EQUITY BASED COMPENSATION

12 Months Ended

Dec. 31, 2022

EQUITY BASED COMPENSATION

EQUITY BASED COMPENSATION

NOTE 15. – EQUITY BASED COMPENSATION

Stock Compensation Plan

On May 20, 2021, the stockholders of 22nd Century Group, Inc. (the “Company”) approved the 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”). The 2021 Plan allows for the granting of equity awards to eligible individuals over the life of the 2021 Plan, including the issuance of up to 5,000,000 shares of the Company’s common stock, in addition to any remaining shares under the Company’s 2014 Omnibus Incentive Plan pursuant to awards under the 2021 Plan. The 2021 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 2021 Plan and the number of shares of common stock to underlie each such award under the 2021 Plan. As of December 31, 2022, the Company had available 4,461,984 shares remaining for future awards under the 2021 Plan.

Compensation Expense

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

	Year Ended
	December 31,
	2022		2021
Sales, general, and administrative	$	5,307	$	3,821
Research and development		182		163
Total RSUs and stock option compensation	$	5,489	$	3,983

Restricted Stock Units (“RSUs”). We typically grant RSUs to employees and non-employee directors. The following table summarizes the changes in unvested RSUs from January 1, 2021 through December 31, 2022.

	Unvested RSUs
		Weighted
		Average
	Number of	Grant-date
	Shares	Fair Value
	in thousands	$ per share
Unvested at January 1, 2021	2,938	$	0.85
Granted	2,200	$	3.25
Vested	(1,660)	$	0.85
Forfeited	(313)	$	1.04
Unvested at December 31, 2021	3,165	$	2.50
Granted	3,535	$	1.96
Vested	(2,306)	$	2.11
Forfeited	(361)	$	2.39
Unvested at December 31, 2022	4,033	$	2.13

The fair value of RSUs that vested during the years ended December 31, 2022 and 2021 was approximately $4,505 and $5,262, respectively, based on the stock price at the time of vesting. As of December 31, 2022, unrecognized compensation expense for RSUs amounted to $4,189 which is expected to be recognized over a weighted average period of approximately 0.8 years. In addition, there is approximately $1,310 of unrecognized compensation expense that requires the achievement of certain milestones which are not yet probable.

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 January 1, 2021 is as follows:

				Weighted
		Weighted		Average
		Average		Remaining		Aggregate
	Number of	Exercise		Contractual		Intrinsic
	Options	Price		Term		Value
	in thousands	$ per share
Outstanding at January 1, 2021	6,581	$	1.50
Granted	235		3.10
Exercised	(984)		1.37
Forfeited	(600)		1.00
Expired	(61)		2.64
Outstanding at December 31, 2021	5,171		1.65
Exercised	(150)		1.16
Forfeited	(100)		1.39
Expired	(9)		2.76
Outstanding at December 31, 2022	4,912	$	1.67	2.3	years	$	—
Exercisable at December 31, 2022	4,812	$	1.65	2.2	years	$	—

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 fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. No option awards were granted in 2022. The following assumptions were used for the year ended December 31, 2021:

	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.

As of December 31, 2022, there is approximately $190 of unrecognized compensation expense for stock options that requires the achievement of certain milestones which are not yet probable.