Note on Historical SBC and Why It Was Overstated (1) • Until the spinoff transaction equity or equity-linked awards granted to CHUB’s employees were cash-settled as opposed to share-settled. • The difference is critical for all practical purposes. Let’s use an example. • In Year 1 a company grants RSUs to an employee that are worth $100. In Year 1 the company records $100 of SBC expense (we are assuming immediate vesting). • The Company does very well in Year 2: sales are growing, customer count is rising, etc. The company grants RSUs worth $100 to the same employee in Year 2. • However, the RSUs granted in Year 1 have increased in value due to the company’s strong performance (that would be calculated by internal finance department). Let’s say that they are now worth $140. • Since RSUs are cash-settled, the company will record $100 of SBC expense due to new RSUs and $40 of “incremental” expense due to Year 1 RSUs increase in value => $140 of SBC in total. Caro-Kann Capital LLC 78