Stock-Based Compensation

9 Months Ended

Sep. 30, 2022

Stock-Based Compensation

Stock-Based Compensation

10.   Stock-Based Compensation

Exela 2018 Stock Incentive Plan

On January 17, 2018, Exela’s 2018 Stock Incentive Plan (the “2018 Plan”) became effective. The 2018 Plan provides for the grant of incentive and nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, and other stock-based compensation to eligible participants. The Company was initially authorized to issue up to 138,729 shares of Common Stock under the 2018 Plan. On June 27, 2022, the shareholders of the Company approved our Amended and Restated 2018 Stock Incentive Plan increasing the number of shares of Common Stock reserved for issuance from an original 138,729 shares to 892,404.

Restricted Stock Unit

Restricted stock unit awards generally vest ratably over a one to two year period. Restricted stock units are subject to forfeiture if employment or service terminates prior to vesting and are expensed ratably over the vesting period.

A summary of restricted stock unit activities under the 2018 Plan for the nine months ended September 30, 2022 is summarized in the following table:

				Average
		Weighted		Remaining
	Number	Average Grant		Contractual Life	Aggregate
	of Units	Date Fair Value		(Years)	Intrinsic Value
Outstanding Balance as of December 31, 2021	68,450	$	34.95	0.11	$	2,393
Granted	—		—
Forfeited	—		—
Vested	(66,935)		35.00
Outstanding Balance as of September 30, 2022	1,515	$	33.00	0.67	$	50

Certain RSUs that vested during the nine months ended September 30, 2022 were net-share settled such that the Company withheld shares with value equivalent to the employee’s minimum statutory obligation for applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were 8,998 shares and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. Total payment for the employee’s tax obligations to taxing authorities were $0.1 million and is reflected as a financing activity within the Condensed Consolidated Statements of Cash Flows.

Options

Under the 2018 Plan, stock options are granted at a price per share not less than 100% of the fair market value per share of the underlying stock at the grant date. The vesting period for each option award is established on the grant date, and the options generally expire 10 years from the grant date. Options granted under the 2018 Plan generally require no less than a two or four year ratable vesting period. Stock option activity for the nine months ended September 30, 2022 is summarized in the following table:

						Average
		Weighted		Weighted		Remaining
		Average Grant		Average		Vesting Period	Aggregate
	Outstanding	Date Fair Value		Exercise Price		(Years)	Intrinsic Value (2)
Outstanding Balance as of December 31, 2021	72,265	$	112.60	$	235.69	0.69	$	—
Granted	—		—
Exercised	—		—
Forfeited	(1,497)		120.23
Expired	—		—
Outstanding Balance as of September 30, 2022 (1)	70,768	$	112.44	$	234.73	0.27	$	—

(1) 51,967 of the outstanding options are exercisable as of September 30, 2022.

(2) Exercise prices of all of the outstanding options as of September 30, 2022 were higher than the market price of the shares of the Company. Therefore, aggregate intrinsic value is zero.

As of September 30, 2022, there was approximately $0.3 million of total unrecognized compensation expense related to non-vested restricted stock unit awards and stock option awards under the 2018 Plan, which will be recognized over the respective service period. Stock-based compensation expense is recorded within Selling, general, and administrative expenses. The Company incurred total compensation expense of $0.2 million and $0.6 million related to restricted stock unit awards and stock option awards under the 2018 Plan for the three and nine months ended September 30, 2022, respectively, and $0.4 million and $1.3 million for the three and nine months ended September 30, 2021, respectively. The Company reversed compensation expense of $0.6 million on account of agreed cancellation of Common Stock issued for Director's vested restricted stock units during the three and nine months ended September 30, 2022.

Market Performance Units

On September 14, 2021, the Company granted its Executive Chairman performance units with a market performance condition, which are notional units representing the right to receive one share of Common Stock (or the cash value of one share of Common Stock). Until such time that the Company obtained the approval of the stockholders of the Company regarding an increase to the number of shares authorized for issuance under its 2018 Plan in accordance with Nasdaq Listing Rule 5635(a), these performance units would be settled in cash, and following such shareholder approval, at the election of the compensation committee of the Company, might be settled in cash or in shares of Common Stock. The performance units provide that until an increase to the share reserve is approved, such performance units are subject to the terms and conditions of the 2018 Plan as though granted thereunder, but not be considered an award that is outstanding under the plan, and following such time that the plan amendment is approved, constitute an award under the 2018 Plan.

