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Stock Options

12 Months Ended

Dec. 31, 2022

Stock Options

10. Stock Options

On June 7, 2016, stockholders of the Company approved amendments to the Innodata Inc. 2013 Stock Plan (as amended, the “2013 Plan”). The number of shares of common stock of Innodata Inc. that may be delivered, purchased or used for reference purposes (with respect to stock appreciation rights or stock units) for awards granted under the 2013 Plan after June 7, 2016 is 5,858,892 (the “Share Reserve”). Shares subject to an option or stock appreciation right granted under the 2013 Plan after June 7, 2016 count against the Share Reserve as one share for every share granted, and shares subject to any other type of award granted under the 2013 Plan after June 7, 2016 count against the Share Reserve as two shares for every share granted. Any award, or portion of an award, under the 2013 Plan or under the Company’s 2009 Stock Plan (as amended and restated (the Prior Plan)) that expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares without delivery of shares or other consideration will be added back to the Share Reserve as one share for each such share that was subject to an option or stock appreciation right granted under the 2013 Plan or the Prior Plan, and two shares for each such share that was subject to an award other than an option or stock appreciation right granted under the 2013 Plan or the Prior Plan. If any shares are withheld, tendered or exchanged by a participant in the 2013 Plan as full or partial payment to Innodata of the exercise price under an option under the 2013 Plan or the Prior Plan or in satisfaction of a participant’s tax withholding obligations with respect to any award under the 2013 Plan or the Prior Plan, there will be added back to the Share Reserve one share for each such share that was withheld, tendered or exchanged in respect of an option or stock appreciation right granted under the 2013 Plan or the Prior Plan, and two shares for each such share that was withheld, tendered or exchanged in respect of an award other than an option or stock appreciation right granted under the 2013 Plan or the Prior Plan.

On June 9, 2022, stockholders of the Company approved amendments to the Innodata Inc. 2021 Equity Compensation Plan (as amended, the “2021 Plan”). The number of shares of common stock of Innodata Inc. that may be delivered, purchased or used for reference purposes (with respect to stock appreciation rights or stock units) for awards granted under the 2021 Plan is 4,000,000 (the “Share Reserve”). Shares subject to an option or stock appreciation right granted under the 2021 Plan count against the Share Reserve as one share for every share granted, and shares subject to any other type of award granted under the 2021 Plan count against the Share Reserve as two shares for every share granted for awards granted prior to April 11, 2022, and one and a half shares for every share granted for awards granted on or after April 11, 2022. Any shares withheld, tendered or exchanged by a participant in the 2021 Plan as full or partial payment to Innodata of the exercise price under an option under the 2021 Plan or in satisfaction of a participant’s tax withholding obligations with respect to any award under the 2021 Plan, will not be added back to the Share Reserve.

The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-average fair value of the options granted, and weighted-average assumptions were as follows:


		For the Years Ended December 31,
		2022			2021

Weighted average fair value of options granted		$	2.67		$	3.73
Risk-free interest rate			1.94% - 4.09	%		0.22% - 0.82	%
Expected life (years)			3-6.42			3-6
Expected volatility factor			62%-79	%		58% - 68	%
Expected dividends			None			None

The Company estimates the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected term of the options in effect at the time of grant. The expected term of options granted is based on a combination of vesting schedules, term of the options and historical experience. Expected volatility is based on historical volatility of the Company’s common stock. The Company uses an expected dividend yield of zero since it has never declared or paid any dividends on its capital stock.

A summary of option activity under the Innodata Inc. 2013 Stock Plan, as amended and restated effective June 7, 2016 (the “2013 Plan”) and changes during each of year ended December 31, 2022 and 2021 are presented below:


							Weighted-Average
				Weighted -Average			Remaining
		Number of		Exercise			Contractual Term		Aggregate
		Options		Price			(years)		Intrinsic Value
Outstanding at January 1, 2021		5,906,884		$	1.61		6.86			89,405
Granted		1,226,300			6.84
Exercised		(1,556,288)			2.01
Forfeited/Expired		(40,000)			1.41
Outstanding at December 31, 2021		5,536,896		$	2.66		7.52		$	19,154,463
Granted*		1,774,558			4.91
Exercised		(248,763)			1.34
Forfeited/Expired		(372,201)			6.55
Outstanding at December 31, 2022		6,690,490		$	3.09		7.19		$	5,989,709

Exercisable at December 31, 2022		4,124,775		$	1.96		6.10		$	5,533,056

Vested and Expected to Vest at December 31, 2022		6,690,490		$	3.09		7.19		$	5,989,709

* Includes 110,000 stock options granted by the Company to a non-employee director of the Company during the year ended December 31, 2022. The stock option fully vests on January 1, 2025.

