Share-Based Compensation Expense

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Share-Based Compensation Expense

Note 16. Share-Based Compensation Expense

Share-based compensation expense for stock options, restricted stock awards and restricted stock units for the years ended December 31, 2022 and 2021 was $10.0 million and $7.9 million, respectively. As of December 31, 2022, there was $7.0 million of unrecognized compensation cost related to stock options which is expected to be recognized over the remaining vesting periods, with a weighted-average period of 3.5 years.

Stock Options

The Company grants stock options to certain employees that will generally vest over a period of one to four years. A summary of stock option award activity for the years ended December 31 was as follows:

Options	Shares	Weighted  Average  Exercise  Price		Weighted  Average  Remaining  Contractual Term
Outstanding at December 31, 2020	10,975,224	$	0.57	7.6
Granted	1,232,844	6.89
Exercised	(1,032,819)	0.22
Cancelled or forfeited	(1,437,957)	0.66
Outstanding at December 31, 2021	9,737,292	1.40		7.2
Granted	43,482	1.95
Exercised	(2,664,814)	0.24
Cancelled or forfeited	(1,024,689)	4.42
Outstanding at December 31, 2022	6,091,271	$	1.39	2.7
Exercisable at December 31, 2022	5,530,330	$	1.05	2.2

The aggregate intrinsic value of stock options outstanding as of December 31, 2022 was $3.3 million. The aggregate intrinsic value of stock options exercisable as of December 31, 2022 was $3.3 million. Cash received from options exercised for the years ended December 31, 2022 and 2021 was approximately $630,000 and $230,000, respectively.

The fair value of stock options issued for the years ended December 31, 2022 and 2021 was measured with the following assumptions:

	2022		2021
Expected volatility	78.1 – 88.2%		78.1 – 88.2%
Expected term (in years)	6.25		6.25
Risk-free interest rate	0.1 – 1.3%		0.1 – 1.3%
Expected dividend yield	0.0	%	0.0	%

Restricted Stock Units

The Company grants restricted stock units to certain employees that will generally vest over a period of four years. The fair value of restricted stock unit awards is estimated by the fair value of the Company’s Common Stock at the date of grant. Restricted stock units activity during the years ended December 31 was as follows:

	Number of  Shares	Weighted  Average  Grant Date  Fair  Value Per  Share
Non-vested, at December 31, 2020	—	$	—
Granted	651,326	6.38
Vested	(13,524)	14.17
Cancelled or forfeited	(33,369)	8.92
Non-vested, at December 31, 2021	604,433	6.06
Granted	11,238,956	1.20
Vested	(1,062,339)	1.80
Cancelled or forfeited	(948,343)	2.70
Non-vested, at December 31, 2022	9,832,707	$	1.30

Restricted Stock Awards

The Company awarded two members of the Board of Directors each 223,166 shares of the Company’s Common Stock in June 2019. In September 2020, the award was amended such that the award would vest upon the expiration of the lock up period for XL Fleet employees established in connection with the Merger. This amendment did not impact the fair value of the award.

Modifications

In addition, in connection with the divestiture of the Company's Drivetrain business to Shyft, the Company modified certain stock awards to the employees of the Company's Drivetrain business who were terminating from the Company in December 2022 and commenced employment at Shyft. The modification consisted of the acceleration of the vesting of all awards including stock options and restricted stock units scheduled to vest in 2023 which would have otherwise been forfeited. The vesting date of these awards was accelerated to December 31, 2022. The acceleration of the vesting of these awards resulted in incremental expense of $0.3 million.

Christian Fong Ladder Restricted Stock Unit Award

On September 9, 2022, in connection with the acquisition of Legacy Spruce Power and his appointment as President of XL Fleet, the Company granted to Mr. Christian Fong a restricted stock unit award (the "Ladder RSUs") of 1,666,666 shares of common stock. The Ladder RSUs vest in 10% increments on the dates the Plan administrator certifies the applicable milestone stock prices have been achieved or exceeded, provided that Mr. Fong remains employed on the date of certification and such achievement occurs within ten years of the date of the grant.

The Company used a Monte Carlo simulation valuation model to determine the fair value of the award. The following inputs were used in the simulation: grant date stock price of $1.17, annual volatility of 85.0%, risk-free interest rate of 3.3% and dividend yield of 0.0%. For each tranche, a fair value was calculated as well as a derived service period which represents the median number of years it is expected to take for the Ladder RSUs to meet their corresponding milestone stock price excluding the simulation paths that result in the Ladder RSUs not vesting within the 10 year term of the agreement. Each tranche's fair value will be amortized ratably over the respective derived service period. The fair value and derived service period of each tranche was as follows:

Stock Price Tranche	Fair Value	Derived Service Period (in years)
$ 3.23	$ 1.11	1.72
5.37	1.06	2.71
7.50	1.03	3.30
9.64	0.99	3.70
11.77	0.97	4.11
13.91	0.94	4.42
16.04	0.91	4.64
18.18	0.89	4.78
20.31	0.87	5.00
22.45	0.85	5.10

The Company recognized approximately $144,000 of expense related to the Ladder RSUs for the year ended December 31, 2022.