v3.22.2.2
Equity-Based Compensation
9 Months Ended
Sep. 30, 2022
Share-Based Payment Arrangement [Abstract]  
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 September 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 September 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 September 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 nine months ended September 30, 2022. As of September 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.
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 nine months ended September 30, 2022.
On July 1, 2022, the Company’s board of directors approved the grant of up to 959,618 stock options to certain officers, managers and other eligible employees pursuant to the Plan. The contractual terms and vesting conditions for these awards are consistent with previous grants described above.
The fair value of options granted under the Plan was estimated on the grant date under the Black-Scholes OPM using the following assumptions:
2022 Grants 2021 Grants Modified Awards
Expected option term (years) 6 6 1.5
Expected volatility 59.50  % 32.80  % 45.90  %
Risk-free rate of return
2.90%
0.93%-1.15%
2.41  %
Expected annual dividend yield —  % —  % —  %
A summary of stock options activity under the Plan as of September 30, 2022 and changes during the nine months ended September 30, 2022 is presented as follows:
Shares Weighted-Average Grant Date Fair Value per Share Weighted-Average Exercise Price per Share Weighted-Average Remaining Contractual Term (Years)
Outstanding at December 31, 2021 1,546,400  $ 3.32  $ 10.00 
Granted 959,618  1.80  3.13 
Exercised —  —  — 
Forfeited (105,300) 3.32  10.03 
Outstanding at September 30, 2022
2,400,718  $ 2.71  $ 7.25  9.25

As of September 30, 2022, there were 2,400,718 stock options outstanding and $4.5 million of unrecognized compensation cost related to unvested stock options granted under the Plan. There were 499,135 stock options that vested and became exercisable during the three and nine months ended September 30, 2022.

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 restricted stock 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 restricted stock units 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 nine months ended September 30, 2022.

On May 26, 2022, the Company granted 164,475 restricted stock units of the Company’s common stock to non-employee directors. The restricted stock units vest over one year. The weighted average grant date fair value of these awards was $4.02 per share.

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 nine months ended September 30, 2022.

On July 1, 2022, the Company granted 1,366,034 restricted stock units to certain officers, managers and other eligible employees. The restricted stock units follow the same contractual terms and vesting conditions as the options described above. The weighted average grant date fair value of these awards was $3.13 per share.

On July 1, 2022, the Company granted 39,936 restricted stock units to the recently appointed non-employee director pursuant to the Non-Employee Director Compensation Policy. The weighted average grant date fair value was $3.13 per share. The restricted stock units vest over one year.
A summary of the status of the Company’s restricted stock units as of September 30, 2022, and changes during the nine months ended September 30, 2022, is presented as follows:
Restricted Shares Weighted-Average Grant Date Fair Value per Share Weighted-Average Remaining Contractual Term (in Years) Aggregate Intrinsic Value
Unvested at December 31, 2021 1,717,950  $ 11.66  1.8 $ 11,596 
Granted 1,694,846  3.29 
Vested (124,401) 4.12 
Forfeited (224,400) 10.88 
Unvested at September 30, 2022
3,063,995  $ 7.34  1.3 $ 7,292 

As of September 30, 2022, there was approximately $15.7 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 2.2 years. There were no restricted stock units that vested during the three months ended September 30, 2022 and a total of 124,401 restricted stock units that vested during the nine months ended September 30, 2022.

The table below presents the equity-based compensation expense recorded during the following periods:
Three Months Ended Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Cost of Sales
Incentive Units $ —  $ 1,454  $ 181  $ 1,454 
Stock Options 17  —  42  — 
Restricted Stock Units 594  —  1,760  — 
Total cost of sales $ 611  $ 1,454  $ 1,983  $ 1,454 
Selling, general and administrative expenses
Incentive Units —  21,089  2,171  21,089 
Stock Options 511  167  1,199  167 
Restricted Stock Units 1,396  209  3,319  209 
Total selling, general and administrative expenses $ 1,907  $ 21,465  $ 6,689  $ 21,465 
Total equity-based compensation expense $ 2,518  $ 22,919  $ 8,672  $ 22,919