Share-Based Compensation | Note 14. Stock-Based Compensation We grant various forms of stock-based compensation, including restricted stock units, stock options and performance-based restricted stock units under our Danimer Scientific, Inc. 2020 Long-Term Equity Incentive Plan (“2020 Incentive Plan”) and employee stock purchase plan instruments under our 2020 Employee Stock Purchase Plan (“2020 ESPP”). 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. In connection with the acquisition of Novomer, Inc. described in Note 2, we obtained additional authorized share pool of 289,951 shares, which could only be granted to former Novomer, Inc. employees or employees hired after August 11, 2021, of which no shares remain at June 30, 2022. On January 16, 2022, our Board approved the assumption of the remaining authorized but unissued 2,895,411 shares under the Legacy Danimer 2016 Executive Plan and 2016 Omnibus Plan into our 2020 Incentive Plan. On June 30, 2022 and December 31, 2021, 1,736,571 shares and 213,997 shares, respectively, of our common stock remained authorized for issuance with respect to awards under the 2020 Incentive Plan. 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. We have issued 83,180 shares as of June 30, 2022. These share pool limits are subject to adjustment in the event of a stock split, stock dividend or other changes in our capitalization. The following table sets forth the allocation of our stock-based compensation expense. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Cost of revenue $ 10 $ 28 $ 39 $ 53 Selling, general and administrative 12,707 12,245 24,572 18,026 Research and development 1,830 1,758 3,634 2,617 Total stock-based compensation $ 14,547 $ 14,031 $ 28,245 $ 20,696 Restricted Shares During the three months ended March 31, 2022, we granted 38,659 restricted shares that lapse on February 7, 2023 and 103,092 restricted shares that lapse on successive thirds of the award on February 7, 2023, 2024 and 2025, respectively. We recognize the compensation expense for these shares on a straight-line basis from the grant date through February 7, 2025. During the three months ended March 31, 2021, we granted 1,517,836 restricted shares. The restrictions on these shares lapse on successive thirds of the award on December 29, 2021, 2022 and 2023, respectively, and 505,944 of these shares vested during 2021. We recognize the compensation expense for these shares on a straight-line basis from the grant date through December 29, 2023. We recognized $ 4.8 million and $ 5.0 million of expense related to these awards during the three months ended June 30, 2022 and 2021, respectively, and $ 9.5 million and $ 6.2 million during the six months ended June 30, 2022 and 2021, respectively. We did no t issue any restricted shares for the three months ended June, 30, 2022 or June 30, 2021. At June 30, 2022, 1,153,642 shares remained outstanding. Also during the three months ended March 31, 2021, we granted 1,517,840 restricted shares for which the restrictions lapse on successive thirds of the award 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 30-day trading periods beginning on December 29, 2021, 2022, and 2023, respectively. We are recognizing the compensation expense for these shares on a straight-line basis from the grant date through January 2024. We recognized $ 4.6 million and $ 4.8 million of expense during the three months ended June 30, 2022 and 2021, respectively, and $ 9.2 million and $ 6.0 million during the six months ended June 30, 2022 and 2021, respectively. We did no t issue any restricted shares for the three months ended June, 30, 2022 or June 30, 2021.All of these shares remained outstanding at June 30, 2022. Performance Shares On March 31, 2022, we awarded 489,949 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 total PHA revenue metric based on 2024 financial results. 50% of these shares vest if total PHA revenue is $151 million, 100% vest if total PHA revenue is $189 million or higher, with prorated vesting between $ 151 million and $ 189 million. • 30% of the shares are subject to an Adjusted EBITDA metric based on 2024 financial results. 50% of these shares vest if Adjusted EBITDA is $9.2 million, 100% vest if Adjusted EBITDA is $13.8 million or higher, with prorated vesting between $ 9.2 million and $ 13.8 million. • 40% of the shares are subject to a Neat PHA production capacity metric based on a third party assessment at December 31, 2024, 50% of the shares vest if capacity is 68 million pounds, 100% vest if capacity is 81 million pounds or higher, with prorated vesting between 68 million pounds and 81 million pounds. 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 %. • 3 0% 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 EBITDA 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 certain of these shares is also subject to having sufficient capacity in the 2020 Incentive Plan, which may not have enough shares remaining to fulfill these awards. In the event registered shares are unavailable, 535,641 of the 585,892 outstanding 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, certain performance shares are accounted for as a liability that is marked to market using the price of our common stock at the end of each reporting period, with a life-to-date expense adjustment. At June 30, 2022, the long-term liability for these performance shares was $ 0.3 million. During the three and six months ended June 30, 2022, we recognized related expense of $ 0.2 million and $ 0.3 million, respectively, included in selling, general and administrative expenses. Other than this mark to market effect, expense is recognized on a straight-line basis between the dates of grant and the vesting dates, which we anticipate will be in February 2024 and March 2025, respectively. We did no t issue any performance shares for the three months ended June 30, 2022 or June 30, 2021. All of these performance shares remained outstanding at June 30, 2022. Stock Options A summary of share-settled stock option activity under our equity plans is as follows: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Balance, December 31, 2021 10,589,010 $ 14.85 7.39 $ 22,473,835 Granted 688,240 $ 3.96 Exercised ( 50,000 ) $ 3.28 $ 81,300 Balance, March 31, 2022 11,227,250 $ 14.24 7.32 $ 11,642,645 Granted 221,892 $ 4.07 Exercised ( 10,000 ) $ 3.28 $ 18,300 Balance, June 30, 2022 11,439,142 $ 14.05 7.13 $ 5,637,529 Exercisable 4,473,003 $ 4.84 4.77 $ 5,114,474 Vested and expected to vest 11,439,142 $ 14.05 7.13 $ 5,637,529 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 June 30, 2022, as applicable. During the quarter ended March 31, 2022, we also granted 972,222 stock options that contained a cash-settlement feature if adequate shares were not available to settle the award by the vesting dates. During 2021, we granted 1,710,947 options that vest ratably on the three successive anniversaries of the grant date with the same cash-settlement feature. For the three and six months ended June 30, 2022, we recognized expense of $ 0.2 million and $ 0.3 million, respectively, and recorded a long-term liability of $ 0.4 million at June 30, 2022 related to these stock options. There were no stock options issued with a cash settlement feature during the three months ended June 30, 2022. The weighted average grant-date fair values of options granted during the three month period ended June 30, 2022 was $ 1.84 . There were no options granted during the three month period ended June 30, 2021. During the three month period ended March 31, 2022 and March 31, 2021 the weighted average grant-date fair value of options granted were $ 1.77 and $ 18.52 , respectively. As of June 30, 2022, there was $ 90.6 million of unrecognized compensation cost related to unvested stock options and restricted shares granted under the 2020 Incentive Plan. That cost is expected to be recognized over a weighted-average period of 2.7 years. |