22nd Century Group, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

EQUITY- BASED COMPENSATION

EQUITY- BASED COMPENSATION

9 Months Ended

Sep. 30, 2021

NOTE 12 – EQUITY- BASED COMPENSATION

On May 20, 2021, the stockholders of 22nd Century Group, Inc. (the “Company”) approved the 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (the “Plan”). The Plan allows for the granting of equity awards to eligible individuals over the life of the Plan, including the issuance of up to 5,000,000 shares of the Company’s common stock and any remaining shares under the Company’s 2014 Omnibus Incentive Plan pursuant to awards under the Plan. The Plan has a term of ten years and is administered by the Compensation Committee of the Company’s Board of Directors to determine the various types of incentive awards that may be granted to recipients under the Plan and the number of shares of common stock to underlie each such award under the Plan. As of September 30, 2021, the Company had available 7,449,946 shares remaining for future awards under the Plan.

Restricted Stock Units (“RSUs”). We typically grant RSUs to employees and non-employee directors. The following table summarizes the changes in unvested RSUs from December 31, 2020 through September 30, 2021.


	Unvested RSUs
		Weighted
		Average
	Number of	Grant-date
	Shares	Fair Value
	in thousands	$ per share
Unvested at December 31, 2020	2,938	$	0.85
Granted	1,995	$	3.20
Vested	(1,234)	$	0.85
Forfeited	(216)	$	0.67
Unvested at March 31, 2021	3,483	$	2.21
Granted	15	$	4.60
Vested	(288)	$	0.86
Forfeited	(25)	$	1.04
Unvested at June 30, 2021	3,185	$	2.35
Granted	190	$	3.71
Vested	(50)	$	0.80
Forfeited	(10)	$	1.90
Unvested at September 30, 2021	3,315	$	2.45

The fair value of RSUs that vested during the nine months ended September 30, 2021 was approximately $5,057 based on the stock price at the time of vesting.

Stock Options. Our outstanding stock options were valued using the Black-Scholes option-pricing model on the date of the award. A summary of all stock option activity since December 31, 2020 is as follows:


				Weighted
		Weighted		Average
		Average		Remaining		Aggregate
	Number of	Exercise		Contractual		Intrinsic
	Options	Price		Term		Value
	in thousands	$ per share
Outstanding at December 31, 2020	6,581	$	1.50
Granted	235	$	3.10
Exercised	(846)	$	1.36
Expired	(6)	$	2.76
Outstanding at March 31, 2021	5,964	$	1.59	4.3	years	$	7,480
Exercised	(88)	$	1.21
Forfeited	(100)	$	0.80
Outstanding at June 30, 2021	5,776	$	1.60	4.1	years	$	13,265
Expired	(40)	$	2.58
Forfeited	(500)	$	1.04
Outstanding at September 30, 2021	5,236	$	1.65	3.8	years	$	6,885

Exercisable at September 30, 2021	4,900	$	1.56	3.7	years	$	6,848

The intrinsic value of a stock option is the amount by which the current market value or the market value upon exercise of the underlying stock exceeds the exercise price of the option.

The weighted average of fair value assumptions used in the Black-Scholes option-pricing model for such grants were as follows:


	2021
Risk-free interest rate (1)	0.54	%
Expected dividend yield (2)	—	%
Expected volatility (3)	87.92	%
Expected term of stock options (4)	4.09	years

(1)

The risk-free interest rate is based on the period matching the expected term of the stock options based on the U.S. Treasury yield curve in effect on the grant date.

(2)

The expected dividend yield is assumed as zero. The Company has never paid cash dividends nor does it anticipate paying dividends in the foreseeable future.

(3)

The expected volatility is based on historical volatility of the Company’s stock.

(4)

The expected term represents the period of time that options granted are expected to be outstanding based on vesting date and contractual term.

Compensation Expense. The Company recognized the following compensation costs, net of actual forfeitures, related to RSUs and stock options:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Sales, general, and administrative	$	1,073	$	278	$	2,750	$	1,051
Research and Development		46		28		121		111
Total RSUs and stock option compensation	$	1,119	$	306	$	2,871	$	1,162

As of September 30, 2021, unrecognized compensation expense amounted to $5,931 which is expected to be recognized over a weighted average period of approximately 1.1 years. In addition, there is approximately $517 of unrecognized compensation expense that requires the achievement of certain milestones which are not yet probable.