Teknova maintains stock incentive plans for the benefit of certain of Teknova's officers, directors, consultants and employees. The Company granted time-based and performance-based options to purchase common shares under both its 2016 Stock Plan, as amended (2016 Plan) and 2020 Equity Incentive Plan, as amended (2020 Plan). At the time the 2020 Plan became effective, no additional stock awards were granted or are able to be granted in the future under the 2016 Plan. In June 2021, the Company’s board of directors and the Company’s stockholders approved the 2021 Equity Incentive Plan (2021 Plan), which became effective in connection with the IPO. From and after the date on which the 2021 Plan became effective, no further grants were made or will be made under the 2020 Plan. At December 31, 2021, 2,578,075 shares remain available for future grants under the 2021 Plan.

The types of equity-based awards that may be granted under the 2021 Plan include: options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, and other stock-based awards. The maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan is 5,020,113 shares of the Company’s common stock, which is the sum of (i) 2,908,283 new shares, plus (ii) an additional

number of shares not to exceed 2,111,830 shares, consisting of any shares of the Company’s common stock subject to outstanding stock options or other stock awards granted under the 2020 Plan that, on or after the 2021 Plan became effective, terminate or expire prior to exercise or settlement. The equity-based awards will vest over a four-year period for all employees and will vest over a three-year period for the Company’s board of directors. Generally, the number of shares of the Company’s common stock that will be reserved for issuance under the 2021 Plan will automatically increase on January 1 of each year for a period of ten years, beginning on January 1, 2022 and continuing through January 1, 2031, in an amount equal to 4% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding year; provided, however, that the Company’s board of directors may act prior to January 1st of a given year to provide that the increase for such year will be a lesser number of shares of common stock. Effective January 1, 2022 an additional 1,120,480 new shares became available for issuance under the 2021 Plan.

The following table summarizes the stock option activity under the stock incentive plans (in thousands, except share and per share data):


	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2020		2,246,544		$	0.95		9.41	$	10,081
Granted		644,817		$	17.10		—		—
Exercised		(100	)	$	0.84		—		—
Cancelled or forfeited		(127,149	)	$	2.91		—		—
Outstanding at December 31, 2021		2,764,112		$	4.63		8.69	$	45,280
Exercisable at December 31, 2021		731,354		$	0.90		8.51	$	14,322
Vested and expected to vest at December 31, 2021		2,479,430		$	5.11		8.88	$	39,579

The total intrinsic value of options exercised during the year ended December 31, 2021 was not significant. There were no options exercised during the year ended December 31, 2020. The total grant date fair value of shares vested during 2021 and 2020, was $0.4 million and $0.1 million, respectively.

In June 2021, the Company’s board of directors and the Company’s stockholders, respectively, approved the Company’s 2021 Employee Stock Purchase Plan (the ESPP), which became effective in connection with the IPO. A total of 290,828 shares of the Company’s common stock are reserved for issuance under the ESPP. The number of shares of the Company’s common stock that will be reserved for issuance will automatically increase on January 1 of each year for a period of ten years, beginning on January 1, 2022 and continuing through January 1, 2031, by the lesser of (i) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year; and (ii) 319,911 shares (subject to adjustments for stock splits, dividends, combinations of shares, exchanges of shares and other “Capitalization Adjustments”, as defined in the ESPP), except before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). Effective January 1, 2022 an additional 280,120 new shares became available for issuance under the ESPP.

Generally, all regular employees, including executive officers, employed by the Company will be eligible to participate in the ESPP and to contribute, normally through payroll deductions, up to 15% of their earnings (as defined in the ESPP) for the purchase of the Company’s common stock under the ESPP. Unless otherwise determined by the Company’s board of directors, shares of the Company’s common stock will be purchased for the accounts of employees participating in the Company’s ESPP at a price per share equal to the lesser of (i) 85% of the fair market value of a share of the Company’s common stock on the first day of an offering; or (ii) 85% of the fair market value of a share of the Company’s common stock on the date of purchase.

As of December 31, 2021, the Company had 290,828 shares of the Company's common stock reserved for future grants under the ESPP. Offering periods are generally six months long and begin on May 15 and November 15 of each year.

