Nauticus Robotics, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

On September 6, 2022, shareholders approved our 2022 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) and on September 9, 2022, our board of directors ratified the Omnibus Incentive Plan. The Omnibus Incentive Plan provides for the grant of options, stock appreciation rights, RSUs, restricted stock and other stock-based awards, any of which may be performance-based, and for incentive bonuses, which may be paid in cash, Common Stock or a combination thereof. As of December 31, 2023, there were 10,525,072 shares authorized for issuance under the Omnibus Incentive Plan, and there were 7,651,662 remaining shares available for future grants.

At the Closing Date of the Business Combination, Nauticus Robotics Holdings, Inc. had 279,464 options outstanding for the purchase of its common stock (originally issued under the 2015 Plan). The outstanding options were converted into 3,970,266 options to purchase shares of our Common Stock. As of December 31, 2023, 3,011,247 of those options remained outstanding and there were no remaining shares available for future grant. Options vest assuming continuous service to the Company with 25% of the options vesting one year after grant and the balance vesting in a series of 36 successive equal monthly installments measured from the first anniversary of grant. During the vesting period, holders have no rights of a stockholder with respect to the shares of Common Stock subject to an option, and the options may not be sold, assigned, transferred, pledged, or otherwise encumbered. Unvested options are forfeited upon termination of employment.

Compensation expense for stock option grants is recognized based on the fair value at the date of grant using the Black-Scholes option pricing model.

The following inputs were used to calculate the fair value of the options as of the date of each grant:


	Years ended December 31,
	2023	2022

Expected volatility	N/A	36.7 - 36.9%

Expected term (years)	N/A	4.69 - 4.94

Risk-free interest rate	N/A	4.03% - 4.06%

Expected dividends	0.00%	0.00%

The expected volatility was calculated using the historical volatility of the Company’s publicly traded common stock. The Company used the “simplified method” for estimating the expected term of options, which is the average of the weighted-average vesting period and contractual term of the option. The risk-free rate was based on the U.S. Treasury yield

curve in effect at the time of grant for the expected term of the stock options. The Company assumed the expected dividends to be zero as it has never paid dividends and at the grant date of the options had no plans to do so.

Stock-based compensation expense, which relates to options originally issued under the 2015 Plan, totaled $530,019 in 2023 and $784,320 in 2022 and was recorded in general and administrative expense. As of December 31, 2023, there was $800,513 of total unrecognized compensation cost related to options to be recognized over a remaining weighted average period of 1.68 years.

The following table summarizes options outstanding, as well as activity for the period presented:


	Shares	Weighted Average Exercise Price				Aggregate Intrinsic Value

Outstanding as of December 31, 2022	3,506,184	$	1.87			$	6,554,541
Exercised	(227,837)	$	1.85
Forfeited	(92,040)	$	1.98
Expired	(175,060)	$	2.18
Outstanding as of December 31, 2023	3,011,247	$	1.85	$	1.85	$	9,717

Exercisable as of December 31, 2023	2,259,124	$	1.74			$	9,717

The weighted average remaining contractual term of outstanding options and exercisable options as of December 31, 2023, was 3.9 years and 3.97 years, respectively. The maximum contractual term of options is ten years.

The weighted-average grant-date fair value of options granted during the years ended December 31, 2023 and 2022 was $0 and $1.31, respectively. The total intrinsic value of all options exercised during the years ended December 31, 2023 and 2022 was $104,985 and $0, respectively.

During the year ended December 31, 2023, proceeds from option exercises under the 2015 plan were $421,175 and the tax benefit realized from those option exercises was $196,711. Realization of this amount is dependent on the generation of future taxable income.

