NOTE 16 STOCK-BASED COMPENSATION

The Company recognizes stock-based compensation expense for all share-based awards made to employees, including restricted stock awards, restricted common unit awards and employee stock options, based on estimated fair values. Total stock-based compensation expense related to all of the Company's restricted stock awards, restricted common unit awards and employee, director and non-employee stock options was $1.3 million and $0.3 million for the three months ended June 30, 2026 and June 30, 2025, respectively ($1.6 million and $0.8 million for the six months ended June 30, 2026 and 2025, respectively).  Changes related to the Company’s share-based awards during the six months ended June 30, 2026 are further described below. 

(a)          Restricted Stock Awards of the Company:

During 2026, the Company granted 14,568 restricted stock awards to an officer of the Company. The restricted stock awards vest according to a graded vesting schedule and shall become fully vested subject to the officers' continued employment through the applicable vesting dates. The restricted stock awards are amortized on a straight-line basis over the requisite service periods. The grant-date fair values of the restricted stock awards are determined using the closing price of Kingsway common stock on the date of grant. 

The following table summarizes the activity related to unvested restricted stock awards during the six months ended June 30, 2026:

(b)          Restricted Common Units Awards of KPH:

In March of 2025, KPH, a subsidiary of the Company, granted 199,000 restricted Class B common unit awards to an officer of KPH (the "KPH RUA"). The KPH RUA vests based on service and the achievement of criteria based on the IRR of KPH.  On March 14, 2025, one half of the service condition for the KPH RUA, became fully vested. The remainder of the service condition was to vest according to a graded vesting schedule and would become fully vested subject to the officer's continued employment through the applicable vesting dates.  During the second quarter of 2026, the officer left the Company and the service condition for the KPH RUA was no longer met, resulting in 93,097 unvested unit awards being forfeited. The Company's accounting policy is to account for forfeitures in the period they occur.  As a result, during the second quarter of 2026, the Company reversed $0.1 million of compensation expense previously recognized from March 2025 through April 2026 related to the KPH RUA.

(c)          Stock Options:

Under the 2020 Equity Incentive Plan, as amended, the Company granted 600,000 stock option awards, including 400,000 stock option awards to Mr. Adam Patinkin, our Chairman, and 200,000 stock option awards to certain non-employee consultants of the Company during the second quarter of 2026 (the "2026 Stock Options"). The 2026 Stock Options granted to non-employee consultants were vested on the grant date and have an exercise price of $25 per share. The vesting schedule for the 400,000 stock option awards granted to our Chairman is as follows: 100,000 stock option awards were vested on the grant date with an exercise price of $20 per share, and the remaining stock option awards vest in three equal tranches over a three-year requisite service period with exercise prices ranging between $20 and $30 per share. The 2026 Stock Options expire ten years after the date of grant.  The 2026 Stock Options are amortized on a straight-line basis over the vesting period.  Stock-based compensation expense related to the 2026 Stock Options was $1.0 million for the three and six months ended June 30, 2026. Total unamortized compensation expense related to unvested 2026 Stock Options at June 30, 2026 was $0.9 million.

The following table summarizes all stock option activity during the six months ended  June 30, 2026:

The aggregate intrinsic value of stock options outstanding and exercisable is the difference between the June 30, 2026 market price for the Company's common shares and the exercise price of the options, multiplied by the number of options where the June 30, 2026 market price exceeds the exercise price.

The Company uses the Black-Scholes option pricing model to estimate the fair value of each option on the date of grant.  The fair value of grants and the related assumptions used in the Black-Scholes pricing model for options granted during the six months ended  June 30, 2026 were as follows:

The risk-free rate was determined based on U.S. treasury yields that most closely approximated the options' expected term. The dividend yield was determined based on the Company's dividend paying history. The expected volatility was calculated based on the weekly closing price of the Company's common stock over the expected life of the options. The expected term was determined by estimating a cost of equity for the Company to determine time to when the option would be at-the-money, and then adding that amount to the average time to vest.