The Company provides certain employees, non-employee directors and consultants with performance incentives under the Aquestive Therapeutics, Inc. Equity Incentive Plan (“the Plan”), adopted by the Board of Directors on June 15, 2018. Under this Plan, the Company may grant restricted stock units, stock options, or other stock-based awards in order to align the long-term financial interests of selected participants with those of its stockholders, strengthen the commitment of such persons to the Company, and attract and retain competent and dedicated persons whose efforts will enhance long-term growth, profitability and share value.

The service-based restricted stock units and stock options that have been awarded are subject to graded vesting over a service period, which is typically three years. The restricted stock units with vesting based on market conditions were awarded in 2023 and vest in three years on the anniversary of the first tranche award. Compensation cost is recognized for restricted stock units, both service-based awards and market conditions vesting-based awards, on a straight line basis over the requisite service period for each award granted. Compensation cost for stock option awards is recognized based on a pro-rata basis over the requisite period for each award granted.


Expense classification:	Year Ended December 31, 2023		Year Ended December 31, 2022
Manufacture and supply	$	191	$	203
Research and development	456		672
Selling, general and administrative	2,042		3,506
Total share-based compensation expenses	$	2,689	$	4,381
Share-based compensation from:
Restricted Stock Units	993		127
Stock Options	1,669		4,244
Employee Stock Purchase Plan	27		10
Total share-based compensation expenses	$	2,689	$	4,381

The following tables provide information about the Company’s restricted stock unit and stock option activity during the year ended December 31, 2023 and 2022.


Restricted Stock Unit Awards (RSUs) - Service-based:	Number of Units	Weighted Average Grant Date Fair Value Per Share
	(In thousands)
Unvested, December 31, 2021	—	$	—
Granted	192	2.37
Forfeited	(20)	2.21
Vested	(10)	2.55
Unvested, December 31, 2022	162	$	2.38
Granted	1,874	0.91
Forfeited	(31)	2.33
Vested	(57)	2.03
Unvested, December 31, 2023	1,948	$	0.97

The Company granted 1,874,300 service-based restricted stock units during 2023. The Company granted 192,000 service-based restricted stock units during 2022. During 2023, the total grant date fair market value of shares vested was $72.

As of December 31, 2023, $1,278 of total unrecognized compensation expenses related to unvested service-based restricted stock units are expected to be recognized over a weighted average period of 2.18 years from the date of grant. The service-based restricted stock units granted to employees are subject to a three-year graduated vesting schedule and are not subject to performance-based criteria other than continued employment.

The Company adopted the 2022 Equity Inducement Plan approved by the Compensation Committee of the Board of Directors of the Company effective as of July 29, 2022 pursuant to which the Compensation Committee of the Board of Directors may make inducement grants in accordance with Nasdaq Listing Rule 5635(c)(4). There were 150,000 awards granted and outstanding under this Plan as of December 31, 2023 and included in the service-based restricted stock units granted as described in the table above.


Restricted Stock Unit Awards (RSUs) - Market conditions vesting-based:	Number of Units	Weighted Average Grant Date Fair Value Per Share
	(In thousands)




Unvested, December 31, 2022	—	$	—
Granted	1,332	2.40
Forfeited	—	—
Vested	—	—
Unvested, December 31, 2023	1,332	$	2.40

The Company granted 1,332,000 market conditions vesting-based restricted stock units during 2023. There were no market conditions vesting-based restricted stock units granted in 2022.

As of December 31, 2023, $2,314 of total unrecognized compensation expenses related to unvested market conditions vesting-based restricted stock units are expected to be recognized over a weighted average period of 2.34 years from the date of grant.

