Stockholders' Equity

12 Months Ended

Dec. 31, 2022

Long-term Incentive Plan

In April 2015, the Company adopted and the stockholders approved the 2015 Long-term Incentive Plan ("LTIP"). The LTIP is intended to promote the Company's long-term financial success by attracting and retaining outstanding executive personnel and to motivate such personnel by means of equity grants. The Compensation Committee of the Company's Board of Directors selects participants and establishes the terms of any grant of restricted stock. The Company's LTIP provides that issuance of restricted stock immediately transfers ownership rights in shares of its Common Stock to the recipient of the grant, including the right to vote the shares and to receive dividends thereon. The recipient's continued ownership of and right to freely transfer the restricted stock is subject to such conditions on transferability and to such risks of forfeiture as are established by the Compensation Committee at the time of the grant, which may include continued employment with the Company for a defined period, achievement of specified management performance objectives or other conditions established by the Compensation Committee. The number of shares which may be issued under the LTIP is limited to 5,000,000. No single participant may be awarded, in the aggregate, more than 750,000 shares during any fiscal year.

As of December 31, 2022, 2,110,427 restricted shares had been issued under the Company's LTIP, of which 526,961 shares of issued restricted stock were not yet vested and for which $9.7 million in unrecognized compensation expense is expected to be recognized over a weighted average period of approximately 2.0 years. The following table presents restricted stock activity for the years ended December 31, 2022, 2021 and 2020:


	2022			2021			2020
	# of Shares	Weighted Average Fair Value at Date of Grant		# of Shares	Weighted Average Fair Value at Date of Grant		# of Shares	Weighted Average Fair Value at Date of Grant
Nonvested restricted shares outstanding at January 1	377,729	$	36.78	405,299	$	34.96	221,622	$	37.08
Granted	678,343	31.17		207,135	39.10		339,454	34.27
Forfeited	(49,617)	30.57		(4,345)	33.37		(36,749)	33.98
Vested	(479,494)	34.81		(230,360)	35.71		(119,028)	37.15
Nonvested restricted shares outstanding at December 31	526,961	$	31.89	377,729	$	36.78	405,299	$	34.96

Long-term Incentive Plan Shares

During 2022, the Company recognized $5.2 million for 315,122 shares earned under the 2022-2023 award opportunity, $3.0 million of compensation expense earned under the 2021-2022 award opportunity, and $0.5 million of compensation expense earned under the 2020-2021 award opportunity. During 2021, the Company recognized $3.5 million for 179,873 shares earned under the 2021-2022 award opportunity and $2.1 million of compensation expense earned under the 2020-2021 award opportunity. During 2020, the Company recognized $3.9 million for 266,221 shares earned under the 2020-2021 award opportunity and $4.2 million of compensation expense earned under the 2019-2020 award opportunity.

Long-term Incentive Plan Service Based Shares

The LTIP provided for any unvested service awards to immediately vest on the occurrence of a qualifying Change in Control event (“CIC Event”) upon which the awardee is either terminated by the Company without Cause (as defined in the LTIP) or the employee voluntarily resigns from the Company for Good Reason (as defined in the LTIP) within 24 months of the CIC Event (“CIC Qualifying Termination”). As the Merger was a qualifying CIC event, the unvested service awards of employees that met the criteria of CIC Qualifying Termination immediately vested on such CIC Qualifying Termination date. The total fair value of such accelerated service awards of

$2.1 million was expensed during the year ended December 31, 2022 when the awards fully vested upon the termination of the employees and is included in General expense in the Condensed Consolidated Statements of Income (Loss).

Long-term Incentive Plan Performance Based Shares

On the Merger date, the Company modified the 2022 and 2021 performance share awards issued under the LTIP to remove the performance and market conditions for continuing employees, effectively converting the awards to service-only modified awards that cliff vest upon the original date of lapse of restrictions defined in the LTIP. The fair value of the continuing employee awards of $0.6 million will be recognized on a straight-line basis over the remaining service period, less any cost previously recognized on these performance share awards.

