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 “Gig Business Combination 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 modification date fair value of the Incentive Units was $9.06 per unit. The assumptions used in determining the fair value of the Incentive Units at the modification date are as follows:

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 Company.

On December 7, 2021, the the previously announced merger with GigCapital4, Inc. 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 from the date of the amendment.

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.

The table below presents the activity of outstanding 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, 2023	5,127,673	$	2.14	9.03	$	2,209


Exercised	(87,324)	1.35
Forfeited	(800,858)	2.36
Expired	(60,915)	3.43
Outstanding as of June 30, 2024	4,178,576	$	2.09	8.48	$	372

Vested and exercisable as of June 30, 2024	1,430,565	$	2.28	8.30	$	150

The stock options had $0.4 million intrinsic value as of June 30, 2024. 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, 2024, there was approximately $3.1 million of unrecognized compensation costs related to the stock options, which is expected to be recognized over the remaining weighted average period of 1.78 years.

During the six months ended June 30, 2024, pursuant to the Plan, the Company’s Board communicated the key terms and committed to grant Restricted Stock Units (“RSUs”) to certain employees and certain nonemployee directors and consultants. The Company granted 9,228,544 RSUs to employees and no RSUs to nonemployee directors during the six months ended June 30, 2024. 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 on the two, three and four year anniversary of the grant date. RSUs granted to nonemployee directors vest 25% each quarter following the grant date or 100% upon the first anniversary of 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, 2023	10,052,113	$	2.11
Granted	9,240,739	2.04
Vested	(2,868,984)	2.15
Forfeited	(1,331,852)	2.44
Unvested as of June 30, 2024	15,092,016	$	2.03

As of June 30, 2024, there was approximately $28.8 million of unrecognized compensation costs related to the RSUs, which is expected to be recognized over the remaining weighted average period of 1.62 years.

Pursuant to the Plan, the Company’s Board communicated the key terms and granted Performance Stock Units (“PSUs”) to certain employees. The Company grants PSUs to certain employees as a retention incentive. During the six months ended June 30, 2024, the Company granted 1,932,946 PSUs (“Retention PSUs”). The Company also granted 1,736,737 Short-term Incentive PSUs (“STI PSUs”) to employees, which contain performance measures based on a combination of Company’s financial performance as well as the individual’s personal performance. The number of Retention PSUs and STI 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, 2023	2,585,831	$	1.70
Granted	3,669,683	2.74
Vested	(2,456,977)	1.80
Forfeited	(578,434)	1.77
Unvested as of June 30, 2024	3,220,103	$	2.79

As of June 30, 2024, there was approximately $6.6 million of unrecognized compensation costs related to the Retention PSUs and STI PSUs, which is expected to be recognized over the remaining average period of 0.90 years.

Concurrently with the adoption of the Plan, the Company’s Board 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. During the six months ended June 30, 2024, 474,325 shares were sold under the ESPP. As of June 30, 2024, the Company has withheld employee contributions of $0.1 million for future ESPP purchases, 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:



	June 30, 2024	December 31, 2023

Price of common stock on the grant date	$1.50	$1.80 to $2.09
Expected term (in years)	0.50	0.50
Expected volatility(1)	122.9%	94.9% to 162.2%
Risk-free rate of return	5.3%	5.3% to 5.4%
Expected annual dividend yield	—%	—%

Fair value of the award on the grant date	$0.74	$0.75 to $1.23

As of June 30, 2024, there was approximately $0.5 million of unrecognized compensation costs related to the ESPP, which is expected to be recognized over the remaining weighted average period of 0.50 years.

The table below presents the total equity-based compensation expense recognized for Incentive 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,
	2024		2023		2024		2023
Equity-based compensation expense in selling, general and administrative	$	3,980	$	2,319	$	6,151	$	5,122
Equity-based compensation expense in cost of revenues	799		1,442		3,452		2,316
Equity-based compensation expense in research and development	970		233		1,303		361
Total equity-based compensation expense	$	5,749	$	3,994	$	10,906	$	7,799