Fifty percent of the performance units covered by the award will vest if, at any time during the period commencing September 14, 2021 and ending June 30, 2024, the volume weighted average of the reported closing price of the Company’s Common Stock is $200 per share or greater on (x) 60 consecutive trading days or (y) 90 non-consecutive trading days in any 180 day period (the “Tranche 1”). In addition, the remaining 50% of the performance

units will vest if, at any time during the period commencing September 14, 2021 and ending June 30, 2025, the volume weighted average of the reported closing prices of the Company’s Common Stock is $400 per share or greater on (x) 60 consecutive trading days or (y) 90 non-consecutive trading days in any 180 day period (the “Tranche 2”). Any Tranche 1 and Tranche 2 units that are not earned by June 30, 2024 and June 30, 2025, respectively, will be forfeited for no consideration and will no longer be eligible to vest. In addition, if a change in control occurs prior to the applicable expiration date, if the performance units are assumed by the acquirer, the units will remain outstanding and eligible to vest based solely on his continued service to the Company. If in connection with such change in control the performance units are not assumed by an acquirer, a number of performance units will vest based on the per share price paid in the transaction, with 0% vesting if the per share price is equal to or less than $40.00 per share, and 100% of the Tranche 1 vesting if the per share price is equal to or greater than $200 and 100% of the Tranche 2 vesting if the per share price is equal to or greater than $400, and a number of Tranche 1 and Tranche 2 vesting determined based on a straight line interpolation if the share price is between $40.00 and $200.00 or $400.00, respectively. In addition, if there is a change in control that is principally negotiated and approved by, and recommended to the Company’s shareholders by, a special committee of independent directors which committee does not include the Executive Chairman, and neither he nor any of his affiliates is directly or indirectly an equity holder of the acquiring Company, and the Tranche 1 are not assumed by an acquirer in connection with such transaction, all of his then unvested Tranche 1 will vest, and the Tranche 2 would be eligible for the pro rata vesting described above. The Executive Chairman will remain eligible to earn his performance units so long as he remains employed with the Company as Executive Chairman through December 31, 2023 and following such date he remains engaged with the Company in any capacity, including as a non-employee director.

On June 27, 2022, the Company obtained the approval of the stockholders of the Company for the 2018 Plan amendment regarding an increase to the number of shares authorized for issuance under its 2018 Plan. After approval of the amended and restated 2018 Plan, the performance units are an award that is outstanding under the amended and restated 2018 Plan. Therefore, the performance units may be settled in cash or in shares of Common Stock of the Company at the election of the compensation committee of the Company.

The fair value of per unit of the awards was determined to be $29.60 and $30.20 for Tranche 1 and Tranche 2, respectively, on the grant date by application of the Monte Carlo simulation model. Until December 31, 2021, the performance units were cash-settled awards and therefore accounted for as a liability classified award. On December 31, 2021, upon the approval of the amended and restated 2018 Plan, the performance units may be settled in cash or in shares of Common Stock of the Company at the election of the compensation committee of the Company, therefore the award was reclassified to equity. On December 31, 2021, the modification date fair value of per unit of the awards was determined to be $8.80 and $9.40 for Tranche 1 and Tranche 2, respectively, by application of the Monte Carlo simulation model.

The following table summarizes the activity for the market performance restricted stock units for the nine months ended September 30, 2022:

				Weighted Average
		Weighted		Period Over
	Number	Average		Which Expected
	of Units	Fair Value		to be Recognized
Outstanding Balance as of December 31, 2021	425,000	$	9.10	2.98
Granted	—		—
Forfeited	—		—
Vested	—		—
Outstanding Balance as of September 30, 2022	425,000	$	9.10	2.98

As of September 30, 2022, there was approximately $2.0 million of total unrecognized compensation expense related to non-vested performance unit awards, which will be recognized over the requisite service period. We recognized $0.2 million and $0.7 million compensation expense associated with the performance unit award for the three and nine months ended September 30, 2022, respectively. We recognized $0.2 million compensation expense associated with the performance unit award for the three and nine months ended September 30, 2021.