Stock-based Compensation |
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| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation | Stock-based Compensation 2018 Equity Plan
At our Business Combination on December 21, 2020, the Legacy Canoo 2018 Share Option and Grant Plan (the “2018 Equity Plan”) was converted to the Company’s 2018 Equity Plan with the Legacy Canoo ordinary shares authorized for issuance pursuant to previously issued awards converted at the Exchange Ratio of 1.239434862 to the Company’s Common Stock and the exercise price per share option and purchase price per restricted shares decreased proportionately by the same conversion ratio. See additional discussion on the retroactive application of recapitalization in Note 2 of the notes to the accompany financial statements.
In 2020, the 2018 Equity Plan was amended to increase the number of shares of the Company’s Common Stock reserved for issuance from 15,281,513 to 18,162,573 shares.
2020 Equity Plan
On December 21, 2020, the stockholders of the Company approved the 2020 Equity Incentive Plan (the "2020 Equity Plan”), authorizing 26,898,554 common shares to be reserved for issuance of stock options, restricted stock units awards ("RSU") and other stock awards. Under the 2020 Equity Plan, employees are compensated through various forms of equity, including RSUs. Each RSU represents a contingent right to receive one share of the Company’s common stock. Performance stock unit awards ("PSU") represent the right to receive a share of the Company’s common stock if service, performance, and market conditions, or a combination thereof, are satisfied over a defined period.
For the year ended December 31, 2020, no awards were granted under the 2020 Equity Plan. For the year ended December 31, 2021, 13,640,895 RSUs and 10,034,279 PSUs were granted under the 2020 Equity Plan.
Stock Options
All employees are eligible to be granted options to purchase shares of our Common Stock under the Company’s equity plans. All options granted will expire ten years from their date of issuance. Stock options granted generally vest 25% on the one-year anniversary of the date when vesting starts with the remaining balance vesting equally on a monthly basis over the subsequent 3 years. New shares are issued from authorized shares of Common Stock upon the exercise of stock options. There were no performance-based stock options granted during the years ended December 31, 2021 and 2020.
All stock options were issued under the Legacy Canoo 2018 Equity Plan. The fair values of stock options granted under the Legacy Canoo 2018 Equity Plan were estimated at the date of grant using the Black-Scholes option pricing model.
Under the Legacy Canoo 2018 Equity Plan, employees may exercise stock options prior to vesting. The Company has the right to repurchase any unvested (but issued) shares upon termination of service of an employee at the original exercise price. The consideration received for the early exercise of an option is considered to be a deposit and the related amount is recorded as a liability. The liability is reclassified into additional paid-in capital as the award vests. The shares issued upon early exercise of stock options are considered issued and outstanding shares of our Common Stock.
Of the 70,396 stock options exercised during the twelve months ended December 31, 2021, none of the shares were unvested. As of December 31, 2021, 2,500,099 shares issued upon early exercise of stock options were unvested.
As of December 31, 2021, of the total 264,757 stock options outstanding, 91,559 shares were unvested. The Company expects substantially all of these share options to vest over the subsequent 2 years. There were no stock options granted during the year ended December 31, 2021. The total grant date fair value of stock options granted during the year ended December 31, 2020 was approximately $0.1 million. The weighted average grant date fair value per share of stock options granted during the year ended December 31, 2020 was $0.44.
Stock-based compensation expense related to stock options was approximately $0.7 million and $0.9 million during the years ended December 31, 2021 and 2020, respectively.
Total unrecognized compensation cost related to unvested stock options at December 31, 2021 and 2020 is approximately $1.0 million and $2.0 million, respectively. As of December 31, 2021 and 2020, the weighted average
period over which the unrecognized compensation cost is expected to be recognized was approximately 0.9 and 1.7 years, respectively.
Restricted Stock Awards
Legacy Canoo sold restricted shares totaling 30,188,011 shares (as converted to Common Stock) to the founders, which include certain investors, for a converted purchase price of $0.008 per share (the “Founder Restricted Shares”), with the following vesting conditions: 12.5% vest when the Legacy Canoo achieves $100 million in cumulative funding from inception, which was met on December 18, 2018; 37.5% vest ratably over a period of thirty-six months from December 18, 2018; and 50% vest on the date the Company starts commercial production of its first vehicle (“SOP”), which the Company determined was not probable of being met as of December 31, 2020.
On December 18, 2020, Legacy Canoo approved an amendment to change the SOP vesting goal of all eligible Founder Restricted Shares held by internal executives to time-based vesting with a merger trigger, which was satisfied on December 21, 2020. The investor-held Founder Restricted Shares’ SOP vesting goal was not amended. The amended time-based vesting of the SOP portion has a cliff vesting of 25% on March 18, 2020 with the remaining shares vesting over 36 months thereafter. The amendment was accounted for as a grant modification with a new fair value estimated on the amendment date replacing the original grant date fair value, resulting in an incremental fair value of $105.3 million, $77.7 million of which was recognized in December of 2020 representing the recognition of a cumulative stock compensation expenses of such amended SOP shares from March 2020 through December 2020.
The Company has an irrevocable, exclusive option to repurchase all or any portion of the unvested Founder Restricted Shares at the converted original per share purchase price for the shares upon termination or the cessation of services provided by the stockholder.
