Equity Incentive Plans & Stock-Based Compensation |
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| Equity Incentive Plans & Stock-Based Compensation | Plans & Stock-Based Compensation
In 2014, the Company adopted its 2014 equity incentive plan (the “2014 Plan”) which provides for the granting of stock options, restricted stock awards and stock appreciation rights to employees, directors, and consultants of the Company.
Awards granted under the 2014 Plan generally expire 10 years from the date of grant, or earlier if services are terminated. The exercise price of stock options grants shall not be less than 110% of the estimated fair value of the shares on the date of grant, respectively, as determined by the Company’s Board of Directors. Awards generally vest based on continuous service over four years. Awards forfeited, cancelled, or repurchased generally are returned to the pool of shares of common stock available for issuance under the 2021 Plan (as defined below).
In 2021, the Company adopted its 2021 Equity Incentive Plan (the “2021 EIP”) which provides for the granting of stock options, restricted stock units (“RSUs”) and stock appreciation rights to employees, directors, and consultants of the Company. The Company initially reserved 42,766,043 shares of its common stock for issuance under the 2021 EIP. In March 2022, pursuant to the evergreen provisions of the 2021 EIP, the Company registered an additional 9,161,624 shares of common stock for issuance under the 2021 EIP.
As of December 31, 2022, the Company has an allocated reserve of 47,540,079 shares of its common stock for issuance under the 2021 EIP.
In addition, the Company adopted its 2021 Employee Stock Purchase Plan (“2021 ESPP”). The Company initially reserved 3,663,277 shares of its common stock for issuance under the 2021 ESPP. In March 2022, pursuant
to the evergreen provisions of the 2021 ESPP, the Company registered an additional 1,832,324 shares of common stock for issuance under the 2021 ESPP.
As of December 31, 2022, the Company has an allocated reserve of 5,495,601 shares of its common stock for issuance under the 2021 ESPP. As of December 31, 2022, the Company had not begun any offering periods for the 2021 ESPP.
Awards granted under the 2021 EIP generally expire 10 years from the date of grant, or earlier if services are terminated. The exercise price of stock options grants shall not be less than 110% of the estimated fair value of the shares on the date of grant, respectively, as determined by the Company’s Board of Directors. Awards generally vest based on continuous service over 4 years. Awards forfeited, cancelled, or repurchased generally are returned to the pool of shares of common stock available for issuance under the 2021 Plan.
Stock options
Activity under the Company’s stock option plans is set forth below:
The aggregate intrinsic value of options outstanding was $24.4 million and $153.2 million, as of December 31, 2022 and 2021, respectively. Intrinsic value of options exercised for the years ended December 31, 2022 and 2021 was $10.9 million and $1.0 million, respectively. The weighted-average grant date fair value of options granted in the year ended December 31, 2021 was $3.58 per share. The total grant date fair value of options vested was $1.9 million and $1.5 million for the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022, total unrecognized compensation cost related to options was $0.9 million and is expected to be recognized over a weighted-average period of 1.5 years.
For the year ended December 31, 2021, the Company used the Black-Scholes option pricing model to determine the fair value of stock options. The fair value of each stock option grant is estimated on the date of the grant. The fair value of the Legacy Velo3D common stock underlying the stock options had historically been
determined by the Legacy Velo3D board of directors, as there was no public market for Legacy Velo3D’s common stock prior to Merger closing. Therefore, the Legacy Velo3D board of directors had determined the fair value of the common stock at the time of the stock option grant by considering a number of objective and subjective factors including independent third-party valuation reports, valuations of comparable companies, sales of convertible preferred stock and common stock to unrelated third parties, operating and financial performance, lack of liquidity of capital stock and general and industry-specific economic outlook, among other factors.
For the year ended December 31, 2022 there were no options granted. The weighted-average assumptions in the Black-Scholes option-pricing model used to determine the fair value of stock options granted for the year ended December 31, 2021 were as follows:
Expected volatility: As Legacy Velo3D was not publicly traded at the time the awards were granted, the expected volatility for the Company’s stock options was determined by using a review of historical volatilities of selected industry peers deemed to be comparable to the Company’s business corresponding to the expected term of the awards.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the awards.
Expected dividend yield: The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its common stock.
Expected term: The Company uses the simplified method available under U.S. GAAP to determine the expected term due to having insufficient history upon which to base an assumption about the term.
Restricted Stock Units
The fair value of RSUs under the Company’s 2021 EIP is estimated using the value of the Company’s common stock on the date of grant. The company granted 4,041,346 RSUs for the year ended December 31, 2021 at the weighted average grant date fair value of $7.26 per share and an aggregate intrinsic value of $29.5 million.
The following table summarizes outstanding and expected to vest RSUs as of December 31, 2022 and their activity during the year ended December 31, 2022:
The aggregate intrinsic value of outstanding RSUs is calculated based on the closing price of the Company’s common stock as of the date outstanding. As of December 31, 2022, there was $41.3 million of unrecognized compensation cost related to 9.7 million unvested RSUs, which is expected to be recognized over a weighted average period of approximately 3.3 years.
Earnout Shares - Employees
The Earnout Shares issuable to holders of employee stock options are accounted as stock-based compensation expense as they are subject to forfeiture based on the satisfaction of certain employment conditions. The estimated fair values of the Earnout Shares associated with vested stock options are recognized as an expense and determined by the Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the five-year earnout period. The portion of the Earnout Shares associated with unvested stock options are recognized as an expense and considers the vesting continuing employment requirements.
Stock-based Compensation Expense
The following sets forth the total stock-based compensation expense by type of award included in the statements of operations:
The following sets forth the total stock-based compensation expense by operating expense category, of which we do not allocate to Cost of Revenue, included in the statements of operations:
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