Stock-Based Compensation and Stockholders’ Equity

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation and Stockholders’ Equity

During the years ended December 31, 2021, 2020 and 2019, the Company recognized $11 million, $8 million and $8 million, respectively, in stock-based compensation expense, which is included as a component of salaries, wages and benefits within the consolidated statements of operations. A summary of the Company’s stock-based compensation expense is presented below (in millions):


	Year Ended December 31,
	2021		2020		2019
Liability-classified awards	$	—	$	—	$	5
Stock options and restricted awards	11		8		3
Total stock-based compensation expense	$	11	$	8	$	8

Stock Options and Restricted Awards

In April 2014, FGHI approved the 2014 Equity Incentive Plan (the “2014 Plan”). Under the terms of the 2014 Plan, 38 million shares of FGHI common stock are reserved for issuance. Concurrently with the Company’s IPO on April 1, 2021, the Company approved the 2021 Incentive Award Plan (the “2021 Plan”), which reserved 7 million shares of FGHI common stock, as well as the 11 million issued awards from the 2014 Plan that were still outstanding plus any subsequently forfeited awards or awards that lapse unexercised after April 1, 2021, to be available for future issuances of stock-based compensation awards to be granted to members of the Board of Directors and certain employees and consultants. Additionally, shares available for issuance under the 2021 Plan

will be subject to an annual increase on the first day of each fiscal year beginning in 2022 and ending in 2031, equal to the lesser of (i) one percent (1%) of the shares of stock outstanding on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares of stock as determined by the Company’s Board of Directors; provided, however, that no more than 30 million shares of stock may be issued upon the exercise of incentive stock options.

Stock Options

Stock option awards are granted with an exercise price equal to the fair market value of FGHI’s common stock on the date of grant, and generally vest evenly over four years of continuous service. Compensation expense related to stock options is recognized on a straight-line basis over the requisite service period, net of forfeitures, which are recognized on a specific-identification basis.

A summary of stock option activity during the year ended December 31, 2021 is presented below:


	Number of Shares	Weighted Average Exercise Price		Aggregate Grant Date Fair Value (in millions)
Outstanding at December 31, 2020	9,879,240	$	1.93	$	10
Issued	—	—		—
Exercised	(2,202,895)	$	1.62	(2)
Forfeited	(24,938)	$	11.15	—
Outstanding at December 31, 2021	7,651,407	$	1.99	$	8
Exercisable at December 31, 2021	7,480,088	$	1.79	$	7

There were no options granted during the years ended December 31, 2021 and 2020, and during the year ended December 31, 2019, there were 454,100 shares granted at a weighted average grant date fair value of $4.46. During the year ended December 31, 2021, 2,202,895 vested stock options were exercised with an intrinsic value of $32 million; while there were no exercises during the year ended December 31, 2020 and 2019, respectively. As of December 31, 2021, the aggregate intrinsic value of outstanding options was $89 million.

As of December 31, 2021, there was $1 million of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a weighted average period of 1.1 years. Additionally, as of December 31, 2021, exercisable options and outstanding options have a remaining contractual term of 3.1 years and 3.2 years, respectively.

Restricted Awards

Restricted stock awards and restricted stock units in FGHI (collectively, “Restricted Awards”) are valued at the fair value of FGHI’s common stock on the date of grant. Restricted stock awards generally vest on the one-year anniversary from the date of issuance based upon time-based service conditions. Each restricted stock unit represents the right to receive one share of common stock upon vesting of such restricted stock unit. Vesting of restricted stock units is based on time-based service conditions, generally over three to four years of continuous service. In order to vest, the participant must still be employed by the Company, with certain contractual exclusions, at each vesting event. Generally, within 30 days after vesting, the shares underlying the restricted stock unit award will be issued to the participant. If a successor corporation in a change of control event fails to assume or substitute for the Restricted Awards under the 2021 Plan, such awards will automatically vest in full as of immediately prior to the consummation of such a change in control. All Restricted Awards outstanding under the 2014 Plan will automatically vest in full as of immediately prior to the consummation of a change in control. Compensation expense, net of forfeitures as incurred on a specific identification basis, is recognized on a straight-line basis over the requisite service period.

A summary of Restricted Award activity during the year ended December 31, 2021 is presented below:


	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2020	2,020,650	$	10.54
Issued	899,800	$	14.70
Vested	(543,879)	$	10.23
Forfeited	(205,542)	$	10.62
Repurchased(1)	(200,735)	$	11.00
Outstanding at December 31, 2021	1,970,294	$	12.47

__________________

(1) Represents withholdings to cover tax obligations on vested shares when applicable

For the years ended December 31, 2020 and 2019, 1,869,372 and 261,326 of restricted stock units were issued with a weighted average grant date fair value of $10.39 and $12.71 per share, respectively. Additionally, 151,430 and 84,892 of restricted stock units vested with a weighted average grant date fair value of $12.22 and $11.85 per share, for the years ended December 31, 2020 and 2019, respectively. In connection with vesting, the Company withheld 39,064 and 17,936, restricted stock units with a weighted average grant date fair value of $11.82 and $11.52, per share to cover employee taxes upon award vesting for the years ended December 31, 2020 and 2019, respectively. The total fair value of restricted stock units vested was $11 million, $2 million, and $1 million, during the years ended December 31, 2021, 2020, and 2019, respectively.

As of December 31, 2021, there was $16 million of unrecognized compensation cost related to unvested Restricted Awards which is expected to be recognized over a weighted average period of 1.9 years.

Liability-Classified Awards

On December 3, 2013, to give effect to the reorganization of the Company’s corporate structure, an agreement was reached to amend and restate a phantom equity agreement with the Company’s pilots. Under the terms of this agreement, when an amendment to the underlying collective bargaining agreement was approved, the Company’s pilots employed by Frontier in June 2011, (the “Participating Pilots”), through their agent, FAPAInvest, LLC, received phantom equity units. Each unit represented the right to receive common stock or cash in connection with certain events, including a qualifying initial public offering, such stock to be distributed or cash paid to the Participating Pilots in 2020 and 2022 based on a predetermined formula. In accordance with the amended and restated phantom equity agreement, the obligation became fixed as of December 31, 2019 and was no longer subject to valuation adjustments. As of December 31, 2019, the final associated liability was $137 million, of which $111 million was paid in March 2020 and the remaining $26 million is to be paid in March 2022 and, as such, is presented within other long-term liabilities and other current liabilities on the Company’s consolidated balance sheets as of December 31, 2020 and December 31, 2021, respectively.