Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v3.21.2
Stock-Based Compensation
9 Months Ended
Sep. 30, 2021
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation

Note 13. Stock-Based Compensation

In connection with the Business Combination, on December 29, 2020, our stockholders approved the 2020 Incentive Plan and the 2020 Employee Stock Purchase Plan. We also have outstanding employee and director stock options that had been issued prior to the Business Combination under legacy stock plans.

The 2020 Incentive Plan provides for the grant of stock options, stock appreciation rights, and full value awards. Full value awards include restricted stock, restricted stock units, deferred stock units, performance stock and performance stock units. On December 31, 2020 and September 30, 2021, 3,093,984 shares and 3,308 shares, respectively, of our common stock remained authorized for issuance with respect to awards under the 2020 Incentive Plan.

In connection with the acquisition of Novomer described in Note 2, we obtained additional authorized share pool of 289,951 shares, which can only be granted to former Novomer employees or employees hired after August 11, 2021, of which 9,055 shares remain at September 30, 2021.

The 2020 ESPP Plan provides for the sale of our common stock to our employees through payroll withholding at a discount of 15% from the lower of the closing price of our common stock on the first or last day of each biannual offering period. Up to 2,571,737 shares

of our common stock were authorized to be issued under this plan. The first offering period under this plan commenced on April 1, 2021 and we issued 5,013 shares effective July 1, 2021.

These share pool limits are subject to adjustment in the event of a stock split, stock dividend or other changes in our capitalization.

Restricted Shares

On March 10, 2021, we registered the shares under the 2020 Incentive Plan and the 2020 ESPP Plan. On this date, a grant of 3,035,676 shares of restricted stock was effective. The restrictions on half of these shares lapse ratably on the first, second, and third anniversaries of the grant date. The fair value of these shares on the date of grant was $37.09 and we are recognizing the compensation expense for these shares on a straight-line basis from the grant date through December 29, 2023. The restrictions on the other half of these shares lapse as follows:

1. On the first date the volume-weighted average price per share of our common stock equals or exceeds $24.20 for any 20 trading dates within a 30-day trading period beginning on December 29, 2021.

2. On the first date the volume-weighted average price per share of our common stock equals or exceeds $24.20 for any 20 trading dates within a 30-day trading period beginning on December 29, 2022.

3. On the first date the volume-weighted average price per share of our common stock equals or exceeds $24.20 for any 20 trading dates within a 30-day trading period beginning on December 29, 2023.

To reflect the effect of this market condition on the vesting of these restricted shares, we valued them using a Monte Carlo simulation, which takes into account a large number of potential stock price scenarios over time and incorporates varied assumptions about volatility and exercise behavior for those various scenarios. This valuation was Level 2 in the fair value hierarchy. A fair value is determined for each potential outcome. The grant date fair value of these restricted shares is the average of the fair values calculated for each potential outcome, or $36.57. We are recognizing the compensation expense for these shares on a straight-line basis from the grant date through January 2024.

Performance Shares

On July 23, 2021, we awarded 95,943 shares of restricted stock with performance conditions. These shares are unvested until attainment of performance targets defined in the grant agreement as follows:

30% of the shares are subject to a return on equity "ROE" metric based on 2023 financial results. 50% of these shares vest if ROE is 5%, 100% vest if ROE is 9% or higher, with prorated vesting between 5% and 9%.
30% of the shares are subject to an EBITDA Metric based on 2023 financial results. 50% of these shares vest if EBITDA is $45 million, 100% vest if ROE is $65 million or higher, with prorated vesting between $45 million and $65 million.
40% of the shares are subject to a Neat PHA production capacity metric based on a third party assessment at December 31, 2023, 50% of the shares vest if capacity is 75 million pounds, 100% vest if capacity is 90 million pounds or higher, with prorated vesting between 75 million pounds and 90 million pounds.

In addition to these performance conditions, vesting of the shares is also subject to a shareholder approval to sufficiently increase the size of the 2020 Incentive Plan, which currently does not have enough shares remaining to fulfill this award. In the event such an approval does not take place, the performance shares must be settled in cash as calculated using the price of our common stock on the vesting date. Due to this cash settlement feature, the performance shares are accounted for as a liability. During the quarter ended September 30, 2021, we recognized expense of $0.1 million, included in selling, general and administrative expenses, and recorded a long-term liability of $0.1 million. The performance shares are marked to market using the price of our common stock on each reporting date, or $16.24 on September 30, 2021, with a life-to-date adjustment. Other than this mark to market effect, expense is recognized on a straight-line basis between the date of grant and the vesting date, which we anticipate will be in February 2024.

