Note 10 — SHARE-BASED COMPENSATION

Legacy Montana Options

On April 5, 2023, Legacy Montana granted 383,151 options, as converted, exercisable for Class A common stock to key team members of Legacy Montana. The options immediately vested, had an exercise price of $0.49, as converted, a term of seven years, and a grant date fair value of $0.14, as converted. The Company used the Black-Scholes option pricing model to estimate the fair value of stock options. Fair value was estimated at the date of grant.

In January, February and March 2024, 13 Legacy Montana option holders exercised their options to purchase a total of 2,141,839 shares of Class A common stock, as converted, for a total purchase price of $56,250. In June 2024, one Legacy Montana option holder exercised its options to purchase a total of 8,000 shares of Class A common stock, as converted, for a total purchase price of $3,920.

In September 2024, three Legacy Montana option holders exercised their options to purchase a total of 67,495 shares of Class A common stock, as converted, for a total purchase price of $33,073.

In the three months ended December 31, 2024, three Legacy Montana option holders exercised their options to purchase a total of 85,496 shares of Class A common stock, as converted, for a total purchase price of $37,453.

In the three months ended March 31, 2025, four Legacy Montana option holders exercised their options to purchase a total of 147,579 shares of Class A common stock, as converted, for a total purchase price of $41,759.

As of March 31, 2025, of the 1,026,508 Legacy Montana options that are outstanding, 575,955 options expire on December 7, 2030, 71,395 options expire on March 15, 2031, 169,158 options expire on April 4, 2030, and 210,000 options expire on April 8, 2031.

2024 Incentive Award Plan

On March 8, 2024, the holders of XPDB common stock considered and approved the Montana Technologies Corporation’s 2024 Incentive Award Plan (the “Incentive Plan”), which became effective immediately upon the Closing on March 14, 2024. Under the Incentive Plan, the Company may grant equity and equity-based awards to certain employees, consultants and non-employee directors award, such as, (a) Incentive Stock Options (granted to employees only), (b) Non-Qualified Stock Options (“NSOs”), (c) Stock Appreciation Rights, (d) Restricted Stock Units, (e) Restricted Stock, (f) dividend equivalents and (g) other stock and cash-based awards of the Company (“Incentive Awards”). The sum of any cash compensation, or other compensation, and the value (determined as of the grant date in accordance with ASC 718, or any successor thereto) of awards granted to a non-employee director as compensation for services as a non-employee director during any fiscal year of the Company may not exceed $500,000 (or, with respect to the first fiscal year of the Post-Combination Company during which a non-employee director first serves as a non-employee director, $1,000,000). As of March 31, 2025, there were 5,120,881 shares of common stock available for future issuance under the Incentive Plan.

2024 Employee Stock Purchase Plan

The 2024 Employee Stock Purchase Plan (the “2024 ESPP”) became effective immediately upon the Closing on March 14, 2024 and as of March 31, 2025, a total of 1,074,213 shares of common stock are reserved for issuance under the 2024 ESPP. Eligible employees may purchase shares of common stock under the 2024 ESPP at 85% of the lower of the fair market value of the Company’s common stock as of the first or the last day of each offering period. Employees are limited to contributing 15% of the employee’s eligible compensation and may not purchase more than $25,000 of stock during any calendar year or more than 12,000 shares during any one purchase period. The 2024 ESPP share reserve automatically increases on January 1st of each calendar year, for ten years, commencing on January 1, 2025, in an amount equal to 1% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year. The Board may act prior to January 1st of a given year to provide that there will be no January 1st increase of the share reserve for such year or that the increase in the share reserve for such year will be a smaller number of shares of common stock than would otherwise occur pursuant to the preceding sentence. On January 1st, 2025, the share reserve increased by 559,286. During the three months ended March 31, 2025 and 2024, the Company did not issue shares as the first purchase date had not yet occurred.

The Company recorded share-based compensation expense in the following expense categories of its accompanying condensed consolidated statements of operations during the three months ended March 31, 2025. The Company did not record share-based compensation expense during the three months ended March 31, 2024.

Total share-based compensation includes expense for awards granted to non-employee equity method investees that are fully reimbursed by the AirJoule JV per the statement of work as described further in Note 8 – Related Party Transactions. As of the three months ended March 31, 2025, $84,684 is to be reimbursed by the AirJoule JV and is recorded as a due from related party receivable on the condensed consolidated balance sheets and within contra-expense accounts on the condensed consolidated statements of operations.

Stock Options

The following table summarizes stock option activity for the three months ended March 31, 2025:

There were no options granted during the three months ended March 31, 2025. As of March 31, 2025, the unrecognized compensation cost for options issued and then outstanding was $2.8 million and will be recognized over an estimated weighted-average amortization period of 2.96 years. The total intrinsic value of options exercised during the three months ended March 31, 2025 was $1.1 million. The aggregate intrinsic value of options outstanding and exercisable as of March 31, 2025 was $4.5 million.

Restricted Stock Units with Service-Only Conditions

The following table summarizes RSU with Service-Only Conditions activity for the three months ended March 31, 2025:

As of March 31, 2025, the unrecognized compensation cost for RSUs with service-only conditions was $6.8 million and will be recognized over an estimated weighted-average amortization period of 2.92 years. The fair values of RSUs with service-only conditions are based on the fair value of the Company’s common stock on the date of the grant. The 465,044 RSUs with service-only conditions that were granted during the three months ended March 31, 2025 consisted of 357,764 awards granted to employees and 107,280 awards granted to non-employee equity method investees. These awards vest as to 33.33% of the total awards granted on each of the first three anniversaries of the applicable vesting commencement date, subject to the applicable employee’s continued service through the applicable vesting date.

