Stock-Based Compensation

6 Months Ended

Jun. 28, 2020

Share-based Payment Arrangement [Abstract]

2016 Participation Plan

On May 23, 2016, the Company adopted the Pacific Architects and Engineers Incorporated 2016 Participation Plan (the “2016 Participation Plan”). The purpose of the 2016 Participation Plan was to provide incentive compensation to key employees by granting performance units (“Units”). The Units were valued on the date of grant by the compensation committee of the pre-Business Combination company. Participants in the Plan were entitled to receive compensation for their Units in the event a qualifying event occurs. In connection with the Business Combination, which was a qualifying event, the 2016 Participation Plan was terminated effective immediately prior to the Closing Date and, in exchange for a release of claims relating to the plan, plan participants received payments totaling approximately $17.4 million. The $17.4 million was paid out during the three-month ended March 29, 2020, and was recorded as compensation expense.

2020 Incentive Plan

Prior to the closing of the Business Combination, the Gores III Board of Directors and stockholders approved the PAE Incorporated 2020 Equity Incentive Plan (the “2020 Incentive Plan”). The 2020 Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted units (RSUs) and other stock or cash-based awards.

Restricted Stock Units

During the three-month period ended June 28, 2020, the Company issued 2,141,273 RSUs to certain employees out of the shares approved for issuance under the 2020 Incentive Plan. In addition, the Company issued 35,875 RSUs to its three independent directors in connection with their annual compensation as directors. RSUs cliff vest in accordance with their respective service period or grade vest on an anniversary date, subject to the terms of the grant agreements and the 2020 Incentive Plan.

The Company recognized $3.5 million in share-based compensation costs related to RSUs during the three-month and six-month periods ended June 28, 2020. Forfeitures are recognized in compensation costs when those occur.

Activity related to RSUs during the six-months ended June 28, 2020 is as follows:


	As of June 28, 2020
		Weighted-Average
		Grant Date
Restricted Stock Unit	Shares	Fair Value
Balance at December 31, 2019	—	$	—
Granted	2,177,148	7.07
Vested	(26,116)	10.65
Forfeited	—	—
Balance at June 28, 2020	2,151,032	$	7.29

The Company issued 330,303 performance-based restricted stock units (“PSUs”) to certain employees out of the shares approved for issuance under the 2020 Incentive Plan. These PSUs earn out over a 3-year performance period, subject to the terms of the grant agreements and the 2020 Incentive Plan. The vesting of PSUs is contingent on the achievement of performance goals stated in the agreement, such as revenue growth, weighted at 50%, and EBITDA margin, weighted at 50%. Compensation costs are recognized when the performance conditions are satisfied or likely to be satisfied. The Company recognized $0.2 million in PSUs compensation costs during the three-month and six-month periods ended June 28, 2020. Forfeitures are recognized in compensation costs when those occur.

Activity related to PSUs during the six months ended June 28, 2020 is as follows:


	As of June 28, 2020
		Weighted-Average
		Grant Date
Performance-based Restricted Stock Unit	Shares	Fair Value
Balance at December 31, 2019	—	$	—
Granted	330,303	8.04
Vested	—	—
Forfeited	—	—
Balance at June 28, 2020	330,303	$	8.04