In connection with the Business Combination, on September 29, 2020, the Company's stockholders approved the 2020 Equity Plan. The 2020 Equity Plan provides for the grant of stock options, stock appreciation rights, restricted stock units (RSUs) and other stock or cash-based awards. The Company initially reserved 27,733,888, approximately 16% of the number of shares of its common stock outstanding upon the Closing, as the “Initial Limit” for the issuance of awards under the 2020 Equity Plan. The number of shares reserved and available for issuance under the plan will automatically increase each

January 1, beginning on January 1, 2021 and ending on (and including) January 1, 2030, by a number equal to the least of (a) 5% of the total number of Common Shares actually issued and outstanding on the last day of the preceding fiscal year, (b) 10,000,000 Common Shares, or (c) a number of Common Shares determined by the Board. This limit is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The number of shares reserved was 36,738,678 and the remaining shares available for issuance under the 2020 Equity Plan was 17,878,536 as of September 30, 2021.

In January 2021, the Company adopted the sell-to-cover method as the tax withholding method for stock awards upon settlement, pursuant to which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the awards to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities.

In connection with the Business Combination, on September 29, 2020, the Company's stockholders approved the 2020 Employee Stock Purchase Plan (the 2020 ESPP). Under the 2020 ESPP, 3,492,097 authorized but unissued or reacquired shares of common stock were initially reserved for issuance. Beginning on January 1, 2021, an additional number of shares will be reserved annually on the first day of each fiscal year for a period of not more than 20 years in an amount equal to the least of (i) 1% of the outstanding shares of our common stock on such date, (ii) 2,500,000 shares of our common stock or (iii) a lesser amount determined by the Compensation Committee or the Board.

The ESPP is implemented by overlapping, twelve-month offering periods and each offering period may contain up to two purchase periods of six months each. At any one time, there may be up to two offering periods under the ESPP. In general, a new twelve-month offering period commences on each June 1st and December 1st of a calendar year.

Common stock may be purchased under the ESPP at a price equal to 85% of the fair market value of the Company’s common stock on either the date of purchase or the first day of an offering period, whichever is lower. Eligible employees may elect to withhold up to 15% of their compensation through payroll deductions during an offering period for the purchase of stock. The ESPP contains a reset provision whereby if the price of the Company’s common stock on the first day of a new offering period is less than the price on the first day of any preceding offering period, all participants in a preceding offering period with a higher first day price will be automatically withdrawn from such offering periods and re-enrolled in the new offering period. The reset feature, when triggered, will be accounted for as a modification to the original offering period, resulting in incremental expense to be recognized over the twelve-month period of the new offering.

The ESPP limits the maximum number of shares that may be purchased by any one participant in an offering period to 3,000 shares. In addition, the Internal Revenue Code limits purchases under an ESPP to $25,000 worth of stock in any one calendar year, valued as of the first day of an offering period. As of September 30, 2021, 5,293,055 shares of common stock were reserved and available for future purchase.

In March 2021, the Board adopted the 2020 Phantom Stock Incentive Plan, which provides for the granting of up to 7,635,000 phantom stock units to certain employees that settle, or are expected to settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are awarded with vesting conditions and are subject to certain forfeiture provisions prior to vesting. Phantom stock unit activity for the nine months ended September 30, 2021 was not significant.

As of September 30, 2021, the Company has certain equity incentive awards outstanding, which include stock options, RSAs, RSUs and phantom stock units under its stock incentive plans. In the nine months ended September 30, 2021, the Company granted RSUs to certain employees and directors pursuant to its 2020 Stock Plan. The RSUs are subject to time-based vesting criteria and vest on a quarterly basis over a four-year period, or 25% upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years.


	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
			(Years)	(In thousands)
Option:








Options outstanding as of December 31, 2020	597,354	$5.86
Granted	—
Options outstanding as of September 30, 2021	597,354	$5.86	6.55	$	83
Options exercisable as of September 30, 2021	597,354	$5.86	6.55	$	83
Options vested and expected to vest as of September 30, 2021	597,354	$5.86	6.55	$	83


	Shares	Weighted Average Grant Date Fair Value per Share
RSA:






RSAs outstanding as of December 31, 2020	4,183,624	$1.37
Released	(4,183,624)
RSAs outstanding as of September 30, 2021	—

RSU:












RSUs outstanding as of December 31, 2020	11,983,636	$12.43
Granted	3,287,904	$11.00
Released	(8,851,891)	$12.46
Forfeited	(1,519,749)	$11.68
RSUs outstanding as of September 30, 2021	4,899,900	$11.64

PRSU:
PRSUs outstanding as of December 31, 2020	1,101,683	$6.72
Granted	9,141	$1.97
Forfeited	(780,320)	$6.66
PRSUs outstanding as of September 30, 2021	330,504	$6.72

The Company uses primarily the sell-to-cover method as the tax withholding method for stock awards upon settlement, pursuant to which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the awards to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities.

Prior to the business combination, no compensation expense had been recognized for the RSAs granted under the pre-combination Velodyne's stock incentive plans because the liquidity event vesting condition was not probable of being met. As a result of the Business Combination, on May 18, 2021, the Board waived the liquidity event vesting condition applicable to the pre-combination Velodyne's RSAs. Therefore, the Company's outstanding RSAs vested to the extent the applicable service condition was satisfied as of such date. The vesting of the RSAs resulted in approximately $45.1 million of incremental stock-based compensation expense in the second quarter of 2021.

The Company uses the Black-Scholes option pricing model to determine the fair value of purchase rights issued under the ESPP. The computation of the expected volatility assumption is based on a weighting of historical and implied volatilities. The risk-free interest rate for the period within the expected term is based on the U.S. Treasury yield curve for the comparable term in effect at the time of grant. The expected dividend yield used in the calculation is zero because the Company has not historically paid and currently does not expect to pay dividends in the foreseeable future. The weighted-average grant date fair value of purchase rights granted under the ESPP and the weighted-average assumptions used in the model were as follows:


						Nine Months Ended September 30, 2021
Weighted average grant date fair value of purchase rights issued under ESPP						$4.59
Expected term, in years						0.75
Expected volatility						97.90%
Risk-free interest rate						4%
Expected dividend yield						0.00%


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenue	$	541	$	2	$	1,508	$	2
Research and development	2,794		11		10,458		32
Sales and marketing	1,177		3		44,779		3
General and administrative	12,135		69		24,637		204
Total stock-based compensation expense	$	16,647	$	85	$	81,382	$	241

The Company recognizes forfeitures as they occur. During the three months ended September 30, 2021, the Company accelerated the vesting of 275,419 options, 442,209 RSUs and 330,504 PRSUs to fully vested. As of September 30, 2021, unrecognized compensation cost related to RSUs and ESPP was $48.3 million and $1.0 million, respectively, which was expected to be recognized over a weighted average period of 2.74 years and 0.42 years, respectively.

Phantom stock units are recorded as a liability at their current market value and are included in other current liabilities. These grants remain subject to vesting 25% upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years. Based on the trading price of the Company's common stock, the amount of liability recorded related to phantom stock units was not significant at September 30, 2021.