Item 8.01. Other Events
Extraordinary Performance Award Program
On September 7, 2021, the board of directors of the Company approved, and further amended on October 21, 2021, an “Extraordinary Performance Award Program” (the “EPA
Program”). This EPA Program will only become effective if approved by the stockholders (excluding shares held by interested parties) at the Annual Meeting. The EPA Program provides performance-based equity incentives linked to significant long-term
stockholder value creation. A summary overview of the EPA Program is below, and the EPA Program will be described in more detail in the proxy statement to be delivered to stockholders in advance of the Annual Meeting.
Purpose
A primary purpose of the EPA Program is to incent senior management by granting equity rewards that are tied to achieving both exceptional stock performance and significant business
milestones over a 10-year period.
The EPA Program also seeks to encourage the Company to seek large-scale deployment of the Company’s technology over the next 10 years. The Company is conscious that the world’s
climate crisis requires major and rapid reductions in carbon emissions and that the Company’s solid-state battery may contribute to society’s transition away from fossil fuels. Accordingly, the business milestones emphasize production and sales
growth.
Performance-based Stock Options
The EPA Program provides stock option grants to the Company’s Chief Executive Officer, Jagdeep Singh, and other members of the Company’s management team that vest over
five tranches if the Company meets pre-defined stock price targets and business milestones. Each of the five tranches requires that the Company first achieve one of the business milestones listed below, and then achieves the
applicable stock price target listed below, both within 10 years of the initial grants.
For example, the first tranche of the EPA Program cannot vest unless the Company achieves at least one of the business milestones and the Company’s stock price
increases to $60, which would be approximately a 141% increase from the closing price on October 21, 2021 of $24.91. Similarly, the fifth tranche cannot vest unless the Company has met at least five of the business milestones (including
the business milestones used to satisfy each of the four earlier tranches) and the Company’s stock price increases to $300, which would be approximately a 1,104% increase from the closing price on October 21, 2021.
The stock price targets are $60, $120, $180, $240 and $300.
Each tranche requires completion of a business milestone that was not used to satisfy a prior tranche. The business milestones are:
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(i)
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Delivery of an A-sample battery cell that meets specifications agreed upon with an auto maker.
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(ii)
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The validation by an auto maker of a completed B-sample battery cell (a B-sample is a functional, complete battery cell prototype that may be built with pilot tools).
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(iii)
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Delivery of at least 1 GWh of battery cells to a single customer.
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(iv)
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Delivery of at least 3 GWh of battery cells to each of three or more customers, with at least one of such customers being an auto maker.
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(v)
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$5 billion in revenue over a period of trailing four quarters.
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(vi)
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10 billion in revenue over a period of trailing four quarters.
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(vii)
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Total cumulative production of 500 GWh.
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(viii)
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Total cumulative production of 1,000 GWh.
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(ix)
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Adjusted EBITDA margin of 25% over four consecutive quarters.
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(x)
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10% of worldwide market share in automotive battery cells, excluding China.
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(xi)
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20% of worldwide market share in automotive battery cells, excluding China.
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To permit flexibility in how the business develops, the production, sales and market share targets are independent of the Company’s business model and include cells manufactured
by the Company, its subsidiaries, joint ventures and licensees, and by cell makers who incorporate separators manufactured by or under license from the Company.
Sharing Ratio; Participants
Stock option grants under the EPA Program may total up to 4% of the total shares outstanding as of September 7, 2021, which means that gains in stock price would primarily benefit
the stockholders. For example, based on the closing price on October 21, 2021, if the Company meets the requirements for the first tranche, participants in the EPA Program would realize approximately 0.79% of the total increase in stockholder value,
and the stockholders would realize approximately 99.21% of the total increase in stockholder value. If the Company meets the requirements of all five tranches, participants in the EPA Program would realize approximately 3.82% of the total increase in
stockholder value and the stockholders would realize approximately 96.18% of the total increase in stockholder value.
Participants
The EPA Program provides that Mr. Singh, the Company’s Chief Executive Officer, would be granted a stock option for one-half of the shares subject to the EPA Program. The remaining
options under the EPA Program would be shared by at least 14 other members of the Company, including other executive officers and employees who are key contributors to the Company’s research and development efforts, manufacturing, and business
operations. All stock options under the EPA Program would be granted under the Company’s 2020 Equity Incentive Plan.
Participants would be potentially eligible to receive additional equity awards, but we currently expect that any such awards would cover fewer number of shares than our ordinary
course refresh grants. The expectation of the compensation committee and the board of directors is that Mr. Singh would not receive additional annual equity awards for at least 7 years, but the compensation committee and the board of directors would
have the flexibility to approve additional equity awards if circumstances warranted.
Forward-Looking Statements
Certain information in this Current Report on Form 8-K may be considered “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding future timeline, stock price, product development, production, revenue, market share, and financial results.
The stock price and business milestones described above are intentionally ambitious and there are significant risks and uncertainties in achieving such results. Many of the
obstacles to achieving the business milestones are described in the “Risk Factors” section in the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on July 29, 2021 and available at www.sec.gov.
Such risks and uncertainties include, but are not limited to the below:
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The Company faces significant barriers in its attempts to produce a solid-state battery cell and may not be able to successfully develop its solid-state battery cell. Building high volumes of multi-layer
cells in commercially relevant sizes and with higher layer count requires substantial development effort. The Company could encounter significant delays and/or technical challenges in replicating the performance seen in its single-layer
cells and four-layer cells and in achieving the high quality, consistency and throughput required for commercial production and sale.
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The Company may encounter delays and cost overruns related to planning, permitting, construction, equipment installation, utilities infrastructure installation and operations start-up of our
manufacturing facilities, and other obstacles including vendor delays and challenges in operating new manufacturing equipment for automated and/or continuous flow processes and optimizing complex manufacturing processes. Even if the Company
successfully develops the capability for high volume production, the product may not succeed in the market due to competition or other factors. Furthermore, even if the Company achieves volume production and the product succeeds in the
market, it will be extremely challenging to establish production (directly and through joint ventures and licensing) to meet the volume and market share milestones within ten years.
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The Company’s stock price depends on market conditions and other factors unrelated to the Company, so even if the business milestones are met for the EPA Program, the stock price targets may
not be met.
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Except as otherwise required by applicable law, the Company disclaims any duty to update any forward-looking statements to reflect events or circumstances after the date of this
report. Should underlying assumptions prove incorrect, actual results and projections could different materially from those expressed in any forward-looking statements.