		—
Forfeited or expired		—			—		—		—

Outstanding at December 31, 2022		14,854		$	3.66		1.20 years	$	16

Additional information regarding options outstanding as of December 31, 2022, is as follows:


Range of Exercise Prices		Options		Weighted Average Contractual Life Remaining (Years)		Weighted Average Exercise Price		Exercisable Options		Weighted Average Exercise Price
$	1.00 - $3.00		904,000		5.4	$	1.63		266,250	$	1.54
$	3.01 - $3.28		455,587		3.9		3.25		355,587		3.25
$	3.29 - $4.63		63,500		2.7		3.77		63,500		3.77
$	4.64 - $6.65		278,753		1.1		4.85		278,753		4.85
$	6.66 - $8.76		4,500		0.4		8.49		4,500		8.49

			1,706,340		4.2	$	2.68		968,590	$	3.30

The aggregate intrinsic value represents the difference between the company’s closing stock price on December 31, 2022 of $1.05 and the option exercise price of the shares for stock options that were in the money, multiplied by the number of shares underlying such options. The total fair value of options vested during the years ended December 31, 2022, and 2021 was $0.3 million.

As of December 31, 2022, there was $0.4 million of total unrecognized compensation cost related to

non-vested

stock option awards. This cost is expected to be recognized over a weighted-average period of 2.8 years.