|3 Months Ended|
Mar. 31, 2023
|Stock-Based Compensation [Abstract]|
13. Stock-Based Compensation
On September 6, 2022, shareholders approved our 2022 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) and on September 9, 2022, our board of directors ratified the Omnibus Incentive Plan. The Omnibus Incentive Plan provides for the grant of options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock and other stock-based awards, any of which may be performance-based, and for incentive bonuses, which may be paid in cash, Common Stock or a combination thereof. At March 31, 2023, 7,950,951 equity units were available for future issuance under the Omnibus Incentive Plan.
At the Closing Date of the Business Combination, Nauticus Robotics Holdings, Inc. had 279,464 options outstanding for the purchase of its common stock. Such options were originally issued under the 2015 Equity Incentive Plan (the “2015 Plan”) historically maintained by Nauticus Robotics Holdings, Inc. The outstanding options were converted into 3,970,266 options to purchase shares of our Common Stock. Outstanding options vest assuming continuous service to the Company with 25% of the options vesting one year after grant and the balance vesting in a series of 36 successive equal monthly installments measured from the first anniversary of grant. During the vesting period, holders have no rights of a stockholder with respect to the shares of Common Stock subject to an option and the options may not be sold, assigned, transferred, pledged, or otherwise encumbered. Unvested options are forfeited upon termination of employment. At March 31, 2023, 3,472,129 options (originally issued under the 2015 Plan) remained available to purchase shares of our common stock.
Compensation expense for stock option grants is recognized based on the fair value at the date of grant using the Black-Scholes option pricing model.
Stock-based compensation expense, which relates to options granted under the Omnibus Incentive Plan, totaled $139,912 and $206,059 for the first three months of 2023 and 2022, respectively, and was recorded in general and administrative expense. As of March 31, 2023, there was $1,282,580 of total unrecognized compensation cost related to options to be recognized over a remaining weighted average period of 2.42 years.
The following table summarizes options outstanding, as well as activity for the periods presented (prior year amounts have been converted using the conversion ratio of 14.2069 applied in the Business Combination):
The remaining weighted average contractual life of exercisable options at March 31, 2023 was 5.86 years.
The total intrinsic value of all options exercised during the three months ended March 31, 2023 and 2022 was $54,687 and $0, respectively. The intrinsic value of all options outstanding at March 31, 2023 and 2022 was $3,837,080 and $2,607,385, respectively. The intrinsic value of all exercisable options at March 31, 2023 and 2022 was $2,778,152 and $1,735,720, respectively.
Proceeds from exercises of options issued under the 2015 Plan for the first three months ended March 31, 2023 and 2022 were $59,178 and $0, respectively. The tax benefit realized from stock-based compensation was $11,859 and $0 for the first three months ended March 31, 2023 and 2022, respectively. Realization of this amount is dependent on the generation of future taxable income.
Incentive Plans - During 2022, RSUs were granted to certain of our key executives, employees, and non-employee directors. Each RSU is a notional amount that represents the right to receive one share of Common Stock of the Company if and when the RSU vests. RSUs were issued to the following recipients and vest as follows:
Employee RSU grants are time-based and vest equally over a three-year period on December 31 of 2023, 2024, and 2025, conditional upon continued employment.
Non-employee director RSU grants are time-based and vest fully on the earlier of the one-year anniversary of the grant date or the next Annual Meeting of Stockholders of the Company if a grantee is not on the election ballot, conditional upon continued service as a director.
Executive RSU grants issued as executive sign-on bonuses are time-based and vest 50% on the one-year anniversary of the new hire date and 50% on the two-year anniversary of the new-hire date.
In addition, during 2022, performance-based restricted stock units (“PRSUs”) were granted to senior executives. Each PRSU is a notional amount that represents the right to receive one share of Common Stock if and when the PRSU vests. PRSU participants may earn between 0% and 150% of the PRSUs, subject to attainment of certain performance conditions which are based upon the Company’s 2022 revenues. Earned PRSUs will vest 50% on December 31, 2023 and 50% on December 31, 2024.
The senior executive management team met a performance condition, whereby they earned and received PRSUs that will vest at least 50% of the target achieved according to the award agreements. The number of the PRSUs granted was 1,214,580 with 51% vesting for a total amount of PRSUs awarded is 619,436.
The Compensation Committee has a policy that the Company will not provide U.S. federal income tax gross-up payments to any of its directors or executive officers in connection with future awards of restricted stock or stock units.
The following is a summary of our restricted and performance stock unit activity for the first three months of 2023:
The remaining weighted average contractual life of restricted stock granted at March 31, 2023 was 1.32 years.
The RSUs granted in 2022 do not have voting rights unless a RSU has vested and the share of common stock underlying it has been distributed to the participant. Each grantee of shares of restricted common stock is deemed to be the record owner of those shares during the restricted period, with the right to receive any dividends on those shares.
The PRSUs granted in 2022 carry no dividend rights but have voting rights upon the vesting of a PRSU and the share of common stock underlying it has been distributed to the PRSU participant.
Grants of restricted stock units are valued at their estimated fair values as of their respective grant dates. The grants in 2022 were subject only to vesting conditioned on continued employment or service as a nonemployee director; therefore, these grants were valued at the grant date fair market value using the closing price of our stock on the Nasdaq Stock Market.
Stock-based compensation expense under the restricted stock plans for the first three months of 2023 was $42,914 for PRSUs and $1,032,037 for RSUs and was recorded in general and administrative expense. As of March 31, 2023, we had $2,028,739 of future expense related to PRSUs to be recognized and $7,180,050 of future expense related to RSUs over a weighted average remaining life of 1.8 years. Total stock-based compensation expense for the first three months of 2023 including options, PRSUs, and RSUs totaled $1,214,863.
The entire disclosure for share-based payment arrangement.
Reference 1: http://www.xbrl.org/2003/role/exampleRef