The following tabulation summarizes certain information related to outstanding and exercisable options at December 31, 2023:


				Options Outstanding				Options Exercisable
Range of Exercise Prices				As of December 31, 2023	Weighted Average Remaining Contractual Life In Years	Weighted Average Exercise Price		As of December 31, 2023	Weighted Average Exercise Price

$	0.63	$	0.63	197,103	1.86	$	0.63	197,103	$	0.63
$	0.70	$	0.70	71,034	2.49	$	0.70	71,034	$	0.70
$	1.13	$	1.13	237,963	3.31	$	1.13	237,963	$	1.13
$	1.46	$	1.46	235,833	6.67	$	1.46	191,613	$	1.46
$	1.94	$	1.94	1,586,707	4.74	$	1.94	1,225,479	$	1.94
$	2.50	$	2.50	682,607	1.93	$	2.50	335,932	$	2.50
$	0.63	$	2.50	3,011,247	3.90	$	1.85	2,259,124	$	1.74

Incentive Plans – The Compensation Committee and Board of Directors grant restricted units of our common stock to certain of our key executives, employees, and non-employee directors. Each Restricted Stock Unit (“RSU”) is a notional amount that represents the right to receive one share of common stock of the Company if and when the RSUs vest. RSUs were issued to the following recipients and vest as follows:

Employee RSU grants are time-based and typically vest equally over a three-year period, conditional upon continued employment.

Non-employee director RSU grants are time-based and vest fully on the earlier of the one-year anniversary of the grant date or the next Board of Directors Annual General Meeting if a grantee is not on the election ballot, conditional upon continued service as a director.

Executive RSU grants issued as executive sign-on bonuses are time-based and vest 50% on the one-year anniversary of the new hire date and 50% on the two-year anniversary of the new-hire date.

In addition, during 2022, the Compensation Committee and Board of Directors granted Performance-based Restricted Stock Units (“PRSUs”) to senior executives. Each PRSU is a notional amount that represents the right to receive one share of common stock if and when the PRSU vests. PRSU participants may earn between 0% and 150% of the PRSUs, subject to attainment of certain performance conditions which were based upon the Company’s 2022 revenues.

In April 2023, the Company’s board of directors determined that 51% of the performance target of the PRSUs was achieved and an aggregate 619,438 PRSUs were deemed earned by the members of the senior executive management team and vested/will vest 50% on December 31, 2023 and 50% on December 31, 2024, in accordance with the terms of the applicable award agreements.

The Compensation Committee has a policy that the Company will not provide U.S. federal income tax gross-up payments to any of its directors or executive officers in connection with future awards of restricted stock or stock units.

The following is a summary of our restricted and performance stock unit activity for 2023:


	Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2022	3,134,677	$	4.73
Granted	1,185,666	1.97
Vested	(501,437)	4.31
Forfeited	(1,446,933)	4.60
Outstanding as of December 31, 2023	2,371,973	$	3.51

The weighted-average grant-date fair value of RSUs and PRSUs granted during the year ended December 31, 2023 and 2022 was $1.97 and $4.73, respectively. The total fair value of RSUs and PRSUs vested during the years ended December 31, 2023 and 2022 was $1,132,352 and $0.

The RSUs and PRSUs granted in 2022 and 2023 do not have voting rights or dividend rights unless the RSU or PRSU has vested and the share of common stock underlying it has been distributed to the participant.

Grants of RSUs are valued at their estimated fair values as of their respective grant dates. RSU grants in 2022 and 2023 were subject only to service and vesting conditions based on continued employment or service as a non-employee director; therefore, these grants were valued using the closing price of our stock on the Nasdaq Capital Market on the date of grant. The PRSUs granted in 2022 were subject only to performance and service conditions and did not contain a market condition. As a result, these grants were also valued using the closing price of our stock on the Nasdaq Capital Market on the date of grant.

Stock-based compensation expense attributable to PRSUs under the Omnibus Incentive Plan for the years ended December 31, 2023 and December 31, 2022 was $480,279 and $858,278, respectively and recorded in general and

administrative expense. Stock-based compensation expense attributable to RSUs under the Omnibus Incentive Plan for years ended December 31, 2023 and December 31, 2022, respectively, was $3,416,775 and $959,367 and recorded in general and administrative expense. As of December 31, 2023, we had $386,976 of future expense related to PRSUs and $4,384,798 of future expense related to RSUs to be recognized over a weighted-average period of 2.16 years.

Total stock-based compensation expense for the years ended December 31, 2023 and December 31, 2022, including options, PRSUs, and RSUs, totaled $4,427,073 and $2,602,175, respectively. Total related recognized tax benefit for the years ended December 31, 2023 and 2022, was $818,000 and $409,000, respectively.