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Stock-based compensation plans

12 Months Ended

Dec. 31, 2019

20. STOCK-BASED COMPENSATION PLANS

The Company’s stock-based compensation plans were established to attract and retain key personnel by providing them the opportunity to acquire an equity interest in the Company or other incentive compensation measured by reference to the value of shares or other performance objectives and align the interests of key personnel with those of stockholders.

Long-Term Incentive Plans – The Company’s long-term incentive plans (“LTIP Plans”) include long-term incentive plans initiated before 2017 (“Pre-2017 Plans”) and the 2017 Long-Term Incentive Plan (“2017 Plan”) pursuant to which shares may be issued by the Company from treasury. Under the LTIP Plans, awards of stock appreciation rights (“SARs”) may be granted to employees of the Company and its subsidiaries; however, no LTIP award may be issued to any director of a subsidiary of the Company who is not an employee. An aggregate of 6,820,000 LTIP awards were authorized under the Pre-2017 Plans and an aggregate of 1,900,000 LTIP awards were authorized under the 2017 Plan. No further awards shall be granted under the LTIP Plans.

Omnibus Equity Incentive Plan – The Company adopted the Omnibus Equity Incentive Plan (“Omnibus Plan”) in February 2017 and the stockholders approved the Omnibus Plan in July 2017. The Omnibus Plan provides for grants to eligible employees, officers, consultants or advisors of the Company and its subsidiaries of stock options, long-term incentive units, restricted stock units (“RSUs”), SARs and performance stock units in order to provide a long-term incentive compensation to such persons. No awards will be made under the Omnibus Plan to non-employee directors. 1,100,000 shares were reserved for issuance under the Omnibus Plan. The Omnibus Plan has a term of ten years and shares may be issued by the Company from treasury. As of December 31, 2019, no further awards shall be granted under the Omnibus Plan.

2019 Incentive Award Plan – The Company adopted the 2019 Incentive Award Plan (“2019 Plan”) in March 2019 and the stockholders approved the 2019 Plan in May 2019. The 2019 Plan provides for grants to eligible employees, officers, consultants, directors or advisors of the Company and its subsidiaries of stock options, SARs, restricted stock award, RSUs, deferred stock award, and performance stock units in order to provide a long-term incentive compensation to such persons. 2,525,000 shares were reserved for issuance under the 2019 Plan. Any shares subject to a prior plan that are forfeited, cancelled, or expired shall be available for future grants under the 2019 Plan. Only awards settled in equity count against the share reserve.

Deferred Stock Unit Plan – The Company established a Deferred Share Unit (“DSU”) Plan (“DSU Plan”) whereby the Company’s independent directors receive some or all of their annual retainers in DSUs. DSUs are granted at a price equal to the closing price of the common shares on the day before the date of grant. The DSUs are settled in cash at retirement at the closing price of the common shares of the Company on the retirement date of the director. Under the DSU Plan, 100,000 DSUs were reserved for issuance.

Legacy Employee Stock Purchase Plan – On October 1, 2001, the Company implemented an employee stock purchase plan. Under this plan, the Company may issue 1,500,000 common shares to certain eligible employees. The maximum number of common shares that may be issued under the plan in any one year is 300,000. Under the terms of the plan, employees can purchase shares of the Company at 85% of the market value of the shares. Employees can allocate a maximum of 10% of their salary to the plan to a maximum of C$20,000 per annum. During the years ended December

31, 2019, 2018 and 2017, 22,541, 41,288 and 38,169, common shares were issued, respectively, at an average price of C$6.20, C$42.20, C$59.55 under the legacy employee stock purchase plan.

Maxar Technologies Inc. Employee Stock Purchase Plan – On March 27, 2019, the Company implemented an employee stock purchase plan. Under this plan, the Company may issue 5,000,000 common shares to certain eligible employees. Under the terms of the plan, employees can purchase shares of the Company at 85% of the market value of the shares on the lower closing price of either the first or last day of the purchase period. Employees can allocate a maximum of 10% of their salary to the plan to a maximum of $25,000 per annum. During the year ended December 31, 2019, 89,398 common shares were issued at an average price of $6.09 under the employee stock purchase plan.

DigitalGlobe Equity Plan – The Employee Stock Option Plan (“DigitalGlobe Equity Plan”) was assumed as a result of the DigitalGlobe Transaction, effective as of October 5, 2017. As of December 31, 2017, no further awards shall be granted under the DigitalGlobe Equity Plan.

Stock Appreciation Rights

The Company awards SARs to certain employees under its 2017 Plan and Omnibus Plan. Certain awards issued under the Pre-2017 Plans, the 2017 Plan and Omnibus Plan remain outstanding as of December 31, 2019. The SARs issued under the Pre-2017 Plans vest over a period of three years, in the amount of one-third each year, and expire five years from their grant date. The SARs issued under the 2017 Plan and Omnibus Plan vest over a period of four years, in the amount of one-quarter each year, and expire ten years from their grant date.

