Note 10 - Stockholders' Equity and Stock-based Compensation

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

10.          STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Common Stock Dividend Restrictions

As of December 31, 2022, there are no restrictions on common stock dividends. Also, at December 31, 2022 and 2021, retained earnings were not restricted upon involuntary liquidation.

S-3 registration and share issuances

The Company filed an S-3 registration statement on July 17, 2020 containing a prospectus that was effective in September 2020. The Company utilized this filing in January 2021 to issue common stock for $45 million before costs. The Company filed a new S-3 shelf registration in January 2021, which, as amended, became effective in April 2021. With this filing, Orbital Infrastructure Group may from time-to-time issue various types of securities, including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of $150 million. The Company utilized this S-3 registration to issue additional common stock in July 2021 for $38 million before costs of approximately $2.3 million for net proceeds of approximately $35.7 million. In April 2022, the Company issued 9,000,000 shares of common stock and pre-funded warrants to purchase up to 7,153,847 shares of Common Stock for a total raise of $21.0 million before expenses. Warrants were included as warrant liabilities at December 31, 2022. In addition, the Company issued 16,153,847 warrants exercisable at $1.31 that are not prefunded but are reserved against the S-3 in the amount of $21.2 million. In the third and fourth quarters of 2022, the Company issued an additional $3.9 million in common shares against the S-3 leaving $65.9 million against the S-3 for future issuances.

Other share issuances 

The Company has debt with an institutional investor that on occasion has accepted common stock in lieu of scheduled cash payments. In 2022, the Company issued 20,297,993 shares to this investor for $15.9 million including a $2.8 million loss on extinguishment. 

In 2022, the Company issued 24,963,451 common shares as part of a subscription agreement with the lenders of the Company's syndicated debt. See Note 3 - Investments and Fair Value Measurements and Note 9 - Commitments and Contingencies for more information on the related subscription financial instrument.

Stock Appreciation Rights ("SARS")

Through  December 31, 2021, the Company had been vesting a series of stock appreciation rights (SARS) to be settled in cash to certain executives. At December 31, 2021 there were 3,126,000 of non-vested cash-settled SARS outstanding at a weighted average fair value of $1.45. The Company recorded $2.1 million of compensation related to SARs in the year ended December 31, 2021. Unamortized expense for SARS at December 31, 2021 was $4.3 million.

The SARS were considered liability-classified awards meaning their fair-values were remeasured at the end of each reporting period using a binomial lattice model and any changes in fair value for the vesting periods to-date were recorded through the income statement with a corresponding liability accrued on the balance sheet. Since  December 31, 2021, the SARS have been exchanged for restricted stock units (RSUs) on the modification date of  January 14, 2022 as approved by the Board of Directors. To account for this exchange, the company revalued the SARS as of the modification date of  January 14, 2022 using the binomial lattice model and recorded changes in the vested value since  December 31, 2021 as an adjustment to the income statement. The Company then reclassified the SARS accrued liability to APIC for new RSUs and recognized incremental expense. Shares deemed vested at the modification date were released and issued net of tax in  March 2022. The SARS that converted to RSUs, were added to the Company's existing RSU program.

The number of SARS granted to each of the executives equated to the corresponding dollar amount of a portion of the cash bonus otherwise due to them pursuant to their employment agreements. The SARS were subject to acceleration upon a change in control or termination of the executive’s employment with the Company in certain circumstances. 

Month Issued	April 2021
Number Issued		3,770,960
Interest Rate		0.34	%
Estimated Volatility		156	%
Stock Price at Issuance	$	4.17
Years to Maturity		1.5
Grant date Value per Right	$	3.56

The 2021 grant was issued with a $2.89 exercise price. 

The SARS were valued using a binomial lattice model. Because the SARS were to be settled in cash, the obligation for them was accounted for as a liability rather than equity. Quarterly, the SARS were revalued and the new value was amortized. Information on the 2021 grant date value of the SARS and weighted average inputs to the binomial lattice model are as follows:

	2021
Weighted average expected term at December 31 (years)		1.55
Total fair value of all awards at December 31	$	6,979,824
Total fair value of all vested awards at December 31	$	2,701,802
Total intrinsic value at December 31	$	1,255,078

Restricted Stock Units:

In 2022, the Company granted Restricted stock units to certain key employees of the Company from the Company's 2020 Incentive Award Plan. RSUs generally vest over 3 years. In 2022, there were four grants totaling 823,883 units that immediately vested. New common shares are issued for vested RSUs. RSU activity in 2022 and 2021 was as follows:

	Number of restricted stock units			Weighted-average grant date fair value
Non-vested shares, December 31, 2020		—		$	—
Granted		4,386,107			4.64
Vested		(1,367,319	)		4.76
Forfeited		—			—
Non-vested shares, December 31, 2021		3,018,788			4.58
Granted		6,090,765			1.32
Vested		(2,760,687	)		1.67
Forfeited		(2,185,104	)		5.26
Non-vested shares, December 31, 2022		4,163,762		$	1.38

The Company recorded $4.6 million of expense related to vested RSUs in 2022 offset by forfeitures of $5.4 million for a net credit to expense of $0.8 million in 2022. This compares to $10.6 million of expense related to vested RSUs in 2021. Unamortized expense on unvested RSUs was $3.8 million and $9.7 million at December 31, 2022 and December 31, 2021, respectively. Unvested RSUs have a weighted average remaining life of 1.96 years and 1.80 years as of December 31, 2022, and December 31, 2021.

