Quarterly report pursuant to Section 13 or 15(d)

EQUITY-BASED COMPENSATION

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EQUITY-BASED COMPENSATION
6 Months Ended
Jun. 30, 2022
Share-Based Payment Arrangement [Abstract]  
EQUITY-BASED COMPENSATION EQUITY-BASED COMPENSATION
2021 Equity Incentive Plan
On March 17, 2021, our stockholders approved the PureCycle Technologies, Inc. 2021 Equity and Incentive Compensation Plan (the “Plan”).
The Plan provides for the grant of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance units, dividend equivalents, and certain other awards. In general, the amount of shares issuable under the Plan will be automatically increased on the first day of each fiscal year, beginning in 2022 and ending in 2031, by an amount equal to the lesser of (a) 3% of the shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year and (b) such smaller number of shares as determined by the Board of Directors of the Company.

As of June 30, 2022, approximately 12.1 million shares of common stock are currently authorized for issuance under the Plan, of which approximately 5.7 million shares remain available for issuance under the Plan (assuming maximum performance with respect to the applicable performance goals applicable to the issued Plan awards).
Restricted Stock Agreements
RSUs issued pursuant to the Plan are time-based and vest over the period defined in each individual grant agreement or upon a change of control event as defined in the Plan. The Company recognizes compensation expense for the shares equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards. The fair value of the awards is equal to the fair value of the Company’s common stock at the date of grant. The Company has the option to repurchase all vested shares upon a stockholder’s termination of employment or service with the Company.
For RSUs issued prior to approval of the Plan, the Company recognizes compensation expense for the shares equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards. Fair value of the RSUs is estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions:
June 30, 2022 June 30, 2021
Expected annual dividend yield —  % —  %
Expected volatility —  % 49.1  %
Risk-free rate of return —  % 0.1  %
Expected option term (years) 0 0.2
The expected term of the shares granted was determined based on the period of time the shares are expected to be outstanding. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility was based on the Company’s capital structure and volatility of similar entities referred to as guideline companies. In determining similar entities, the Company considered industry, stage of life cycle, size and financial leverage. The dividend yield on the Company’s shares is assumed to be zero as the Company has not historically paid dividends. The fair value of the underlying Company shares for the six months ending June 30, 2021 was determined using an initial public offering scenario.
On December 11, 2021, the Company and Michael Dee entered into a separation agreement (the “Separation Agreement”), which sets forth the terms of his transition and certain benefits he is eligible to receive, including continued vesting of 667.0 thousand RSU awards from his July 8, 2021 RSU Agreement, 50% of which vested on March 17, 2022 with the other 50% vesting upon commissioning of the Company’s first commercial plant. This was accounted for as an equity award modification under ASC 718, which resulted in adjustment of the award value to reflect the fair value at the modification date and acceleration of the recognition schedule to match his remaining service period, which ended on January 15, 2022 (the “Separation Date”).
A summary of restricted stock activity for the six months ended June 30, 2022 and 2021 is as follows (in thousands except per share data):
Number of RSU's Weighted average grant date fair value Weighted average remaining recognition period
Non-vested at December 31, 2020 762  $ 1.39  2.12
Granted 143  11.90 
Vested (245) 1.20 
Forfeited (26) 3.92 
Non-vested at June 30, 2021 634  $ 2.10  2.08
Number of RSU's Weighted average grant date fair value Weighted average remaining recognition period
Non-vested at December 31, 2021 2,671  $ 14.33  3.38
Granted 1,211  7.45 
Vested (543) 8.31 
Forfeited (23) 17.58 
Non-vested at June 30, 2022 3,316  $ 12.53  3.17
Equity-based compensation cost is recorded within the selling, general and administrative expenses in the condensed consolidated statements of comprehensive loss, and totaled approximately $3.0 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively, and $6.3 million and $0.5 million for the six months ended June 30, 2022 and 2021, respectively.
Stock Options
The stock options issued pursuant to the Plan are time-based and vest over the period defined in each individual grant agreement or upon a change of control event as defined in the Plan.
The Company recognizes compensation expense for the shares equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards. The fair value of the stock is estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions:
June 30, 2022 June 30, 2021
Expected annual dividend yield —  % —  %
Expected volatility —  % 47.5  %
Risk-free rate of return —  % 0.7  %
Expected option term (years) 0 4.5
The expected term of the shares granted is determined based on the period of time the shares are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility was based on the Company’s capital structure and volatility of similar entities referred to as guideline companies. In determining similar entities, the Company considered industry, stage of life cycle, size and financial leverage. The dividend yield on the Company’s shares is assumed to be zero as the Company has not historically paid dividends. The fair value of the underlying Company shares was determined using the Company’s closing stock price on the grant date.
The Separation Agreement included provisions for accelerated vesting of 613.0 thousand Stock Options previously granted on March 17, 2021, which were scheduled to vest in equal installments on each anniversary date for three years after the date of grant and vested in full at the Separation Date. This was accounted for as an equity award modification under ASC 718, which resulted in adjustment of the award value to reflect the fair value at the modification date and acceleration of the recognition schedule to match his remaining service period, which ends on the Separation Date.
A summary of stock option activity for the six months ended June 30, 2022 and 2021 is as follows (in thousands except per share data):
Number of Options Weighted Average Exercise Price Weighted
Average
Remaining
Contractual
Term
(Years)
Balance, December 31, 2020   $  
Granted 613  28.90  7.00
Exercised —  —  — 
Forfeited —  —  — 
Balance, June 30, 2021 613  $ 28.90  6.75
Number of Options Weighted Average Exercise Price Weighted
Average
Remaining
Contractual
Term
(Years)
Balance, December 31, 2021 613  $ 28.90  6.21
Granted —  —  — 
Exercised —  —  — 
Forfeited —  —  — 
Balance, June 30, 2022 613  $ 28.90  4.55
Exercisable 613     
Equity-based compensation cost is recorded within the selling, general and administrative expenses within the condensed consolidated statements of comprehensive loss, and totaled $0 and $613 thousand for the three months ended June 30, 2022 and 2021, respectively. The Company recorded a benefit of approximately $158 thousand for the six months ended June 30, 2022 due to fair value adjustments related to modification under the Separation Agreement, and expense of $681 thousand for the six months ended June 30, 2021. The weighted average grant-date fair values of options granted during the six months ended June 30, 2022 and 2021 were $0 and $11.41, respectively. There were no stock options exercised during 2022 or 2021.
Performance-Based Restricted Stock Agreements
The shares issued pursuant to the Performance-Based Restricted Stock Agreements vest depending on if the performance obligations are met. In general, the performance-based stock units (“Performance PSUs”) will be earned based on achievement of pre-established financial and operational performance objectives and will vest on the date the attainment of such performance objectives as determined by the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”), subject to the participant’s continued employment with the Company. The Company has also issued PSUs that vest if the market price of the Company’s common stock exceeds a defined target during the performance period (“Market PSUs”, together with the Performance PSUs, the “PSUs”).
The Company issued 900 thousand and 0 PSUs for the six months ended June 30, 2022, and 2021, respectively. As of June 30, 2022, the performance-based provision has not been achieved for any of the outstanding performance-based awards.
The Company recognizes compensation expense for the Performance PSUs equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards as
the Company has concluded the performance condition is probable to be met. The fair value of the awards is equal to the fair value of the Company’s common stock at the date of grant.
The Separation Agreement included provisions for continued vesting of 200.0 thousand Market PSU awards from the July 8, 2021 PSU Agreement, which will vest if the market price of the Company’s common stock exceeds a defined target during the performance period. This was accounted for as an equity award modification under ASC 718. As the fair value of the award at the date of modification was less than the grant date fair value and all cost for these awards was recognized prior to the modification, there was no impact related to the modified awards.
A summary of the PSU activity for the six months ended June 30, 2022 and 2021 is as follows (in thousands except per share data):
Number of PSUs Weighted Average Exercise Price Weighted
Average
Remaining
Contractual
Term
(Years)
Balance, December 31, 2020 —  $ — 
Granted —  — 
Vested —  — 
Forfeited —  — 
Balance, June 30, 2021   $  
Number of PSUs Weighted Average Exercise Price Weighted
Average
Remaining
Contractual
Term
(Years)
Balance, December 31, 2021 424  $ 18.65  2.00
Granted 900  7.36 
Vested —  — 
Forfeited (14) 19.33 
Balance, June 30, 2022 1,310  $ 10.88  2.00
Equity-based compensation cost is recorded within the selling, general and administrative expenses within the consolidated statements of comprehensive loss, and totaled approximately $305 thousand and $0 for the three months ended June 30, 2022 and 2021, respectively, and $269 thousand and $0 for the six months ended June 30, 2022 and 2021, respectively.