RSUs
The fair value of RSUs granted prior to the Business Combination was based on the fair value of the Legacy Canoo’s ordinary shares on the date of grant. As there was no public market for the Legacy Canoo’s ordinary shares, the Legacy Canoo’s board of directors, with the assistance of a third-party valuation specialist, determined the fair value of the Legacy Canoo’s ordinary shares at the time of the grant of RSUs by considering information available at the time of grant. The valuations were consistent with the guidance and methods outlined in the AICPA Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
In August 2020, the Legacy Canoo approved 8,027,473 RSUs to certain employees and consultants of the Company, of which 4,285,026 RSUs were determined to have an established grant date in accordance with ASC 718, Stock Compensation. Each RSU represents a contingent right to receive one share of the Company’s Common Stock. None of the RSUs were eligible to vest before the successful consummation of the Business Combination. Accordingly, no stock compensation expense was recognized prior to the Business Combination on December 21, 2020.
On November 25, 2020, the Legacy Canoo withdrew authorization for an aggregate of 2,503,011 RSUs previously approved but not yet granted to certain employees of the Legacy Canoo. Out of the remaining 1,239,435 RSUs previously approved but not yet granted to a certain consultant, Legacy Canoo cancelled 240,441 RSUs and accelerated the vesting of 998,994 RSUs with a merger trigger and an employment condition. The fair value of the 998,994 RSUs was estimated at $18.0 million at the grant date of December 15, 2020. Stock compensation expense of $18.0 million was not recognized until January 2021 when the recipient became an employee of the Company.
On November 25, 2020, Legacy Canoo authorized for issuance 1,003,828 RSUs to the current Executive Chair and Chief Executive Officer in exchange for his advisory services rendered to the Company and in contemplation of his appointment to the role of Executive Chair of the Company. Each RSU represents a contingent right to receive one share of the Company’s Common Stock, and are subject to ongoing service-based vesting conditions over a three-year term. The fair value of the 1,003,828 RSUs was estimated at $19.4 million.
On May 14, 2021, the Company awarded 500,000 RSUs to the Executive Chair and Chief Executive Officer. The RSUs vest in one-third increments on the first, second, and third anniversaries of the vesting commencement date, December 21, 2020, subject to continuous service.
Additionally, the Company granted RSUs throughout 2021 to compensate existing employees and attract top talent. During the year ended December 31, 2021, 998,994 RSUs granted vested immediately and the remainder granted vest over the subsequent four years.
The total fair value of restricted stock units granted during the years ended December 31, 2021 and 2020, were $133.6 million and $36.7 million, respectively
PSUs
PSUs represent the right to receive a share of the Company’s common stock if service, performance, and market conditions, or a combination thereof, are met over a defined period PSUs that contain a market condition, such as stock price milestones, are subject to a Monte-Carlo simulation model to determine the grant date fair value by simulating a range of possible future stock prices for the Company over the performance period. The grant date fair value of the market condition PSUs is recognized as compensation expense over the greater of the Monte Carlo simulation model’s derived service period and the arrangement’s explicit service period, assuming both conditions must be met.
PSUs subject to performance conditions, such as operational milestones, are measured on the grant date, the total fair value of which is calculated as the product of the number of PSUs and the grant date stock price. Compensation expense for PSUs with a performance condition is recorded each period based upon a probability assessment of the expected outcome of the performance metric with a final adjustment upon measurement at the end of the performance period.
The following PSUs were granted to the CEO during the years ended December 31, 2021 and 2020:
•During November 2020, Legacy Canoo authorized for issuance 1,003,828 PSUs that would vest upon the achievement of certain stock price performance of the Company. In addition, the PSUs are subject to a service condition;
•During April 2021, in connection with the appointment of the CEO, the Company awarded 2,000,000 PSUs. The PSUs will vest in one-third increments based upon the achievement of certain stock price milestones during the performance period ending October 2025. In addition, the PSUs are subject to a service condition which requires continuous service through October 2023;
•During May 2021, the Company awarded 1,703,828 PSUs. The PSUs vest based on the Company's achievement of certain specified stock price milestones over a three-year performance period ending May 2024, subject to continued service with the Company through the applicable vesting dates;
•During May 2021, the Company awarded 300,000 PSUs whereby vesting depends upon the occurrence of certain operational milestone events by May 2024 that are deemed probable of achievement; and
•During November 2021, the Company awarded 6,000,000 PSUs. These PSUs vest in one-third increments through a five-year performance period beginning November 4, 2021 based upon the achievement of certain stock price milestones during the performance period ending in November 2026.
The grant date fair value of the PSUs awarded to the CEO was $40.3 million and $15.6 million for the years ended December 31, 2021 and 2020, respectively. The compensation expense recognized for the PSUs awarded to the CEO
during the year was $6.3 million for the year ended December 31, 2021, and was included in selling, general and administrative expenses in the consolidated statement of operations.
The activity for performance-based restricted stock units in the year ended December 31, 2021 was as follows (in thousands, except weighted-average grant-date fair value amounts):
The following table summarizes the Company’s total stock-based compensation expense by line item for the years ended presented in the consolidated statements of operations (in thousands):
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