Stock Options

A summary of stock option activity under our equity plans for the nine months ended September 30, 2021 follows:





Number of Shares

 



Weighted Average Exercise Price

 



Weighted Average Remaining Contractual Term (Years)

 



Aggregate Intrinsic Value

 

Balance, December 31, 2020



 

11,008,533

 



$

13.94

 



 

8.4

 



$

105,341,482

 

Granted



 

37,500

 

 

 

45.41

 



 

 



 

 

Exercised



 

(363,064

)

 

 

3.28

 



 

 



 

15,744,316

 

Balance, March 31, 2021



 

10,682,969

 



 

14.41

 



 

 



 

249,345,242

 

Granted



 

-

 



 

 



 

 



 

 

Exercised

 

 

(200,532

)

 

 

3.39

 

 

 

 

 

 

5,616,689

 

Balance, June 30, 2021



 

10,482,437

 



 

14.62

 



 

 



 

109,293,775

 

Granted

 

 

283,396

 

 

 

11.15

 

 

 

 

 

 

 

Exercised

 

 

(91,523

)

 

 

3.28

 

 

 

 

 

 

1,207,973

 

Forfeited

 

 

(32,050

)

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

 

10,642,260

 

 

 

14.67

 

 

 

 

 

 

60,733,771

 

Exercisable



 

4,511,251

 



 

4.79

 



 

5.47

 



 

52,112,514

 

Vested and expected to vest



 

10,642,260

 



$

14.67

 



 

8.12

 



$

60,733,771

 

 

The aggregate intrinsic values are calculated as the difference between the exercise price of the indicated stock options and the fair value of our common stock on the respective exercise dates or on September 30, 2021, as applicable.

In addition to the stock options granted under our equity plans, during the quarter ended December 31, 2020, we awarded 1,466,874 stock options that were contingent upon shareholder approval of an increase in the number of shares issuable under the 2020 Incentive Plan, which had not occurred. As a result, these awards were not reflected in our consolidated financial statements for the year ended December 31, 2020. During the quarter ended September 30, 2021, our board of directors modified these stock options to add a cash-settlement feature if shareholder approval is not obtained by the vesting date. These modifications established grant dates for accounting purposes. Also during the quarter ended September 30, 2021, we granted options that vest ratably on the three successive anniversaries of the grant date with the same cash-settlement feature. This cash settlement feature requires us to treat these stock options as liabilities. As a result, we re-calculate the fair value of the options at each reporting date and record a life-to-date adjustment to expense. This valuation process falls under Level 2 of the fair value hierarchy. Other than this mark to market factor, we recognize this expense in selling, general and administrative expenses on a straight-line basis over the respective vesting periods. During the quarter ended September 30, 2021, we recognized expense of $0.6 million, included in selling, general and administrative expenses, and recorded a long-term liability of $0.6 million.

The following table provides additional information regarding the cash-settleable stock options:

 

 

Accounting Grant Date

 

 

 

July 23, 2021

 

 

July 23, 2021

 

 

August 12,2021

 

Number of stock options

 

 

244,073

 

 

 

1,154,616

 

 

 

312,258

 

Exercise price

 

$

18.24

 

 

$

24.20

 

 

$

24.20

 

Vesting date(s)

 

July 23, 2022

 

 

February 1, 2024

 

 

February 1, 2024

 

 

 

 

 

 

July 23, 2023

 

 

 

 

 

 

July 23, 2024

 

 

 

 

 

 

 

September 30, 2021 fair value

 

$

6.68

 

 

$

5.25

 

 

$

5.27

 

The weighted average grant-date fair values of options granted during the quarter ended September 30, 2021 was $7.15 per option. We have estimated the fair values of our option awards on the date of grant using the Black-Scholes option pricing model with the following assumptions:





Three Months Ended September 30,

 

 

2021

Expected annual dividend yield (1)



0.00%

Expected volatility (2)



45.4%

Risk-free rate (3)



0.88% to 0.97%

Expected option term (years) (4)



6

 

 

(1) We have not paid and do no currently anticipate paying a cash dividend on our common stock.

(2) We estimated the expected volatility using the mean stock price for selected peer public companies over a historic timeframe similar to the expected return.

(3) We estimated the risk-free rate of return using the U.S. Treasury yield curve in effect as of the valuation date.

(4) We estimated the expected term using the "simplified" method described in SEC Staff Accounting Bulletin 14,

As of September 30, 2021, there was $133.5 million of unrecognized compensation cost related to nonvested stock options and restricted shares granted under the 2020 Incentive Plan. That cost is expected to be recognized over a weighted-average period of 2.5 years.