|9 Months Ended|
Sep. 30, 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. As of September 30, 2023, 7,789,663 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. As of September 30, 2023, 3,084,601 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 originally issued under the 2015 Plan, totaled $131,098 and $406,679 for the three and nine months of 2023, respectively, and was recorded in general and administrative expense. Stock-based compensation expense, which relates to options originally issued under the 2015 Plan, totaled $235,593 and $624,407 for the three and nine months of 2022, respectively, and was recorded in general and administrative expense. As of September 30, 2023, $948,451 of total unrecognized compensation costs related to the options will be recognized as an expense over a remaining weighted average period of 1.91 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 as of September 30, 2023, was 5.71 years.
The total intrinsic value of all options exercised during the nine months ended September 30, 2023 and 2022, was $104,985 and $0, respectively. The intrinsic value of all options outstanding as of September 30, 2023 and 2022, was $525,465 and $6,901,057, respectively. The intrinsic value of all exercisable options as of September 30, 2023 and 2022, was $507,471 and $4,458,862, respectively.
Proceeds from exercises of options issued under the 2015 Plan for the nine months ended September 30, 2023 and 2022, were $421,175 and $0, respectively. The tax benefit realized from stock-based compensation was $196,711 and $0 for the nine months ended September 30, 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, an aggregate target grant of 1,214,580 performance-based restricted stock units (“PRSUs”) were made to members of the senior executive management team. Each PRSU is a notional amount that represents the right to receive one share of Common Stock if and when the applicable PRSU performance period is measured and the settled PRSU vests. PRSU participants may earn between 0% and 150% of the target PRSUs granted based on the attainment of performance conditions connected to the Company’s 2022 revenues. The PRSUs earned will vest 50% on December 31, 2023, and 50% on December 31, 2024.
In March 2023, the Company’s board of directors determined that 51% of the performance target was satisfied and an aggregate 619,438 PRSUs were settled to members of the senior executive management team and will vest in accordance with the terms of the applicable award agreements.
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 RSU and PRSU activity for the first nine months of 2023:
The remaining weighted average contractual life of RSUs granted as of September 30, 2023, was 1.37 years.
The RSUs and PSRUs granted in 2022 do not have voting rights or dividend rights unless the subject RSU or PRSU has vested and the share of common stock underlying it has been distributed to the participant.
Grants of RSUs are valued at their estimated fair values as of their respective grant dates. The RSU 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 attributable to PRSUs under the Omnibus Incentive Plan for the three and nine months ended of 2023 was $102,127 and $613,661, respectively and recorded in general and administrative expense. Stock-based compensation expense attributable to RSUs under the Omnibus Incentive Plan for the three and nine months ended of 2023, respectively, was $725,879 and $2,974,680 and recorded in general and administrative expense. As of September 30, 2023, we had $855,793 of future expense related to PRSUs to be recognized and $4,037,399 of future expense related to RSUs over a weighted average remaining life of 1.37 years. Total stock-based compensation expense for the three and nine months of 2023, including options, PRSUs, and RSUs, totaled $959,104 and $3,995,020, respectively. Total stock-based compensation expense for the three and nine months of 2022 for options totaled $235,593 and $624,407, respectively.
The entire disclosure for share-based payment arrangement.
Reference 1: http://www.xbrl.org/2003/role/exampleRef