In February 2021, the Company’s Parent, BBAI Ultimate Holdings, LLC (“Parent”), adopted a compensatory benefit plan (the “Class B Unit Incentive Plan”) to provide incentives to directors, managers, officers, employees, consultants, advisors, and/or other service providers of the Company’s Parent or its Subsidiaries in the form of the Parent’s Class B 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 Incentive Units are subject to performance-based, service-based, and market-based conditions. The grant date fair value for the Incentive Units was $5.19 per unit.

On July 29, 2021, the Company’s Parent amended the Class B Unit Incentive Plan so that the Tranche I and the Tranche III Incentive Units immediately became fully vested, subject to continued employment or provision of services, upon the closing of the transaction stipulated in the Agreement and Plan of Merger (the “Merger Agreement”) dated June 4, 2021. The Company’s Parent also amended the Class B Unit Incentive Plan so that the Tranche II Incentive Units will vest on any liquidation event, as defined in the Class B Unit Incentive Plan, rather than only upon the occurrence of an Exit Sale, subject to the market-based condition stipulated in the Class B Unit Incentive Plan prior to its amendment.

Equity-based compensation for awards with performance conditions is based on the probable outcome of the related performance condition. The performance conditions required to vest per the amended Incentive Plan remain improbable until they occur due to the unpredictability of the events required to meet the vesting conditions. As such events are not considered probable until they occur, recognition of equity-based compensation for the Incentive Units is deferred until the vesting conditions are met. Once the

event occurs, unrecognized compensation cost associated with the performance-vesting Incentive Units (based on their modification date fair value) will be recognized based on the portion of the requisite service period that has been rendered.

The volatility used in the determination of the fair value of the Incentive Units was based on analysis of the historical volatility of guideline public companies and factors specific to the Successor.

On December 7, 2021, the previously announced Merger was consummated. As a result, the Tranche I and Tranche III Incentive Units immediately became fully vested and the performance condition for the Tranche II Incentive Units was met. The fair value determined at the date of the amendment of the Class B 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 is recognized over the derived service period of 30 months from the modification date. The remaining compensation expense for the Tranche II Incentive Units will be recognized over the remaining service period of approximately 25 months.

As of June 30, 2023, there was approximately $2,456 of unrecognized compensation costs related to Tranche II Incentive Units, which is expected to be recognized over the remaining weighted average period of 0.58 years.

On December 7, 2021, the Company adopted the BigBear.ai Holdings, Inc. 2021 Long-Term Incentive Plan (the “Plan”). The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by providing eligible employees, prospective employees, consultants, and non-employee directors of the Company the opportunity to receive stock- and cash-based incentive awards.

During the six months ended June 30, 2023, pursuant to the Plan, the Company’s Board of Directors granted certain grantees Stock Options to purchase shares of the Company’s common stock at a weighted-average exercise price of $2.00. The Stock Options vest over four years with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter during years two, three and four. Vesting is contingent upon continued employment or service to the Company and is accelerated in the event of death, disability, or a change in control, subject to certain conditions; both the vested and unvested portion of a Grantee’s Stock Options will be immediately forfeited and cancelled if the Grantee ceases employment or service to the Company. The Stock Options expire on the 10th anniversary of the grant date.

Number of Stock Options granted

2,627,325

Price of common stock on the grant date

$1.93 to $2.74

Expected option term (in years)

5.8 to 6.2

Expected volatility(1)

96.8% to 118%

Risk-free rate of return

3.3% to 3.9%

Expected annual dividend yield

—%

Fair value of the Stock Options on the grant date

$1.51 to $2.29

The table below presents the activity in the Stock Options:


	Stock Options Outstanding	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value











Outstanding as of December 31, 2022	2,982,893	$	2.89	9.64	$	—
Granted	2,627,325	2.00


Forfeited	(523,415)	2.56
Expired	(31,504)	8.32
Outstanding as of June 30, 2023	5,055,299	$	2.42	9.44	$	3,108

Vested and exercisable as of June 30, 2023	251,275	$	6.05	8.83	$	67

The Stock Options had $3,108 intrinsic value as of June 30, 2023. The Company recognizes equity-based compensation expense for the Stock Options equal to the fair value of the awards on a straight-line basis over the service based vesting period. As of June 30, 2023, there was approximately $6,605 of unrecognized compensation costs related to the Stock Options, which is expected to be recognized over the remaining weighted average period of 2.54 years.