Employee Stock Options and other share-based compensation

At the 2020 Annual Meeting of Shareholders, the Company’s shareholders approved the Orbital Infrastructure Group 2020 Incentive Award Plan and authorized a share limit of 2,000,000 shares. In 2021, the Company's shareholders approved an increase in shares available for the 2020 Incentive Award Plan from a total of 2 million shares to a total of 5 million shares. In 2022, the Company's shareholders approved an additional 5,000,000 shares. As of December 31, 2022 there are 3,039,900 remaining shares available to grant under the 2020 Incentive Award Plan. This Plan replaced the 2008 and 2009 Equity Incentive Plan, which had expired. 

The purpose of the Orbital Infrastructure Group 2020 Incentive Award Plan is to enhance our ability to attract, retain and motivate persons who make (or are expected to make) important contributions to Orbital Infrastructure Group by providing these individuals with equity ownership opportunities. Equity awards are intended to motivate high levels of performance and align the interests of our directors, employees and consultants with those of our stockholders by giving directors, employees and consultants the perspective of an owner with an equity stake in Orbital Infrastructure Group and providing a means of recognizing their contributions to the success of Orbital Infrastructure Group. Our board of directors and management believe that equity awards are necessary to remain competitive in its industry and are essential to recruiting and retaining the highly qualified employees who help Orbital Infrastructure Group meet its goals. A primary purpose of the plan is to provide OIG with appropriate capacity to issue equity compensation in anticipation of future acquisitions.

The Orbital Infrastructure Group 2020 Incentive Award Plan provides for the grant of stock options, including ISOs and nonqualified stock options (“NSOs”), stock appreciation rights (“SARs”), restricted stock, dividend equivalents, restricted stock units (“RSUs”) and other stock or cash-based awards. Certain awards under the Orbital Infrastructure Group 2020 Incentive Award Plan may constitute or provide for payment of “nonqualified deferred compensation” under Section 409A of the Code. All awards under the Orbital Infrastructure Group 2020 Incentive Award Plan will be set forth in the award agreement, which will detail the terms and conditions of awards, including any applicable vesting and payment terms and post termination exercise limitations. Most awards shall be subject to a minimum vesting of one year from the Grant Date. A brief description of each award type follows.

● Stock Options and SARs. Stock options provide for the purchase of shares of common stock of Orbital Infrastructure Group in the future at an exercise price set on the grant date. ISOs, in contrast to NSOs, may provide tax deferral beyond exercise and favorable capital gains tax treatment to their holders if certain holding period and other requirements of the Code are satisfied. SARs entitle their holder, upon exercise, to receive from Orbital Infrastructure Group an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The plan administrator will determine the number of shares covered by each option and SAR, the exercise price of each option and SAR and the conditions and limitations applicable to the exercise of each option and SAR. The exercise price of a stock option or SAR will not be less than 100% of the fair market value of the underlying share on the grant date (or 110% in the case of ISOs granted to certain significant stockholders), except with respect to certain substitute awards granted in connection with a corporate transaction. The term of a stock option or SAR may not be longer than five years.

● Restricted Stock. Restricted stock is an award of nontransferable shares of common stock of Orbital Infrastructure Group that remain forfeitable unless and until specified conditions are met and which may be subject to a purchase price. Upon issuance of restricted stock, recipients generally have the rights of a stockholder with respect to such shares, which generally include the right to receive dividends and other distributions in relation to the award. The terms and conditions applicable to restricted stock will be determined by the plan administrator, subject to the conditions and limitations contained in the Orbital Infrastructure Group 2020 Incentive Award Plan.

● RSUs. RSUs are contractual promises to deliver shares of common stock of Orbital Energy Group in the future, which may also remain forfeitable unless and until specified conditions are met and may be accompanied by the right to receive the equivalent value of dividends paid on shares of common stock of Orbital Infrastructure Group prior to the delivery of the underlying shares (i.e., dividend equivalent rights). The Company accounts for forfeitures of employee awards as they occur. The plan administrator may provide that the delivery of the shares underlying RSUs will be deferred on a mandatory basis or at the election of the participant. The terms and conditions applicable to RSUs will be determined by the plan administrator, subject to the conditions and limitations contained in the Orbital Infrastructure Group 2020 Incentive Award Plan.

● Other Stock or Cash Based Awards. Other stock or cash-based awards are awards of cash, shares of common stock of Orbital Infrastructure Group and other awards valued wholly or partially by referring to, or otherwise based on, shares of common stock of Orbital Infrastructure Group or other property. Other stock or cash-based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of compensation to which a participant is otherwise entitled. The plan administrator will determine the terms and conditions of other stock or cash-based awards, which may include any purchase price, performance goal, transfer restrictions and vesting conditions, subject to the conditions and limitations in the Orbital Infrastructure Group 2020 Incentive Award Plan.

The Orbital Infrastructure Group 2020 Incentive Award Plan provides that the plan administrator may establish compensation for non-employee directors from time to time subject to the Orbital Infrastructure Group 2020 Incentive Award Plan’s limitations. The plan administrator will from time to time determine the terms, conditions and amounts of all non-employee director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that, the sum of any cash compensation or other compensation and the grant date fair value of any equity awards granted under the Orbital Infrastructure Group 2020 Incentive Award Plan as compensation for services as a non-employee director during any fiscal year may not exceed $250,000 per year of a non-employee director’s service as a non-employee director. The non-employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving the non-employee Director.

A summary of the stock options granted to employees and directors and changes during the year are presented below:

	For the Year Ended December 31, 2022
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)		Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		237,985		$	6.14		1.41	$	—
Exercised		—			—		—		—
Expired		(40,098	)		4.56		—		—
Balance at end of year		197,887		$	6.46		0.63		—
Exercisable		197,887		$	6.46		0.63		—

As of  December 31, 2022 and 2021 all issued and outstanding stock options were fully vested. There was no unamortized expense related to unvested stock options at December 31, 2022 and 2021. There were no options granted during 2022 and 2021.