The market conditions vesting-based restricted stock units vest based on a Performance Price measured as the 30-day average of the closing prices of the Company’s common stock as reported on the Nasdaq Stock Market immediately prior to and including the last calendar day of the three-year performance period (which ends on the third anniversary of the grant date). To the extent the Performance Price is less than $1.75, the Vesting Percentage will be zero. To the extent the Performance Price

is $1.75, the Vesting Percentage will be 50%. To the extent the Performance Price is $1.76 or greater, but less than $2.50, the Vesting Percentage will be a prorated amount between 50.01% and 99.99%, based on straight-line interpolation. To the extent the Performance Price is $2.50, the Vesting Percentage will be 100%. To the extent the Performance Price is $2.51 or greater, but less than $3.25, the Vesting Percentage will be a prorated amount between 100.01% and 149.99%, based on straight-line interpolation. To the extent the Performance Price is $3.25 or greater, the Vesting Percentage will be 150%. In no event will the Vesting Percentage exceed 150%.

The Company’s estimates of the fair value of market conditions vesting-based awards at their grant or valuation dates were based on a Monte Carlo simulation and considered various variables and assumptions, including a simulated 30-day average at the end of the Performance period including the following assumptions:


	Year Ended December 31,
		2023
Expected dividend yield		0%
Expected volatility		92%	-	95%
Expected term (years)		2.74	-	3.00
Risk-free interest rate		3.6%	-	4.4%
Stock price at grant date		$2.01	-	$2.04


(in 000s, except share price data)	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Outstanding at December 31, 2021	4,146	$	7.28	7.88	$	1,423
Granted	2,015	$	1.83

Forfeited and Expired	(133)	$	7.81
Outstanding at December 31, 2022	6,028	$	5.48	7.50	$	38
Granted	150	2.02
Exercised	(1)	$	0.88
Forfeited and Expired	(444)	$	2.27
Outstanding at December 31, 2023	5,733	$	5.58	6.41	$	1,082
Vested and expected to vest at December 31, 2023	5,674	$	5.62	6.32	$	1,050
Exercisable at December 31, 2023	4,324	$	6.59	5.98	$	596

The weighted average grant date fair value of stock options granted during 2023 and 2022 was $1.50 and $1.46, respectively. During the year ended December 31, 2023, 150,000 stock options were granted with an exercise price of $2.02 and accordingly, given the Company’s share price of $2.02 at December 31, 2023, the intrinsic value provided by certain shares granted during this period was de minimis.


	Year Ended December 31,
	2023	2022
Expected dividend yield	0%	0%
Expected volatility	100%	100%
Expected term (years)	5.50	5.50	-	6.13
Risk-free interest rate	4.0%	2.0%	-	4.3%
Exercise prices	$2.02	$0.71	-	$2.55

The Company anticipates reinvesting earnings for the foreseeable future in product development and other avenues of share-value growth and therefore used a dividend yield of zero. The estimate of volatility was determined based on an estimate of stock price volatility based on the historical trading data of comparable public companies at the time of grant given the lack of sufficient history for the Company's publicly-traded Common Stock. The expected term of the award was calculated using the simplified method and weighted average was utilized taking into account the vesting periods and contractual life. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options.

As of December 31, 2023, $1,421 of total unrecognized compensation expenses related to non-vested stock options is expected to be recognized over a weighted average period of 1.06 years from the date of grant. These option grants provided a maximum contract term of 10 years from grant date, with a weighted average remaining contract life of 6.41 years. Options granted to senior management and key employees are subject to a 3-year graded vesting schedule while options granted to the Board of Directors are subject to a one year cliff vesting schedule. These stock options are not subject to performance-based criteria other than continued employment.

The Company’s Employee Stock Purchase Plan (the "ESPP"), as amended and restated effective as of January 1, 2019, features two six-month offering periods per year, running from January 1 to June 30 and July 1 to December 31. Under the ESPP, employees of the Company may elect to purchase the Company’s Common Stock at the lower of 85% of the fair value of shares on either the first or last day of the offering period. Under the ESPP, a total of 250,000 shares of Common Stock were initially reserved for issuance. During the year ended 2023 and 2022, 36,168 and 45,304 shares were purchased and issued through the ESPP at total discounts of $27 and $10, respectively.