During the six months ended June 30, 2023, pursuant to the Plan, the Company’s Board of Directors communicated the key terms and committed to grant Restricted Stock Units (“RSUs”) to certain employees and nonemployee directors. The Company granted 7,206,201 RSUs to employees during the six months ended June 30, 2023. RSUs granted to employees generally vest over four years, with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter during years two, three and four. RSUs granted to nonemployee directors vest 25% each quarter following the grant date. Vesting of RSUs is accelerated in the event of death, disability, or a change in control, subject to certain conditions.

The table below presents the activity in the RSUs:


	RSUs Outstanding	Weighted-Average Grant Date Fair Value Per Share








Unvested as of December 31, 2022	7,595,185	$	2.35
Granted	7,206,201	2.05
Vested	(3,014,846)	1.77
Forfeited	(1,026,518)	3.36
Unvested as of June 30, 2023	10,760,022	$	2.22

As of June 30, 2023, there was approximately $22,658 of unrecognized compensation costs related to the RSUs, which is expected to be recognized over the remaining weighted average period of 3.11 years.

Pursuant to the Plan, the Company’s Board of Directors communicated the key terms and granted Performance Stock Units (“PSUs”) to certain employees. The Company grants PSUs to certain employees with performance measures specific to the role of that employee (“Discretionary PSUs”). During the six months ended June 30, 2023, the Company granted 182,482 Discretionary PSUs. The Company also granted 1,251,636 PSUs to employees under the Company’s Short-term Incentive Plan (“STIP PSUs”), which contain performance measures based on a combination of Company’s financial performance as well as the individual’s personal performance. The number of Discretionary PSUs and STIP PSUs that will vest is based on the achievement of the performance criteria during each respective annual measurement period, provided that the employees remain in continuous service on each vesting date. Vesting will not occur unless a minimum performance criteria threshold is achieved.


	PSUs Outstanding	Weighted-Average Grant Date Fair Value Per Share








Unvested as of December 31, 2022	287,500	$	4.86
Granted	1,434,118	2.01

Forfeited	(186,757)	6.76
Unvested as of June 30, 2023	1,534,861	$	1.96

As of June 30, 2023, it was not considered probable that the performance conditions of the Discretionary PSUs would be achieved. As a result, no equity-based compensation was recognized for the Discretionary PSUs during the six months ended June 30, 2023.

As of June 30, 2023, it was considered probable that the performance conditions of the STIP PSUs would be achieved. There was approximately $780 of unrecognized compensation costs related to the STIP PSUs, which is expected to be recognized over the remaining weighted average period of 0.73 years.

Concurrently with the adoption of the Plan, the Company’s Board of Directors adopted the 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. As of January 1, 2022, the Company reserved an aggregate of 3,974,948 common shares (subject to annual increases on January 1 of each year and ending in 2031) of the Company’s common stock for grants under the ESPP. As of June 30, 2023, 1,216,532 shares had been sold under the ESPP and the Company has withheld employee contributions of $661, which are presented on the consolidated balance sheets within other current liabilities.

Equity-based compensation expense related to purchase rights issued under the ESPP is based on the Black-Scholes OPM fair value of the estimated number of awards as of the beginning of the offering period. Equity-based compensation expense is recognized using the straight-line method over the offering period. The table below presents the assumptions used to estimate the grant date fair value of the purchase rights under the ESPP:


ESPP grant date	June 1, 2023		December 1, 2022
Price of common stock on the grant date	$	2.09	$	0.88
Expected term (in years)	0.50		0.50
Expected volatility(1)	162.2%		110.0%
Risk-free rate of return	5.4%		4.6%
Expected annual dividend yield	—%		—%

Fair value of the award on the grant date	$	1.23	$	0.40

As of June 30, 2023, there was approximately $760 of unrecognized compensation costs related to the ESPP, which is expected to be recognized over the remaining weighted average period of 0.42 years.

The table below presents the total equity-based compensation expense recognized for Class B Units, Stock Options, RSUs, PSUs and ESPP in selling, general and administrative expense, cost of revenues, and research and development for the following periods:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Equity-based compensation expense in selling, general and administrative	$	2,319	$	3,928	$	5,122	$	6,999
Equity-based compensation expense in cost of revenues	1,442		1,009		2,316		1,709
Equity-based compensation expense in research and development	233		143		361		230
Total equity-based compensation expense	$	3,994	$	5,080	$	7,799	$	8,938