|9 Months Ended|
Sep. 30, 2022
|Share-Based Payment Arrangement [Abstract]|
NOTE 16 – Share-Based Compensation
In connection with Business Combinations, the Company adopted the 2021 Omnibus Incentive Plan (the “Plan”). The Company may grant restricted stock, RSUs, incentive and non-qualified stock options, stock appreciation rights, performance awards, stock awards and other stock-based awards to officers, directors, employees and consultants under the terms of the Plan. There are 11.3 million shares authorized under the Plan and approximately 9.4 million shares remain available for future issuance as of September 30, 2022. The Company determines the grant-date fair value of its RSUs using the fair market value of its stock on the grant date, unless the awards are subject to market-based vesting conditions, in which case the Company utilizes a Monte Carlo simulation model to determine the grant-date fair value. The Company recognizes compensation expense equal to the grant-date fair value for all equity awards that are expected to vest. This expense is recognized as compensation expense on a straight-line basis over the requisite service period, which is the vesting period. The Company has elected to account for forfeitures of awards granted under the Plan as they occur in determining compensation expense.
In July 2022, certain executives and employees entered into the Company’s Executive Severance Plan. In the event of a qualifying termination or change of control termination, the Executive Severance Plan provides the eligible employees immediate vesting rights to all or a portion of their unvested share-based awards. This Executive Severance Plan modified the eligible employees’ unvested share-based awards, but there was no incremental cost related to this modification.
Restricted Stock Units
In January 2022, the Company granted a total of 41,028 RSUs to non-employee directors with a one-year vesting period. These RSUs will be subject to forfeiture restrictions and cannot be sold, transferred, or disposed of during the restriction period.
In February 2022, the Company modified and accelerated the vesting of 158,583 unvested RSUs for certain employees and recognized $2.9 million of incremental share-based compensation expense related to these modifications.
In August 2022, the Company issued a total of 172,295 RSUs vesting immediately, with a settlement date fair value of $2.9 million, to a consultant to settle the accrued liability related to costs to obtain customer contracts. See “Note 5 - Revenues” for discussion of accounting treatment.
During the nine months ended September 30, 2022, the Company granted a total of 713,533 RSUs to its executives and employees, and these RSUs generally vest over a three-year period. These RSUs will be subject to forfeiture restrictions and cannot be sold, transferred, or disposed of during the restriction period.
The table below summarizes RSU activity for the nine months ended September 30, 2022:
(1) Vested RSUs include 129,394 units that were not converted into Class A Common Stock due to net share settlements to cover employee withholding taxes.
For the three and nine months ended September 30, 2022, the Company recognized a total of $3.0 million and $11.1 million, respectively, of share-based compensation expense related to RSUs, including $2.9 million of incremental share-based compensation expense for the February 2022 modifications, and $0.5 million of share-based compensation
expense related to RSUs for both the three and nine months ended September 30, 2021. At September 30, 2022, there was $16.6 million of unrecognized share-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately 1.5 years.
Bonus RSUs Program
In September 2022, the compensation committee of the Company’s board of directors authorized an optional program that permits employees to elect to receive all or half of their earned 2022 annual bonuses, otherwise payable in cash, in the form of RSUs vesting immediately at the bonus payment date, with an additional 5% to 15% compared to the employee’s cash bonus amount. Obligations under this program are accounted for as liabilities, and all awards under the annual bonus RSUs program are expected to be settled during the three months ending March 31, 2023. The accrued liabilities for the RSU portion of the bonus program was $5.8 million as of September 30, 2022.
During the nine months ended September 30, 2022, the Company granted a total of 376,028 performance-based RSUs (“PSUs”) to its senior executives and certain other high-level employees. Each grant award reflects a target number of PSUs that may be issued to the award recipient. These PSUs vest on March 1, 2025 following the completion of a three-year performance period ending December 31, 2024. The performance criteria consist of the market-based Absolute Total Shareholders Return (“ATSR”) and the performance-based Average Cash Return on Investment (“ACRI”). Depending on the results achieved during the three-year performance period, the actual number of PSUs that an award recipient receives at the end of the vesting period may range from 0% to 200% of the target PSUs granted. For the Executive Severance Plan participants, all or a portion of the PSUs immediately vest upon qualifying termination or change of control termination.
Estimates of grant-date fair value of these PSUs may not accurately predict the value ultimately realized by the employees who received the awards, and the ultimate value may not be indicative of the reasonableness of the original estimates of fair value made by the Company.
The fair value of the ATSR market-based performance objective was determined using Monte Carlo simulations with the following weighted-average assumptions:
Separately, based on a subjective assessment of our future financial performance over the performance period, the Company determines quarterly the probable level of performance for the ACRI criteria. The Company starts recording compensation expense when the ACRI become probable of achievement and compensation expense is recorded based on the probable outcome of the ACRI performance conditions. Based on the Company’s subjective assessment as of September 30, 2022, the 100% payout rate of ACRI performance is probable of being achieved; accordingly, the Company recognized expense based on this target level.
The table below summarizes PSU activity for the nine months ended September 30, 2022:
For the three and nine months ended September 30, 2022, the Company recognized a total of $0.9 million and $1.7 million, respectively, of share-based compensation expense related to these PSUs. At September 30, 2022, there was $7.8 million of unrecognized compensation expense related to unvested PSUs, which is expected to be recognized over a weighted-average period of approximately 2.4 years.
Series A Incentive Plan
Legacy Archaea adopted a Series A Incentive Plan in 2018 to provide economic incentives to select employees and other service providers in order to align their interests with equity holders of Legacy Archaea. Under the original terms of the awards, all unvested Series A units outstanding were vested upon Closing of the Business Combinations.
For the three and nine months ended September 30, 2021, Legacy Archaea recognized compensation expense of $2.1 million and $2.3 million, respectively, related to Series A units awards. As a result of the Business Combinations, the Series A Incentive Plan is no longer applicable to the Company.
The entire disclosure for share-based payment arrangement.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef