Ascent Industries Co. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Accounting for Share-Based Payments

Accounting for Share-Based Payments

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Overview of Share-Based Payment Plans

The Company has a number of active and inactive equity incentive plans (the "Incentive Plans") under which the Company has been authorized to grant share-based awards to key employees and non-employee directors. A total of 1.5 million shares have been previously authorized for grant to key employees and non-employee directors under the Company's currently active Incentive Plans. As of December 31, 2021, there were 0.9 million shares remaining available for grants under the currently active equity Incentive Plans.

The Company recognized share-based compensation expense within SG&A expense on the consolidated statement of operations of $0.8 million and $1.8 million in 2021 and 2020, respectively. The Company had $0.2 million of associated income tax benefit recognized for 2021 and 2020.

Stock Options

2011 Long-Term Incentive Stock Option Plan

The 2011 Long-Term Incentive Stock Option Plan (the "2011 Plan") is an incentive stock option plan; therefore, there are no income tax consequences to the Company when an option is granted or exercised. Stock options have terms of 10 years and vest in 20% or 33% increments annually on a cumulative basis, beginning one year after the date of grant, and are assigned an exercise price equal to the average of the high and low common stock price on the day prior to the date of grant. Options are expensed on a straight-line basis over the grant vesting period, which is considered to be the requisite service period. In order for the options to vest, the employee must be in the continuous employment of the Company since the date of the grant. Except for death, disability, or qualifying retirement, any portion of the grant that has not vested will be forfeited upon termination of employment. Shares representing grants that have not yet vested will be held in escrow by the Company. An employee will not be entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable. As of December 31, 2021, the Company has no options authorized for issuance under the 2011 Plan.

Under the 2011 Plan, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. When determining expected volatility, the Company considers the historical volatility of the Company’s stock price. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant, based on the options’ expected term. The Company granted no new options in 2021. The weighted-average assumptions used in the Black-Scholes option-pricing model and weighted-average grant date fair value for options granted in 2020 are as follows:


	Grant Date
	February 5, 2020			June 30, 2020
Weighted-average assumptions used:
Expected volatility	35.1		%	38.7		%
Dividend yield	1.79		%	1.89		%
Risk-free interest rate	1.66		%	0.64		%
Expected term, in years	10			10

Weighted-average grant date fair value	$	4.53		$	2.59

In 2021, options for 13,174 shares were exercised by employees and directors for an aggregate exercise price of $109,324. There were no options exercised by employees and directors in 2020.

At the 2021 and 2020 respective year ends, options to purchase 129,163 and 86,531 shares, respectively, with weighted average exercise prices of $13.05 and $13.77, respectively, were fully exercisable.

Compensation cost charged against income before taxes for the options was approximately $0.1 million for 2021 and $0.4 million for 2020, respectively. As of December 31, 2021, there was $13,786 of unrecognized compensation cost related to unvested stock options granted under the Company's stock option plans. The weighted average period over which the stock option compensation cost is expected to be recognized is 1.10 years.

A summary of activity for the 2011 Plan is as follows:


	Weighted Average Exercise Price		Options Outstanding	Weighted Average Contractual Term (in years)	Intrinsic Value of Options






December 31, 2019	$	14.26	55,468	3.8	$	18,331
Granted February 5, 2020	13.00		123,500
Granted June 30, 2020	7.33		20,000
Exercised	—		—
Canceled, forfeited, or expired	13.14		(19,437)
December 31, 2020	$	12.74	179,531	7.2	$	9,402
Exercised	12.71		(13,174)
Canceled, forfeited, or expired	13.33		(22,529)
December 31, 2021	$	13.04	143,828	6.0	$	487,011
Exercisable options	$	13.05	129,163	5.8	$	436,637


Options expected to vest:	Weighted Average Exercise Price		Options Outstanding	Weighted Average Contractual Term (in years)	Grant Date Fair Value







December 31, 2019	$	16.01	3,723	5.1	$	6.11
Granted February 5, 2020	13.00		123,500		4.53
Granted June 30, 2020	7.33		20,000		2.59
Vested	13.24		(34,786)		4.68
Canceled, forfeited, or expired	13.14		(19,437)		4.62
December 31, 2020	$	11.78	93,000	9.2	$	5.53
Vested	10.83		(55,806)		3.72
Canceled, forfeited, or expired	13.33		(22,529)		4.80
December 31, 2021	$	13.00	14,665	8.1	$	4.99

The following table summarizes information about stock options outstanding as of December 31, 2021:


Range of Exercise Prices		Outstanding Stock Options				Exercisable Stock Options
		Shares	Weighted Average			Shares	Weighted Average Exercise Price
			Exercise Price		Remaining Contractual Life in Years
$	11.35	9,068	$	11.35	0.1	9,068	$	11.35
13.70		12,370	13.70		1.1	12,370	13.70
14.76		8,109	14.76		2.1	8,109	14.76
16.01		18,447	16.01		3.1	18,447	16.01
13.00		85,834	13.00		8.1	71,169	13.00
$	7.33	10,000	$	7.33	8.5	10,000	$	7.33
		143,828				129,163

Restricted Stock Awards

2015 Stock Awards Plan

The 2015 Stock Awards Plan (the "2015 Plan") was approved by the Compensation & Long-Term Incentive Committee (the "Compensation Committee") and originally authorized the issuance of up to 250,000 shares. At the 2018 Annual Meeting, upon the recommendation of the Company's Board of Directors, a majority of the shareholders of the Company voted to amend and restate the 2015 Plan to increase the authorization of issuances from 250,000 shares to 500,000 shares. At the 2021 Annual Meeting, upon the recommendation of the Company's Board of Directors, a majority of the shareholders of the Company voted to amend and restate the 2015 Plan to increase the authorization of issuances from 500,000 shares to 1.5 million shares. Shares which can be awarded under the 2015 Plan for a period of 10 years from the effective date of the plan. Stock awards issued under the 2015 Plan vest in either 20% or 33% increments annually on a cumulative basis, beginning one year after the date of grant. The fair value of the restricted stock awards are determined based on the average of the high and low common stock price on the day prior to the date of grant. In order for the awards to vest, the employee must be in the continuous employment of the Company since the date of the award. Except for death, disability, or qualifying retirement, any portion of an award that has not vested is forfeited upon termination of employment. The Company may terminate any portion of the award that has not vested upon an employee's failure to comply with all conditions of the award or the 2015 Plan. An employee is not entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable.

A summary of plan activity for the 2015 Plan is as follows:


	Shares	Weighted Average Grant Date Fair Value




Outstanding December 31, 2019	100,775	$	13.28
Granted February 5, 2020	45,418	13.00
Granted November 10, 2020	50,000	5.65
Vested	(81,233)	12.87
Forfeited	(17,535)	13.11
Outstanding December 31, 2020	97,425	$	11.97
Granted February 10, 2021	15,181	8.57
Granted October 28, 2021	6,751	11.11
Granted November 15, 2021	751	13.32
Vested	(64,398)	9.25
Forfeited	(12,129)	10.54
Outstanding December 31, 2021	43,581	$	9.82

Compensation expense on the grants issued is charged against earnings equally before forfeitures, if any, with the offset recorded in Shareholders' Equity. Compensation cost charged against income for the awards was approximately $0.4 million and $1.0 million for 2021 and 2020, respectively. As of December 31, 2021, there was $0.2 million of total unrecognized compensation cost related to unvested restricted stock grants under the Company's 2015 Plan. The weighted average period over which the stock grant compensation cost is expected to be recognized is 2.89 years.

Performance-Based Restricted Stock Awards

The Company issues performance-based restricted stock classified as equity awards which contain performance and service conditions that must be satisfied for an employee to earn the right to benefit from the award. The performance condition is based on the achievement of the Company's EBITDA targets. In November 2020, the Compensation Committee approved stock grants under the 2015 Plan to the Company's Interim President and Chief Executive Officer. For these awards, the performance condition was based on the achievement of thirty-day volume weighted average price targets of a Company share of stock.

