2013 Equity Incentive Plan

In 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”) which provided for the grant of qualified incentive stock options (“ISO”) and nonqualified stock options (“NSO”), restricted stock, restricted stock units (“RSU”) or other awards to the Company’s employees, officers, directors, advisors, and outside consultants. After the Closing Date and consummation of the Business Combination effective March 2, 2022, no additional awards were issued under the 2013 Plan. Awards outstanding under the 2013 Plan will continue to be governed by such plan; however, the Company will not grant any further awards under the 2013 Plan.

2022 Equity Incentive Plan

In connection with the Business Combination (Note 3), the shareholders approved the Rigetti Computing, Inc. 2022 Equity Incentive Plan (the “2022 Plan”) in February, 2022, which became effective immediately upon the Closing Date. The 2022 Plan provides for the grant of ISOs, NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards (RSUs), performance awards and other forms of awards to employees, directors, and consultants, including employees and consultants of Company’s affiliates. The aggregate number of shares of Common Stock initially reserved for issuance under the 2022 Plan was 20,184,797 shares. As of June 30, 2023, 9,420,706 shares were available for future issuance under the 2022 Plan. The number of shares reserved for issuance under the 2022 Plan will automatically increase on January 1 of each year for a period of nine years commencing on January 1, 2023 and ending on (and including) January 1, 2032, in an amount equal to 5% of the Common Stock of all classes outstanding on December 31 of the preceding year; provided, however, that the board of directors of the Company may act prior to January 1 of a given year to provide that the increase for such year will be a lesser number of shares of Common Stock.

Stock Option Activity

The following is a summary of stock option activity in the six months ended June 30, 2023:

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The weighted-average grant date fair value of stock options granted during the six months ended June 30, 2023 was $0.55 per share. No stock options were granted in the six months ended June 30, 2022. The intrinsic value of an option is the amount by which the market price of the underlying common stock exceeds the option’s exercise price. For options outstanding at June 30, 2023, the weighted average remaining contractual term of all outstanding options was 7.70 years and their aggregate intrinsic value was $3.6 million. At June 30, 2023, the weighted average remaining contractual term of options that were exercisable was 6.3 years and their aggregate intrinsic value was $2.2 million. The aggregate intrinsic value of stock options exercised was $1.4 million in the six months ended June 30, 2023 and $7.1 million in the six months ended June 30, 2022. We received proceeds from stock option exercises of $0.9 million in the six months ended June 30, 2023 and $0.6 million in the six months ended June 30, 2022.

Fair Value of Stock Option Grants

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions noted in the table below. Expected volatility for the Company’s Common Stock was determined based on an average of the historical volatility of a peer group of similar public companies. The expected term of options granted was calculated using the simplified method, which represents the average of the contractual term and the weighted-average vesting period of the option. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate expected term. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The risk-free rate is based upon the U.S. Treasury yield curve in effect at the time of grant for the period equivalent to the expected life of the option. In determining the exercise prices for options granted, the Company’s board of directors has considered the fair value of the Common Stock as of the grant date. Before the Company’s common stock was publicly traded, the fair value of the Common Stock had been determined by the board of directors at each award grant date based upon a variety of factors, including the results obtained from an independent third-party valuation, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s products, the composition and ability of the current engineering and management team, an evaluation or benchmark of the Company’s competition, the current business climate in the marketplace, the illiquid nature of the Common Stock, arm’s-length sales of the Company’s capital stock (including redeemable convertible preferred stock), the effect of the rights and preferences of the preferred shareholders, and the prospects of a liquidity event, among others.

No stock options were granted in the six months ended June 30, 2022. All stock options granted in the six months ended June 30, 2023 were time-based grants. Significant inputs to the Black-Scholes option-pricing model used to value stock option grants in the six months ended June 30, 2023 were as follows:

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Stock-based compensation expense related to stock options granted to employees was $0.4 million and $0.8 million in the three and six months ended June 30, 2023, respectively. Stock-based compensation expense related to stock options granted to employees was $0.3 million and $0.6 million in the three and six months ended June 30, 2022, respectively. As of June 30, 2023, the unrecognized compensation expense related to unvested stock options was approximately $2.7 million which is expected to be recognized over a weighted-average period of approximately 2.46 years.

Restricted Stock Units

The following is a summary of activity in RSUs in the six months ended June 30, 2023:

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On March 2, 2022, the performance condition of all then outstanding RSUs was met due to the closing of the Business Combination. As a result, the Company recorded a cumulative catch-up compensation expense for the vesting period that was satisfied as of March 2, 2022 and continues amortizing compensation expenses for unvested RSUs over their remaining vesting period.

The aggregate fair value of outstanding RSUs based on the closing share price of our common stock as of June 30, 2023 was $13.3 million. The aggregate fair value of the RSUs that vested, based on the closing price of our common stock on the vesting date, in the six months ended June 30, 2023 was $1.4 million.

Fair Value RSUs Awards

In the six months ended June 30, 2023, the Company issued 1,603,371 time-based RSUs and 3,850,000 market-based performance RSUs. The time- based RSUs vest over periods ranging from 1-4 years and require continuous employment. The market-based performance RSUs vest only if certain share price thresholds are achieved and require continuous employment. Based upon the terms of such awards, 50% of the shares vest if the Company’s Common Stock trades at or above $2.00 per share, and the other 50% of the shares vest if the Company’s Common Stock trades at above $4.00 per share, for 20 out of 30 trading days through the fifth anniversary of the grant date. The fair value of the Company’s time-based RSUs was calculated based on the fair market value of the Company’s stock on the date of grant. The fair value of the Company’s market-based performance RSUs was calculated using a Monte Carlo simulation model at the date of grant. The weighted-average grant date fair value for market-based RSUs granted in the six months ended June 30, 2023 was $0.56 per RSU.

Significant inputs into the Monte Carlo simulation model used to value market-based RSUs granted in the six months ended June 30, 2023 were as follows:

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Stock-based compensation expense related to RSUs granted to employees was $3.0 million and $4.3 million in the three and six months ended June 30, 2023, respectively. Stock-based compensation expense related to RSUs granted to employees was $10.7 million and $21.9 million in the three and six months ended June 30, 2022, respectively. As of June 30, 2023, the unrecognized compensation expense related to unvested RSUs was approximately $23.2 million which is expected to be recognized over a weighted-average period of approximately 2.20 years.

Summarized Stock-Based Compensation Expenses

The table below summarizes total stock-based compensation expenses in the three and six months ended June 30, 2023 and June 30, 2022:

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