Restricted Stock Units with Market-Based Conditions

The following table summarizes RSU with Market-Based Conditions activity for the three months ended March 31, 2025:

As of March 31, 2025, the unrecognized compensation cost for RSUs with market-based conditions was $4.8 million and will be recognized over an estimated weighted-average amortization period of 2.87 years. The fair values of RSUs with market-based conditions are estimated using a Monte Carlo simulation model, which incorporates the likelihood of achieving the market condition. The 496,483 RSUs with market-based conditions that were granted during the three months ended March 31, 2025 consisted of 475,298 awards granted to employees and 21,185 awards granted to non-employee equity method investees. These awards vest subject to certain market conditions.

The Company records expense ratably over the requisite service period, with expense determined based on the grant date fair value regardless of whether the market condition is satisfied because the awards are subject to market conditions. These awards that remain subject to market conditions are reflected at the target level, which is consistent with how expense will be recorded, regardless of the numbers of shares that are expected to be earned. The grant date fair value of the awards granted is established using the Monte Carlo simulation model. The following summarizes the assumptions used to estimate the fair value of the RSUS with market-based conditions that were granted during the three months ended March 31, 2025:

Restricted Stock Units with Performance-Based Conditions

The Company granted 201,279 RSUs with performance-based conditions during the three months ended March 31, 2025 which consisted of 192,691 awards granted to employees and 8,588 awards granted to non-employee equity method investees. These awards vest subject to certain performance-based conditions. During three months ended March 31, 2025, the Company did not recognize any stock-based compensation expense associated with RSUs with performance-based conditions.

Note 11 — SHARE-BASED COMPENSATION

Legacy Montana Options

On April 5, 2023, Legacy Montana granted 383,151 options, as converted, exercisable for Class A common stock to key team members of Legacy Montana. The options immediately vested, had an exercise price of $0.49, as converted, a term of seven years, and a grant date fair value of $0.14, as converted. The Company used the Black-Scholes option pricing model to estimate the fair value of stock options. Fair value was estimated at the date of grant.

In January, February and March 2024, 13 Legacy Montana option holders exercised their options to purchase a total of 2,141,839 shares of Class A common stock, as converted, for a total purchase price of $56,250. In June 2024, one Legacy Montana option holder exercised its options to purchase a total of 8,000 shares of Class A common stock, as converted, for a total purchase price of $3,920.

In September 2024, three Legacy Montana option holders exercised their options to purchase a total of 67,495 shares of Class A common stock, as converted, for a total purchase price of $33,073.

In the three months ended December 31, 2024, three Legacy Montana option holders exercised their options to purchase a total of 85,496 shares of Class A common stock, as converted, for a total purchase price of $37,453.

As of December 31, 2024, of the 1,174,089 Legacy Montana options that are outstanding, 594,955 options expire on December 7, 2030, 71,395 options expire on March 15, 2031, 234,160 options expire on April 4, 2030, and 273,579 options expire on April 8, 2031.

2024 Incentive Award Plan

On March 8, 2024, the holders of XPDB common stock considered and approved the Montana Technologies Corporation’s 2024 Incentive Award Plan (the “Incentive Plan”) and Montana Technologies Corporation’s 2024 Employee Stock Purchase Plan (the “ESPP” and together with the Incentive Plan, the “Incentive Plans”), which became effective immediately upon the Closing on March 14, 2024. Under the Incentive Plans, the Company may grant equity and equity-based awards to certain employees, consultants and non-employee directors award, such as, (a) Incentive Stock Options (granted to employees only), (b) Non-Qualified Stock Options (“NSOs”), (c) Stock Appreciation Right, (d) Restricted Stock Units (e) Restricted Stock (“RSUs”), (f) dividend equivalents and (g) other stock and cash-based awards of the Company (“Incentive Award”). The sum of any cash compensation, or other compensation, and the value (determined as of the grant date in accordance with ASC 718, or any successor thereto) of awards granted to a non-employee director as compensation for services as a non-employee director during any fiscal year of the Company may not exceed $500,000 (or, with respect to the first fiscal year of the Post-Combination Company during which a non-employee director first serves as a non-employee director, $1,000,000).

The Company recorded share-based compensation expense in the following expense categories of its accompanying consolidated statements of operations:

Total share-based compensation includes expense for awards granted to non-employee equity method investees that are fully reimbursed by the AirJoule JV per the statement of work as described further in Note 9 — Related Party Transactions. As of the year ended December 31, 2024, $0.1 million is to be reimbursed by the AirJoule JV and is recorded as a due from related party receivable on the consolidated balance sheets and within contra-expense accounts on the consolidated statements of operations.

Stock Options

The following table summarizes option activity for the year ended December 31, 2024:

Options granted during the year ended December 31, 2024 had weighted-average grant-date fair values of $2.82. As of December 31, 2024, the unrecognized compensation cost for options issued and then outstanding was $3.2 million and will be recognized over an estimated weighted-average amortization period of 3.32 years. The total intrinsic value of options exercised during the years ended December 31, 2024 was $0.7 million. The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2024 was $9.1 million.

The following tables provide additional detail about the options granted during the year ended December 31, 2024:

The fair value of the NSOs were determined using the Black-Scholes option-pricing model and were based on the following weighted average assumptions:

Restricted Stock Units

The following table summarizes RSU activity for the year ended December 31, 2024:

As of December 31, 2024, the unrecognized compensation cost for RSUs issued was $3.5 million and will be recognized over an estimated weighted-average amortization period of 3.32 years. The fair values of RSUs is based on the fair value of the Company’s common stock on the date of the grant.

The following tables provide additional detail about the RSUs granted during the year ended December 31, 2024: