18. Share-Based Compensation

The Compensation Committee of the Board has approved the grant of non-qualified stock options, restricted stock units (“RSUs”), and shares to certain employees, non-employees and members of the Board under the ARKO Corp. 2020 Incentive Compensation Plan (the “Plan”). The total number of shares of common stock authorized for issuance under the Plan is 12.4 million. As of December 31, 2023, 4.9 million shares of common stock were available for future grants. Stock options granted under the Plan expire no later than ten years from the date of grant and the exercise price may not be less than the fair market value of the shares on the date of grant. Vesting periods are assigned to stock options and restricted share units on a grant-by-grant basis at the discretion of the Board. The Company issues new shares of common stock upon exercise of stock options and vesting of RSUs.

Additionally, a non-employee director may receive RSUs in lieu of up to 100% of his or her cash fees, which are vested immediately and which RSUs will be settled in common stock upon the director’s departure from the Board or an earlier change in control of the Company.

Stock Options

The aggregate intrinsic value is the difference between the exercise price and the closing price of the Company’s common stock on December 31.

In the year ended December 31, 2023, 394 thousand stock options vested.

As of December 31, 2023, total unrecognized compensation cost related to unvested stock options was approximately $1.5 million, which is expected to be recognized over a weighted average period of approximately 1.8 years.

The fair value of each stock option award is estimated by management on the date of the grant using the Black-Scholes option pricing model. The following table summarizes the assumptions utilized in the valuation of the stock option awards granted for the periods noted.

The expected stock price volatility is based on the historical volatility of the Company’s stock price plus the Company’s peer group’s stock price for the period prior to the Company’s listing on Nasdaq. The volatilities are estimated for a period of time equal to the expected term of the related option. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is determined by considering the contractual terms, vesting schedule and expectations of future employee behavior.

Restricted Stock Units

In the years ended December 31, 2023 and 2022, 141,764 and 108,600 RSUs were issued to non-employee directors. These awards are included in the table above under restricted stock units as both granted and released units. There were 303,850 and 198,170 RSUs issued to non-employee directors outstanding as of December 31, 2023 and 2022, respectively.

The fair value of RSUs released during 2023 and 2022 was $5.5 million and $3.5 million, respectively.

In the years ended December 31, 2023, 2022 and 2021, the Company granted a target of 1,151,084, 1,120,354 and 644,867 performance-based RSUs (“PSUs”), respectively. The PSUs were awarded to certain members of senior management and cliff vest, generally at the end of a three-year period, subject to the achievement of specific performance criteria measured over such period. The number of PSUs which will ultimately vest is contingent upon the recipient continuing to be in the continuous service of the Company and related entities through the last day of the performance period and that the Compensation Committee of the Board determines the performance criteria has been met and certifies the extent to which they have been met. The Company assesses the probability of achieving the performance criteria on a quarterly basis. As of December 31, 2023, the number of PSUs was adjusted for the probability of achieving the performance criteria, resulting in a net reduction of share-based compensation cost of approximately $2.8 million being recorded in 2023. No adjustment was made in 2022. As of December 31, 2021, the number of PSUs was adjusted for the probability of achieving the performance criteria, resulting in additional expense of $1.0 million being recorded in 2021 based on the grant date fair value. For PSUs with market conditions, the Company recognizes the fair value expense ratably over the performance and vesting period.

As of December 31, 2023, total unrecognized compensation cost related to RSUs and PSUs was approximately $13.9 million, which is expected to be recognized over a weighted average period of approximately 1.7 years.

Stock Grants

In the year ended December 31, 2022, the Company granted 13,332 shares of immediately vested common stock to certain members of senior management, with a weighted average grant date fair value of $7.58 per share, or $0.1 million.

Share-Based Compensation Cost

Total share-based compensation cost recorded for employees, non-employees and members of the Board for the years ended December 31, 2023, 2022 and 2021 was $15.0 million, $12.2 million and $5.8 million, respectively, and included in general and administrative expenses on the consolidated statements of operations.