SARs Accounted for as Liability Classified Awards

A summary of the SARs accounted for as liability classified awards for the year ended December 31, 2019 is presented below:



	Number of Awards	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
SARs outstanding at December 31, 2018	774,430	$	63.86
Exercised	—		—
Cancelled or expired	(195,110)		63.30
SARs outstanding at December 31, 2019	579,320		63.12		1.56	$	—
SARs vested and expected to vest at December 31, 2019	579,320		63.12		1.56	$	—
SARs exercisable at December 31, 2019	566,340	$	63.46		1.43	$	—

The weighted average grant-date estimated fair value of SARs accounted for as liability classified awards granted during the year ended December 31, 2017 was C$68.84. No SARs accounted for as liability classified awards were granted during 2019 and 2018. The total intrinsic value of SARs exercised during the years ended December 31, 2018 and 2017 was $0 and $1 million, respectively. No SARs were exercised during the year ended December 31, 2019.

As of December 31, 2019, total unrecognized compensation expense related to nonvested SARs accounted for as liability classified awards was not significant.

SARs Accounted for as Equity Classified Awards

A summary of the SARs accounted for as equity classified awards for the year ended December 31, 2019 is presented below:


	Number of Awards	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
SARs outstanding at December 31, 2018	1,219,028	$	51.05
Granted	—		—
Exercised	—		—
Cancelled or expired	(293,437)		50.66
SARs outstanding at December 31, 2019	925,591		51.18		6.71	$	—
SARs vested and expected to vest at December 31, 2019	925,591		51.18		6.71	$	—
SARs exercisable at December 31, 2019	588,076	$	50.75		6.57	$	—

The weighted average grant-date estimated fair value of SARs accounted for as equity classified awards granted during the years ended December 31, 2018 and 2017 was C$10.37 and C$75.09, respectively. No SARs accounted for as equity classified awards were granted during 2019. The total intrinsic value of SARs exercised during the years ended December 31, 2018 and 2017 was $0 million, respectively. No SARs were exercised during the year ended December 31, 2019.

As of December 31, 2019, total unrecognized compensation expense related to nonvested SARs accounted for as equity classified awards was not significant.

Restricted Share Units

The Company issues RSUs to certain employees under the Omnibus Plan and 2019 Plan. The RSUs vest over a period of three years, in the amount of one-third each year, and are settled either in cash or equity-settled on the vesting date.

RSUs Accounted for as Liability Classified Awards

A summary of the RSUs accounted for as liability classified awards for the year ended December 31, 2019 is presented

below:




		Weighted Average
	Number of	Grant Date
	Awards ¹	Fair Value¹
Nonvested RSUs at December 31, 2018	-	$	-
Granted	1,054,658		6.93
Vested	—		-
Cancelled or expired	(108,377)		6.92
Nonvested RSUs at December 31, 2019	946,281	$	6.93

¹RSUs under the 2019 Plan

As of December 31, 2019, total unrecognized compensation expense related to nonvested RSUs was $8 million and is expected to be recognized over a weighted average remaining period of 1.4 years.

RSUs Accounted for as Equity Classified Awards

As part of the acquisition of DigitalGlobe, the Company provided replacement RSUs for a certain portion of the unvested RSU’s previously granted to DigitalGlobe employees. The replacement RSUs will continue to vest over the next three years, based on the terms of the original plan.

A summary of the status of the Company’s nonvested RSU awards under the 2019, Omnibus Plan and the DigitalGlobe Equity Plan as of December 31, 2019 and changes during the year then ended is presented below:


		Weighted Average				Weighted Average				Weighted Average
	Number of	Grant Date		Number of		Grant Date		Number of		Grant Date
	Awards ¹	Fair Value¹		Awards ²		Fair Value²		Awards³		Fair Value³
Nonvested RSUs at December 31, 2018	-	$	-		419,512	$	51.99		273,861	$	54.57
Granted	1,086,004		7.90		77,259		4.75		—		-
Vested	(16,934)		6.59		(150,337)		52.88		(117,346)		54.57
Cancelled or expired	(82,335)		8.03		(98,936)		52.74		(55,844)		54.57
Nonvested RSUs at December 31, 2019	986,735	$	7.91		247,498	$	36.42		100,671	$	54.57

¹RSUs under the 2019 Plan

²RSUs under the Omnibus Plan

³RSUs under the DigitalGlobe Equity Plan

During the years ended December 31, 2019, 2018, and 2017, the total fair value of RSUs that vested was $14 million, $19 million and $5 million, respectively.

As of December 31, 2019, total unrecognized compensation expense related to nonvested RSUs was $7 million and is expected to be recognized over a weighted average remaining period of 1.2 years.