Teknova uses the Black-Scholes option-pricing model to determine the fair value of stock options. The valuation model for stock compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation, including the expected term, expected volatility and fair value of the Company’s common stock, and an assumed risk-free interest rate. The assumptions used in the Black-Scholes option-pricing model were as follows:

Volatility. Since the Company has limited historical data on volatility of its stock, expected volatility is based on the volatility of the stock of similar publicly traded entities. In evaluating similarity, the Company considers factors such as industry, stage of life cycle, size, and financial leverage.

Fair value of underlying common stock. Prior to the closing of the IPO, the Company had to estimate the fair value of its common stock. Management considered numerous objective and subjective factors to determine the fair value of the Company’s common stock. The factors considered include, but are not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s convertible preferred stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s shares. Since the closing of the IPO, the fair value of the Company’s common stock is determined by the closing price of its common stock as reported on the NASDAQ Global Market on the date of grant.

Risk-free interest rate. The risk-free rate that the Company uses is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

Expected term. As the Company does not have sufficient historical exercise activity to estimate expected life, the expected life of options granted is determined using the simplified method. The simplified method is based on the vesting period and the contractual term for each grant or for each vesting tranche for awards with graded vesting. The midpoint of the vesting date and the maximum contractual expiration date is used as the expected term under this method.

Dividend yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future. Therefore, the Company uses an expected dividend yield of zero. In addition, the terms of the Credit Agreement prohibit us from paying dividends, other than dividends payable on the Company’s common stock, without the prior consent of the lender.

The weighted average assumptions used in the Black-Scholes option-pricing model are as follows:


	For the Year Ended December 31,
	Employee Stock Option Plans						Employee Stock Purchase Plan
	2021			2020			2021			2020
Estimated dividend yield	-%			-%			-%			N/A
Weighted-average expected stock price volatility		33.51	%		36.13	%		25.47	%	N/A
Weighted-average risk-free interest rate		1.06	%		0.45	%		0.06	%	N/A
Expected average term of options (in years)		6.17			6.25			0.50		N/A
Weighted-average fair value of common stock	$	19.89		$	4.84		$	24.63		N/A
Weighted-average fair value per option	$	6.45		$	3.15		$	5.46		N/A

N/A - Not applicable during the period

Summary of Stock-Based Compensation Expense

Stock-based compensation expense included in the accompanying financial statements was as follows (in thousands):


	For the Year Ended December 31,
	2021		2020
Cost of sales	$	7	$	—
Research and development		157		—
Sales and marketing		66		—
General and administrative		1,321		300
Total stock-based compensation expense	$	1,551	$	300

Total stock-based compensation expense related to employee stock option plans was $1.6 million and $0.3 million for the years ended December 31, 2021 and 2020, respectively. Unrecognized compensation expense related to employee stock option plans was $8.3 million at December 31, 2021, which is expected to be recognized as expense over the weighted-average period of 3.25 years.

During the year ended December 31, 2021, the Company’s board of directors approved an amendment to the outstanding performance-based option to acquire 231,719 shares of the Company’s common stock previously granted under 2020 Plan, to eliminate the performance-based vesting and provide that such option will vest in 48 equal monthly installments. The stock option modification was measured as the excess of the fair value of the modified option over the fair value of the original option immediately before the modification. The incremental stock-based compensation expense for such stock option modification is approximately $3.5 million, of which $0.5 million incremental stock-based compensation expense was recognized during the year ended December 31, 2021 in general and administrative expense in the statements of operations and comprehensive income (loss). Additionally, in January 2019, the Company granted 284,682 performance-based options that vest upon a change of control. As of December 31, 2021, these options were not considered probable of vesting. The Company had unrecognized compensation expense of approximately $0.5 million at December 31, 2021 relating to these options.

Total stock-based compensation expense related to the ESPP was not significant since the adoption of the plan in June 2021. Total compensation cost related to the ESPP not yet recognized is also not significant. As of December 31, 2021, an insignificant amount has been withheld on behalf of employees for a future purchase under the ESPP. There were no purchases for the year ended December 31, 2021, related to the ESPP.