The fair value of the performance-based restricted stock awards are determined based on the average of the high and low common stock price on the day prior to the date of grant. The fair value of the performance-based restricted stock awards granted with a market performance condition are determined using a Monte Carlo simulation considering historical performance of the Company's stock as well as the probability of attaining the market performance condition determined on the date of grant. Expense is recognized on a straight-line method over the requisite service period, based on the probability of achieving the performance condition, with changes in expectations recognized as an adjustment to earnings in the period of change. Compensation cost is not recognized for performance-based restricted stock awards that do not vest because service or performance conditions are not satisfied and any previously recognized compensation cost is reversed. Performance-based restricted stock awards do not have dividend rights. The Company recognizes forfeitures as they occur.

In general, 0% to 150% of the Company's performance-based restricted stock awards vest at the end of a three year service period from the date of grant based upon achievement of the specified performance condition.

The weighted-average grant-date fair value per unit of performance-based restricted stock classified as equity awards granted was $0.69 and $13.00 in 2021 and 2020, respectively. The total fair value of performance-based restricted stock awards vesting was approximately $1.1 million and $0.6 million in 2021 and 2020, respectively.

A summary of the status of our performance-based restricted stock awards as of December 31, 2021, and changes during fiscal 2021, were as follows:


	Units	Weighted-Average Grant Date Fair Value
Outstanding December 31, 2019	77,986	$	13.66
Granted1	36,647	13.00
Vested2	(64,711)	13.21
Forfeited	(20,558)	13.73
Outstanding December 31, 2020	29,364	$	13.76
Granted3	90,000	0.69
Vested	(116,260)	3.66
Forfeited	(3,104)	12.99
Outstanding December 31, 2021	—	$	—

1 Contingent shares granted excluded from 2020

2 Excludes the vesting of an additional 5,074 shares due to performance conditions of the awards exceeding target.

3 Contingent shares granted in prior year included in 2021

As of December 31, 2021, there was no unrecognized compensation expense related to non-vested performance-based restricted stock awards.

Inducement Awards

During the year ended December 31, 2021, the Company granted stock-based awards to incoming executive officers as incentives to enter into an at-will employment agreement with the Company. These inducement awards were approved by the Compensation Committee of the Board of Directors and did not require shareholder approval in accordance with NASDAQ Rule 5635(c)(4). In accordance with the rule, the only persons eligible to receive incentive awards are individuals not previously an employee or director of the Company.

In general, 50% of the inducement awards vest based on the achievement of thirty-day volume weighted average price targets of a Company share of stock and 50% vest on the third anniversary of the grant date. The fair value of the market based portion of inducement awards are determined using a Monte Carlo simulation considering historical performance of the Company's stock as well as the probability of attaining the market condition determined on the date of grant. The fair value of the time based portion of inducement awards are determined based on the average of the high and low common stock price on the day prior to the date of grant. A summary of the status of our inducement stock awards as of December 31, 2021, and changes during fiscal 2021, were as follows:


	Units	Weighted-Average Grant Date Fair Value
Outstanding December 31, 2020	—	$	—
Granted	53,696	6.35
Vested	(12,516)	2.35
Forfeited/Canceled	(10,324)	5.96
Outstanding December 31, 2021	30,856	$	8.11

Compensation expense charged against income for the inducement awards was approximately $0.1 million for 2021. There was no compensation expense related to inducement awards in 2020. The total fair value of inducement awards vesting was approximately $0.2 million in 2021. There were no inducement awards that vested in 2020.

As of December 31, 2021, there was $0.2 million of total unrecognized compensation cost related to inducement awards. The weighted average period over which the stock grant compensation cost is expected to be recognized is 2.53 years.

Non-Employee Director Compensation Plan

Each year, the Company allows each non-employee director to elect to receive up to 100% of the director's annual retainer in restricted stock. The number of restricted shares issued is determined by the average of the high and low common stock price on the day prior to the Annual Meeting of Shareholders or the date prior to the appointment to the Board for those individuals that are appointed mid-term. Non-employee directors received an aggregate of 22,026 and 43,603 shares, respectively, of restricted stock in lieu of total retainer fees of $214,000 and $345,000, respectively. The Company also issued an aggregate of 20,000 additional shares of restricted stock to the Company's new Chairman of the Board due to the increased responsibilities of the role. The shares granted to the directors are not registered under the Securities Act of 1933 and are subject to forfeiture in whole or in part upon the occurrence of certain events.