Performance Share Units

The Company issues PSUs to certain employees under the Omnibus Plan and 2019 Plan. The PSUs vest over a period of three years from the beginning date of a pre-determined performance period to the extent the Company has met its adjusted cash leverage (ACL) performance criteria during the performance period. Each unit has the ability to earn up to two common shares and the total number of shares earned is based upon both the ACL and total shareholder return (TSR), which compares the Company's relative TSR performance against the total shareholder return of the Russel 2000 index over the term of the award. Performance related to both the ACL and TSR can be 0-200%. The total payout is the average of the ACL and TSR and the maximum payout percentage for all PSUs granted by the Company is 200%. The payout for performance up to 100% will be in equity and any performance greater than 100% will be paid out in cash.

A summary of the PSU awards for the year ended December 31, 2019 is presented below:




		Weighted Average
	Number of	Grant Date
	Awards	Fair Value
Nonvested PSUs at December 31, 2018	-	$	-
Granted	1,060,253		6.81
Vested	—		-
Cancelled or expired	(96,851)		6.62
Nonvested PSUs at December 31, 2019	963,402	$	6.83

As of December 31, 2019, total unrecognized compensation expense related to nonvested PSUs was $7 million and is expected to be recognized over a weighted average remaining period of 1.5 years.

Deferred Share Units

A summary of the DSU awards for the year ended December 31, 2019 is presented below:



	Number of Awards	Weighted Average Issuance Price
DSUs outstanding at December 31, 2018	107,603	C$	51.52
Issued	—		—
Redeemed	(41,993)		49.96
DSUs outstanding at December 31, 2019	65,610	C$	52.76

During the years ended December 31, 2019 and 2017, the total intrinsic value of redeemed DSUs was not material. No DSUs were redeemed during the year ended December 31, 2018.

Expense related to DSUs is recognized fully as stock-based compensation expense at the time they are issued.

Stock-Based Compensation Expense

The following table presents stock-based compensation expense (benefit) from continuing operations included in the Company’s Consolidated Statements of Operation:


			Year ended December 31,
	Classification		2019		2018		2017
Stock-based compensation expense		Selling, general, and administrative expense, Product costs, and Service costs	$	20	$	20	$	48

Valuation of Stock-Based Compensation Awards

Valuation of Liability Classified SARs

The fair value of the SARs were estimated at each reporting period using the Black-Scholes option pricing model with the following weighted average assumptions:


	Year Ended December 31,
	2019		2018		2017

Risk-free interest rate	1.7 - 1.9	%	1.7 - 1.9	%	1.7 - 1.9	%
Dividend yield	0.5	%	1.8	%	1.8	%
Expected lives (in years)	0.2 - 4.6		0.3 - 5.4		1.0 - 6.5
Volatility	57 - 130	%	14 - 23	%	14 - 25	%

Valuation of Equity Classified SARs and DSUs

The fair value of equity classified SARs and DSUs were estimated on the date of the grant or the date of accounting reclassification using the Black-Scholes option pricing model with the following weighted average assumptions:


	Year Ended December 31,
	2019 ¹	2018		2017
Risk-free interest rate		1.9 - 2.3	%	0.6 - 1.9	%
Dividend yield		2.2 - 9.1	%	1.5 - 2.2	%
Expected lives (in years)		3.0 - 7.0		0.4 - 7.0
Volatility		22 - 41	%	17 - 25	%

¹No equity classified SARs and DSUs were granted in 2019.

Valuation of PSUs and RSUs

The fair value of PSUs not subject to a market condition and equity classified RSUs is determined based on the closing price of the Company’s common stock on the grant date.

PSUs that are subject to the market condition are valued using a Monte Carlo simulation model, which requires certain assumptions, including the risk-free interest rate, expected volatility, and the expected term of the award. The risk-free interest rate used in the Monte Carlo simulation model is based on zero-coupon yields implied by U.S. Treasury issues with remaining terms similar to the performance period on the PSUs. The performance period of the PSUs represents the period of time between the PSU grant date and the end of the performance period. Expected volatility is based on historical data of the Company and peer companies over the most recent time period equal to the performance period.

For PSU grants during the years ended December 31, 2019 the assumptions used in the Monte Carlo simulation are as follows:



	Year Ended December 31,
	2019
Risk-free interest rate	2.2 - 2.3	%
Dividend yield	0.5 - 0.9	%
Expected lives (in years)	2.9 - 3.0
Volatility	63 - 67	%

The risk-free interest rate for 2019 is based on the U.S. Treasury yield with the remaining term equal to the expected life assumed at the date of the grant and the risk-free interest rate for 2018 and 2017 is based upon Canadian bond rates with the remaining term equal to the expected life assumed at the date of grant. The dividend yield is based on the expected annual dividend yield at date of grant. The expected lives are based on the Company’s actual historical exercise experience. Volatility is calculated using a rate based upon the historical volatility of the Company’s common stock.

Forfeitures are estimated at the time of grant based upon historical information. Forfeitures will be revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.