NOTE 2 – STOCK BASED COMPENSATION

Stock-Based Compensation: The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award.

The Company currently has one equity compensation plan, the 2007 Stock Compensation Plan, from which it grants equity awards that are used as an incentive for directors, officers, and other employees.  The 2007 Stock Compensation Plan has 580,000 shares available for issue as of September 30, 2022.  As of September 30, 2022, $3,664,000 of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a period of approximately 2.1 years. The Company recorded related compensation expense for the years ended September 30, 2022, 2021 and 2020 of $2,339,000, $1,280,000 and $774,000, respectively.  For the year ended September 30, 2022, $2,213,000 of this expense was included in selling, general and administrative expense and $126,000 was included in cost of sales. For the year ended September 30, 2021, $1,223,000 of this expense was included in selling, general and administrative expense and $57,000 was included in cost of sales. For the year ended September 30, 2020, $752,000 of this expense was included in selling, general and administrative expense and $22,000 was included in cost of sales.

Stock Options: The Company uses the Black-Scholes option pricing model to determine the fair value of options granted.  During the fiscal year ended September 30, 2022, the Company granted employees non-qualified stock options to purchase an aggregate of 62,730 shares of common stock with a weighted average contractual term of five years, a weighted average three-year vesting term, and a weighted average exercise price of $66.48. During the fiscal year ended September 30, 2021, the Company granted employees non-qualified stock options to purchase an aggregate of 105,089 shares of common stock with a weighted average contractual term of 5 years, a 3-year weighted average vesting term, and an exercise price of $23.74. During the fiscal year ended September 30, 2020, the Company granted employees non-qualified stock options to purchase an aggregate of 121,350 shares of common stock with a weighted average contractual term of 5.71 years, a 4.71 year weighted average vesting term, and an exercise price of $12.43.   

The expected stock price volatility is based on the historical volatility of the Company’s stock for a period approximating the expected life.  The expected life represents the period of time that options are expected to be outstanding after their grant date.  The risk-free interest rate reflects the interest rate at grant date on zero-coupon U.S. governmental bonds having a remaining life similar to the expected option term.

Options are generally granted at fair market values determined on the date of grant and vesting normally occurs over a three to five-year period.  The maximum contractual term is normally six years.  Shares issued upon exercise of a stock option are issued from the Company’s authorized but unissued shares.  There were 113,727 options vested during the year ended September 30, 2022, 79,833 options vested during the year ended September 30, 2021 and 44,000 options vested during the year ended September 30, 2020. For the year ended September 30, 2022, there were 125,651 stock options that were exercised using a cashless method of exercise. For the year ended September 30, 2021, there were 101,966 stock options that were exercised using a cashless method of exercise. For the year ended September 30, 2020, there were 14,688 stock options that were exercised using a cashless method of exercise. The intrinsic value of options exercised during the years ended September 30, 2022, 2021 and 2020 was $11,279,000, $1,315,000, and $332,000 respectively.

Option transactions under the 2007 Stock Compensation Plan during the years ended September 30, 2022, 2021 and 2020 are summarized as follows:

The following table summarizes information concerning options exercisable under the 2007 Stock Compensation Plan:

The following table summarizes information concerning options currently outstanding at:

Restricted Stock: The Company’s 2007 Stock Compensation Plan permits our Compensation Committee to grant other stock-based awards.  The Company has awarded restricted stock grants to employees that vest over one to ten years.

Restricted stock transactions during the years ended September 30, 2022, 2021 and 2020 are summarized as follows:

The fair value of restricted shares vested during the year end September 30, 2022, 2021 and 2020 was $3,744,000, $1,364,000 and $497,000, respectively. The Company repurchased a total of 13,292 shares of our common stock at an average price of $105.78 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees for the year ended September 30, 2022. The Company repurchased a total of 11,754 shares of our common stock at an average price of $39.32 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees for the year ended September 30, 2021. The Company repurchased a total of 10,038 shares of our common stock at an average price of $17.57 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees for the year ended September 30, 2020.

Employee Stock Purchase Plan: The Clearfield, Inc. 2010 Employee Stock Purchase Plan (“ESPP”) allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions.  The ESPP is available to all employees subject to certain eligibility requirements.  Terms of the ESPP provide that participating employees may purchase the Company’s common stock on a voluntary after-tax basis.  Employees may purchase the Company’s common stock at a price that is no less than the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period or phase.  The ESPP is carried out in six-month phases, with phases beginning on July 1 and January 1 of each calendar year.  For the phases that ended on December 31, 2021 and June 30, 2022, employees purchased 7,678 and 5,605 shares at a price of $32.43 and $52.66 per share, respectively. For the phases that ended on December 31, 2020 and June 30, 2021, employees purchased 15,011 and 9,739 shares, respectively, at a price of $11.93 and $21.01, respectively.  As of September 30, 2021, the Company has withheld approximately $191,352 from employees participating in the phase that began on July 1, 2022.  In February 2020, the shareholders of Clearfield, Inc. approved an increase of 200,000 in the shares authorized for issuance under the ESPP. After the employee purchase on June 30, 2022, 181,590 shares of common stock were available for future purchase under the ESPP.