The performance share awards of CIC Qualifying Termination employees were also modified to accelerate vesting and to set the number of shares underlying these awards at 100% of the target level defined in the LTIP rather than at the pro-rata target level based on service period completed as of the Merger date. The fair value as of the Merger date of $2.5 million was expensed during the year ended December 31, 2022 when the awards fully vested upon the termination of the employees and is included in General expense in the Condensed Consolidated Statements of Income (Loss).

Stock compensation expense related to the modified performance share awards was $2.6 million during the year ended December 31, 2022 and was recognized in General expense.

Acquired Equity-Based Compensation Awards

As provided in the Merger Agreement, all stock options (“Options”), stock appreciation rights ("SARs"), restricted stock units (“RSUs”) and performance share units (“PSUs”) granted pursuant to Neenah’s 2018 Omnibus Stock and Incentive Compensation Plan (“2018 Plan”) that were outstanding immediately prior to the Merger were generally automatically converted into Options, SARs, RSUs and RSUs, respectively, of the Company's common stock at the exchange ratio set forth in the Merger Agreement ("Exchange Ratio") and otherwise generally on the same terms and conditions (including vesting exercisability and/or settlement requirements) as applied to such awards.

At the closing of the Merger, the Options and SARs had fully vested and are payable to the grantees. Accordingly, there is no ongoing compensation expense related to the Options.

The RSUs generally vest over a three-year term as follows: 33.3% on each of the first, second and third anniversaries of the grant date, except for RSUs issued as retirement and special grant awards, which vest over a one-year term on the first anniversary of the grant date. Vesting is contingent upon continued employment or service. The unvested portion of a grantee’s RSU will be immediately forfeited and cancelled if the grantee ceases employment or service, except for retirement awards which vest on a pro rata basis according to the proportion of days employed during the vesting period of one year. At the Merger date, the Company assumed 180,149 unvested Neenah RSUs, converted at the exchange ratio, with a total fair value of $4.2 million.

In accordance with the terms of the Merger Agreement, the change in control eliminated the performance condition and market condition; as such, only the three-year service condition remains. At the Merger date, the Company assumed 292,032 unvested PSUs, converted at the Exchange Ratio, with a total fair value of $6.8 million automatically converted to RSUs of the Company. Converted RSUs will be accounted for the same as the RSUs described above and be recognized over a weighted-average period of approximately 2 years.

Stock compensation expense related to the acquired awards was $2.8 million for the year ended December 31, 2022 and was recognized in General expense.

Basic and Diluted Shares Reconciliation

The Company uses the two-class method to calculate earnings per share. The Company has granted restricted stock that contains non-forfeitable rights to dividends on unvested shares. Since these unvested shares are considered participating securities under the two-class method, the Company allocates earnings per share to common stock and participating securities according to dividends declared and participation rights in undistributed earnings.

Diluted net income per common share is computed based on net income divided by the weighted average number of common and potential common shares outstanding. Potential common shares during the respective periods are those related to dilutive stock-based compensation, including long-term share-based incentive compensation, and directors' accumulated deferred stock compensation which may be received by the directors in the form of stock or cash. A reconciliation of the average number of common and potential common shares outstanding used in the calculations of basic and diluted net income per share follows (in millions, shares in thousands):


	Years Ended December 31,
	2022		2021		2020


Numerator (basic and diluted):
Net income (loss)	$	(6.6)	$	88.9	$	83.8
Less: Dividends paid to participating securities	(0.9)		(0.6)		(0.7)
Less: Undistributed earnings available to participating securities	—		(0.5)		(0.4)
Undistributed and distributed earnings (loss) available to common stockholders	$	(7.5)	$	87.8	$	82.7

Denominator:
Average number of common shares outstanding	42,442.2		31,030.4		30,832.7
Effect of dilutive stock-based compensation(1)	—		369.9		271.5
Average number of common and potential common shares outstanding	42,442.2		31,400.3		31,104.2

(1) Diluted loss per share excludes the weighted average potential common shares as their inclusion would be anti-dilutive.