STOCK-BASED COMPENSATION PLANS

3 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

2019 Stock Incentive Plan

The Company's Amended and Restated 2019 Incentive Award Plan (the "2019 Plan") provides for the award of options to purchase the Company's common stock ("stock options"), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"),

performance-based stock awards ("PSAs"), restricted stock units ("RSUs"), performance-based stock units ("PSUs") and other stock- or cash-based awards. Awards can be granted under the 2019 Plan to the Company's employees, officers and non-employee directors, as well as consultants and advisors of the Company and its subsidiaries.

Assumed Stock Plans

In connection with the acquisition of Edgewater Networks, Inc. in August 2018, the Company assumed Edgewater's Amended and Restated 2002 Stock Option Plan (the "Edgewater Plan") to the extent of the shares underlying the options outstanding under the Edgewater Plan as of the Edgewater Acquisition Date (the "Edgewater Options"). The Edgewater Options were converted to Ribbon stock options (the "Ribbon Replacement Options") which are vesting under the same schedules as the respective Edgewater Options.

In connection with the Company's acquisitions of Performance Technologies Inc. ("PT") in 2014, and Network Equipment Technologies, Inc. ("NET") in 2012, the Company assumed their stock plans (collectively, the "Assumed Plans"). Any outstanding awards under the Assumed Plans that in the future expire, terminate, are cancelled or surrendered, or are repurchased by the Company will be returned to the 2019 Plan. Accordingly, no additional shares may be granted under the Assumed Plans.

Executive Equity Arrangements

Inducement Awards

In connection with his appointment as President and Chief Executive Office of Ribbon, and as an inducement for Bruce McClelland's ("Mr. McClelland") commencement of employment, the Company awarded Mr. McClelland sign-on equity grants, comprised of 462,963 RSUs and a PSU grant with both market and service conditions (the "Inducement PSUs") on March 16, 2020. The RSUs vested and were released to Mr. McClelland on March 16, 2021. Subject to Mr. McClelland's continued employment, the Inducement PSUs are eligible to vest and be settled in up to 4,750,000 shares of Ribbon common stock upon the achievement of specified share price thresholds on or prior to September 1, 2024. The first share price threshold for Mr. McClelland’s Inducement PSUs was achieved on February 26, 2021, and accordingly 1,333,333 shares were released to him.

Performance-Based Stock Grants

In addition to granting RSUs to its executives and certain of its employees, the Company also grants PSUs to certain of its executives, including the Inducement PSUs granted to Mr. McClelland as described above.

In 2021, 2020 and 2019, the Company granted certain of its executives (the "2021 PSUs", "2020 PSUs" and "2019 PSUs", respectively), of which 60% of each executive's PSU grant had both performance and service conditions (the "Performance PSUs") and 40% had both market and service conditions (the "Market PSUs"). The 2019 PSUs earned were released on March 15, 2022; these releases are included in the table below.

Each executive's Performance PSU grant is comprised of three consecutive fiscal year performance periods beginning in the year of grant (each, a "Fiscal Year Performance Period"), with one-third of the Performance PSUs attributable to each Fiscal Year Performance Period. The number of shares that will be vest for each Fiscal Year Performance Period, if any, will be based on the achievement of certain metrics related to the Company's financial performance for the applicable year on a standalone basis (each, a "Fiscal Year Performance Condition"). The Company's achievement of the goals for each Fiscal Year Performance Condition (and the number of shares of Company common stock to vest as a result thereof) are being measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions, with any shares earned vesting in the first quarter of the fiscal year following the third Performance Period of the grant, pending each executive's continued employment with the Company through that date. The number of shares of common stock underlying the Performance PSUs that can be earned will in no event exceed 200% of the Performance PSUs. Shares subject to the Performance PSUs that fail to be earned will be forfeited.

The Market PSUs have one three-year performance period, beginning January 1 in the year of grant and ending on December 31, three years thereafter (the "Market Performance Period"). The number of shares subject to the Market PSUs that will vest, if any, will be dependent upon the Company's total shareholder return ("TSR") compared with the TSR of the companies included in a custom index for the applicable Market Performance Period, measured by the Compensation Committee after the Market Performance Period ends, with any shares earned vesting in the first quarter of the fiscal year following the respective Market Performance Period, pending each executive's continued employment with the Company through that date. The number of shares of common stock underlying the Market PSUs that can be earned will in no event exceed 200% of the Market PSUs. Shares subject to the Market PSUs that fail to be earned will be forfeited.

Accounting for Performance PSUs. Once the grant date criteria have been met for a Fiscal Year Performance Period, the Company records stock-based compensation expense for the respective underlying Performance PSUs based on its assessment of the probability that each performance condition will be achieved and the level, if any, of such achievement. The Compensation Committee determines the number of shares earned, if any, after the Company's financial results for each Fiscal Year Performance Period are finalized. Upon the determination by the Compensation Committee of the number of shares that will be received upon vesting of the Performance PSUs, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, generally three years from the date of grant, at which time the total Performance PSUs earned, if any, will vest, pending each executive's continued employment with the Company through that date.

Accounting for Market PSUs. PSUs that include a market condition require the use of a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the date of return, the volatility of each entity and the pair-wise covariance between each entity. These results are then used to calculate the grant date fair values of the respective PSUs. The Company is required to record expense for the PSUs with market conditions through their respective final vesting dates, regardless of the number of shares that are ultimately earned.

Stock Options

The activity related to the Company's outstanding stock options for the three months ended March 31, 2022 was as follows:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2022	184,169	$	13.25



Exercised	(355)	$	1.95

Expired	(3,470)	$	15.62
Outstanding at March 31, 2022	180,344	$	13.23	2.35	$	50
Vested or expected to vest at March 31, 2022	180,344	$	13.23	2.35	$	50
Exercisable at March 31, 2022	180,344	$	13.23	2.35	$	50

Both the total intrinsic value of options exercised and cash received in connection with those exercises was nominal in the three months ended March 31, 2022.

Restricted Stock Units

The activity related to the Company's RSUs for the three months ended March 31, 2022 was as follows:


	Shares	Weighted Average Grant Date Fair Value
Unvested balance at January 1, 2022	5,389,611	$	6.19
Granted	71,077	$	4.05

Vested	(1,610,990)	$	6.40
Forfeited	(138,550)	$	6.44
Unvested balance at March 31, 2022	3,711,148	$	6.05

The total grant date fair value of shares of restricted stock underlying RSUs that vested during the three months ended March 31, 2022 was $10.3 million.

Performance-Based Stock Units

The activity related to the Company's PSUs for the three months ended March 31, 2022 was as follows:


	Shares	Weighted Average Grant Date Fair Value
Unvested balance at January 1, 2022	4,987,876	$	2.87
Granted	18,225	$	2.65
Vested	(175,751)	$	5.03
Forfeited	(283,258)	$	7.95
Unvested balance at March 31, 2022	4,547,092	$	2.31

The total grant date fair value of shares of restricted stock underlying PSUs that vested during the three months ended March 31, 2022 was $0.9 million.

Stock-Based Compensation

The condensed consolidated statements of operations include stock-based compensation for the three months ended March 31, 2022 and 2021 as follows (in thousands):


	Three months ended
		March 31, 2022		March 31, 2021
Product cost of revenue		$	99	$	27
Service cost of revenue		481		235
Research and development		1,206		627
Sales and marketing		1,371		1,874
General and administrative		1,098		2,297
		$	4,255	$	5,060

At March 31, 2022, there was $21.1 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options and stock units. This expense is expected to be recognized over a weighted average period of approximately two years.