A summary of option activity under the Innodata Inc. 2021 Equity Compensation Plan, as amended and restated effective as of April 11, 2022 (the “2021 Plan”) and changes during the year ended December 31, 2022 and 2021 are presented below:


							Weighted-
				Weighted -			Average
				Average			Remaining		Aggregate
		Number of		Exercise			Contractual		Intrinsic
		Options		Price			Term (years)		Value

Outstanding at January 1, 2021		-		$	-		-			-
Granted		-			-
Exercised		-			-
Forfeited/Expired		-			-
Outstanding at December 31, 2021		-		$	-		-			-
Granted*		1,030,000			3.46
Exercised		—			-
Forfeited/Expired		(2,500)			3.41
Outstanding at December 31, 2022		1,027,500		$	3.46		9.75		$	-

Exercisable at December 31, 2022		18,750		$	5.40		9.52		$	-

Vested and Expected to Vest at December 31, 2022		1,027,500		$	3.46		9.75		$	-

*During the year ended December 31, 2022, the Company granted 132,000 stock options to non-employee directors of the Company which vest on the first anniversary of the date of grant. In addition, during the year ended December 31, 2022 the Company granted 50,000 stock options to non-employee members of the Company’s advisory board in lieu of cash compensation. The stock options vest in 12 monthly installments from the date of grant.

A summary of restricted stock awards issued under the 2013 Plan and the 2021 Plan (collectively, the “Equity Plans”) is presented below:


		Number of		Weighted-Average
		Restricted Stock		Grant Date Fair
		Awards		Value

Outstanding January 1, 2021		50,000
Granted		-
Vested		(25,000)
Unvested at December 31, 2021		25,000		$	1.38
Granted		-
Vested		(25,000)			1.38
Forfeited/Expired		-
Unvested at December 31, 2022		-		$	-

In March 2022, the Company granted restricted stock units (“RSU”) to key executives pursuant to the Equity Plans. Each RSU has vesting conditions based on both the achievement of performance-based metrics and the continuation of employment over a defined period. The level of performance determines the number of RSUs that performance-vest, and performance vested RSUs must also time-vest in order to be fully vested. Each fully vested RSU represents the right to receive one share of the Company’s common stock or the fair market value of one share of common stock, at the Company’s discretion, and is classified as an equity award. Each RSU vests pursuant to the vesting schedule found in the respective RSU agreement. RSUs are generally subject to graduated vesting schedules and stock-based compensation expense is computed by tranche and recognized on a straight-line basis over the tranches’ applicable vesting period based on the expected achievement level. The fair value of restricted stock units is estimated on the date of grant using the Binomial option pricing model.

Restricted stock unit activity during the year ended December 31, 2022 was as follows:


				Weighted-
		Number of		Average
		Restricted Stock		Grant Date
		Units		Fair Value

Outstanding January 1, 2021		-
Granted		-
Vested		-
Unvested at December 31, 2021		-
Granted*		700,000		$	5.59
Vested		-
Forfeited/Expired		-
Unvested at December 31, 2022		700,000		$	5.59

* 200,000 RSUs were issued under the 2013 Plan and 500,000 RSUs were issued under the 2021 Plan.

The compensation cost related to non-vested stock options not yet recognized as of December 31, 2022 totaled approximately $7.4 million. The weighted-average period over which these costs will be recognized is 25 months.

During the fiscal year ended December 31, 2022, 700,000 performance-based restricted stock units were granted and remain non-vested at December 31, 2022. Vesting of the performance-based restricted stock units is contingent on the achievement of certain financial performance goals and service vesting conditions. There were no restricted stock units granted during the year ended December 31, 2021.

The compensation cost related to non-vested restricted stock units not yet recognized as of December 31, 2022 totaled approximately $2.9 million. The weighted-average period over which these costs will be recognized is 19 months.