5E Advanced Materials Inc

10. Share Based Compensation

2022 Equity Compensation Plan

In March 2022, the Company’s Board of Directors adopted the 5E Advanced Materials, Inc. 2022 Equity Compensation Plan (the “Incentive Plan”). A total of 2.5 million shares of common stock are reserved for issuance under the Incentive Plan. The Incentive Plan authorizes the grant of stock options, restricted share units (“RSUs”), performance share units (“PSUs”), director restricted share units (“DSUs”), performance cash units and other equity-based awards. The Company’s Compensation Committee determines the exercise price for stock options and other equity-based awards, which may not be less than the fair market value of the Company’s common stock on the date of grant. As of June 30, 2024, approximately 1.2 million shares of common stock remain available for issuance under the Incentive Plan. It is the Company’s policy to issue new shares of Common Stock to satisfy stock option exercises.

Share Based Compensation Expense

Share based compensation expense is included in general and administrative expense and represents costs associated with RSUs, DSUs, PSUs and options activity. Share based compensation expense consisted of the following for the periods presented.

As of June 30, 2024, the Company had approximately $1.8 million of total unrecognized stock-based compensation expense related to unvested stock-based compensation awards that is expected to be recognized over a weighted average period of 1.2 years.

Stock Options

All stock options outstanding prior to the three-month period ended September 30, 2022 were granted under the predecessor parent company's employee share option plan (the “ABR Employee Share Option Plan”). New option grants are made under the Incentive Plan and vest ratably over the vesting period, which is generally three years orless. The fair value of stock option awards granted to directors, officers, employees and/or consultants is estimated on the grant date using the Black-Scholes option valuation model and theclosing price of the Company’s common shares on the grant date. Volatility is determined using the Company's historical stock price information. The significant assumptions used to estimate the fair value of stock option awards granted during the years ended June 30, 2024 and 2023, respectively, using the Black-Scholes option valuation model are as follows.

The following table summarizes stock option activity for each of the periods presented.

The weighted average remaining life of vested options as of June 30, 2024 and 2023 was approximately 1.4 years in each case. As of June 30, 2024 and June 30, 2023, the maximum expiration date for vested options was approximately 8.8 and 2.3 years, respectively.

As of June 30, 2024, there was $355 thousand of unrecognized compensation cost related to 341 thousand unvested stock options. This cost is expected to be recognized over a weighted-average remaining period of approximately 1.4 years. As of June 30, 2024 and June 30, 2023, the maximum expiration date for unvested options was approximately 3.1 and 9.8 years, respectively.

During the year ended June 30, 2024,275,000 options with a remaining term of approximately 1.9 years and an exercise price of $25.62, granted toone grantee, were cancelled and concurrently replaced with 50,000 RSUs that vest over two years. The modification did not result in any incremental compensation expense.

The following table summarizes the activity for unvested options for each of the periods presented.

As of June 30, 2024 and 2023, all outstanding stock options and vested stock options hadno intrinsic value as the exercise prices of the respective options exceeded the Company's stock price on such dates. There wereno options exercised during the year ended June 30, 2024. The intrinsic value of stock options exercised during the year ended June 30, 2023 was $6.2 million.

Full Value Awards (Restricted Share Units, Performance Share Units and Director Share Units)

The following table summarizes RSU, DSU and PSU activity under the Incentive Plan for each of the periods presented.

(1) During the year ended June 30, 2024, approximately 121.6 thousand PSUs were granted, which based on the achievement of certain financial and operational targets, could vest within a range of 0% to 100%. The targets are 1) construction of a large-scale commercial facility commencing prior to September 1, 2026; 2) the budget for the large-scale commercial facility remaining within a range of $342-418 million; and 3) an approved final investment decision in the large-scale commercial facility at a modeled internal rate of return of 20%. The determination of the percentage of shares that ultimately vest will be made at the three-year anniversary of the grant date based upon achievement of the performance targets over the applicable performance period.

(2) During the year ended June 30, 2023, approximately 181.4 thousand PSUs were granted, which based on the achievement of certain operational targets, could vest within a range of 0% to 100%. The targets are 1) commissioning and operation of the Small-Scale Facility; 2) obtaining formation flow, head grade and impurity profile data from the Small-Scale Facility; and 3) generating product data to ensure process design for detailed engineering. The determination of the percentage of shares that ultimately vest will be made at the three-year anniversary of the grant date based upon achievement of the performance targets over the applicable performance period.