Equity-Based Compensation |
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| Equity-Based Compensation |
Note P – Equity-Based Compensation
The Company has three equity-based compensation plans, which are described below.
Holdings, the Company’s former parent adopted a written compensatory benefit plan (the “Class P Unit Incentive Plan”) to provide incentives to existing or new employees, officers, managers, directors, or other service providers of the Company or its subsidiaries in the form of Holdings’ Class P Units (“Incentive Units”). Incentive Units have a participation threshold of $1.00 and are divided into three tranches (“Tranche I,” “Tranche II,” and “Tranche III”): Tranche I, Tranche II, and Tranche III Incentive Units were subject to performance-based, service-based, and market-based conditions.
On September 2, 2021, the Company’s board of directors adopted the Redwire Corporation 2021 Omnibus Incentive Plan (the “Plan”) which authorizes the grant of stock options (incentive and non-qualified), stock appreciation rights, restricted stock, restricted stock units, and other cash or share-based awards to employees, officers, non-employee directors and consultants of the Company. The Company initially reserved an aggregate of 7,936,136 shares (subject to annual increases on January 1 of each year beginning in 2022 and ending with a final increase on January 1, 2031) of the Company’s common stock for grants under the Plan. Shares of the Company’s stock reserved for grants under the Plan were 9,189,953 and 7,936,136 as of June 30, 2022 and December 31, 2021, respectively. Incentive stock options may only be granted to employees and officers employed by the Company. The Plan appoints the board of directors, the compensation committee or such other committee consisting of two or more individuals (the “Committee”) appointed by the board to administer the Plan. Awards under the Plan will contain such terms and conditions not inconsistent with the Plan as the Committee in its discretion approves. The Committee has discretion to administer the Plan in the manner which it determines, from time to time, is in the best interest of the Company.
On September 2, 2021, the Company’s board of directors adopted the Redwire Corporation 2021 Employee Stock Purchase Plan (the “ESPP”) which authorizes the grant of rights to purchase common stock of the Company to employees, officers and directors (if they are otherwise employees) of the Company. The Company initially reserved an aggregate of 755,822 shares (subject to annual increases on January 1 of each year beginning in 2022 for a period of up to ten years) of the Company’s common stock for grants under the ESPP. Shares of the Company’s stock reserved for grants under the ESPP were 1,382,731 and 755,822 as of June 30, 2022 and December 31, 2021, respectively. The ESPP appoints the Compensation Committee (the “Committee”) to administer the ESPP. Awards under the ESPP will contain such terms and conditions not inconsistent with the ESPP as the Committee in its discretion approves. The Committee has discretion to administer the ESPP in the manner which it determines, from time to time, is in the best interest of the Company. As of June 30, 2022, no shares had been issued under the ESPP.
Incentive Units
On March 24, 2021 (“modification date”), Holdings, the Company’s former parent amended the Class P Unit Incentive Plan so that the Tranche I and the Tranche III Incentive Units became fully vested, upon the closing of the Merger. Holdings also amended the Class P Unit Incentive Plan so that the Tranche II Incentive Units would vest on any liquidation event, as defined in the Class P Unit Incentive Plan, rather than only upon consummation of the sale of Holdings, subject to the market-based condition stipulated in the Class P Unit Incentive Plan prior to its amendment.
As a result of the Merger, Tranches I and III Incentive Units vested on September 2, 2021 (“vesting date”) and the performance vesting condition was met for the Tranche II Incentive Units. The fair value determined at the date of the amendment of the Class P Unit Incentive Plan was immediately recognized as compensation expense on the vesting date for Tranches I and III. Compensation expense for the Tranche II Incentive Units was recognized over the derived service period of twelve months from the modification
date, which resulted in approximately seventy-five percent of the compensation expense for Tranche II being recognized as of December 31, 2021 and $2.4 million of compensation expense being recognized during the six months ended June 30, 2022. As of June 30, 2022, there was no unrecognized compensation costs related to Tranche II Incentive Units.
Stock Options
Pursuant to the Plan, the Company’s board of directors granted certain Grantees, options to purchase shares of the Company’s common stock with a contractual term of 10 years. The options vest over a three-year term as follows: 33.3% on the first anniversary of the grant date, 33.3% on the second anniversary of the grant date, and 33.4% on the third anniversary of the grant date. Vesting is contingent upon continued employment or service to the Company; both the vested and unvested portion of a Grantee’s option will be immediately forfeited and cancelled if the Grantee ceases employment or service to the Company. The Company recognizes equity-based compensation expense for the options equal to the fair value of the awards on a straight-line basis over the service based vesting period and recognizes forfeitures as they occur.
The fair value of options granted under the Plan was estimated on the grant date under the Black-Scholes OPM using the following assumptions:
In connection with the Separation and Release Agreement, the terms of stock options previously issued to the Company’s former CFO were modified to remove the service requirement for vesting. Accordingly, the unvested portion continues to vest for a period of 12 months following the Effective Date. The exercise period of vested stock options was also modified to be 24 months following the Effective Date. Due to these modifications, a portion of the original options were forfeited and the Company determined the fair value of the remaining options as of the Effective Date using the assumptions above. As a result, the Company recognized a net reduction of $0.1 million in equity-based compensation expense during the three and six months ended June 30, 2022.
As of June 30, 2022, there were 1,444,600 shares outstanding and $3.4 million of unrecognized compensation cost related to unvested stock options granted under the Plan. There were no shares that were granted, vested or were exercisable under the Plan and 101,800 shares forfeited during the three and six months ended June 30, 2022, respectively.
Restricted Stock Units
Restricted stock units awarded under the Plan are generally subject to forfeiture in the event of termination of employment prior to vesting dates. The Company recognizes equity-based compensation expense for the restricted stock units equal to the fair value of the awards on a straight-line basis over the service based vesting period and recognizes forfeitures as they occur.
On May 18, 2022, the Company granted 124,401 shares of restricted units of the Company’s common stock to certain members of the Company’s senior management in lieu of cash to settle the 2021 annual bonus. The shares immediately vested and the weighted average grant date fair value of these awards was 4.12 per share. Because the service inception date preceded the grant date, the Company recognized additional bonus expense of $15 thousand measured as the excess of the grant date fair value over amounts previously accrued as of December 31, 2021. These costs were included in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2022.
On May 26, 2022, the Company granted 164,475 shares of restricted stock units of the Company’s common stock to non-employee directors. The shares of restricted stock vest over one year. The weighted average grant date fair value of these awards was $4.02 per share. Accordingly, total equity-based compensation expense of $661 thousand will be recognized over the respective vesting period for these awards.
Also in connection with the Separation and Release Agreement, the terms of restricted stock units previously granted to the Company’s former CFO were modified to remove the service requirement for vesting. Accordingly, the unvested portion continues to vest for a period of 12 months following the Effective Date. Due to these modifications, a portion of the original restricted stock units were forfeited and the Company determined the fair value of the remaining options as of the Effective Date to be $4.31 per share. As a result, the Company recognized a net reduction of $0.1 million in equity-based compensation expense during the three and six months ended June 30, 2022.
A summary of the status of the Company’s restricted stock units as of June 30, 2022, and changes during the six months ended June 30, 2022, is presented as follows:
As of June 30, 2022, there was approximately $13.9 million of total unrecognized compensation cost related to unvested restricted stock units granted under the Plan. This cost is expected to be recognized over a weighted-average period of 2.1 years. There were a total of 124,401 shares of restricted stock units that vested during the three and six months ended June 30, 2022.
The table below presents the equity-based compensation expense recorded during the following periods:
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