Stock-based Compensation (as Restated)

12 Months Ended

Dec. 31, 2022

Stock-based Compensation (as Restated)

Stock-based Compensation (as Restated)

(16) Stock-based Compensation(As Restated)

The ReShape Lifesciences Inc. 2022 Equity Incentive Plan (the “Plan”) became effective December 14, 2022, and provides for the grant of stock options or other stock-based awards to employees, officers, non-employee directors and outside consultants of the Company. The maximum number of shares of common stock that will be available for issuance under this Plan was originally 105,000 shares; provided however, that the aggregate number of shares that may be issued under all awards under the Plan will automatically increase on an annual basis on the first day of each year beginning in 2023 such that the aggregate number of shares that may be issued under all awards under this Plan equals 15% of the total number of shares of Common Stock, on a converted basis, on the last day of the immediately preceding fiscal year. Under the 2003 Stock Incentive Plan, as amended in 2018 (the “Prior Plan”), as of January 1, 2022, there were 82,142 shares available under the Prior Plan and there were 30,215 shares of common stock available for issuance under the Prior Plan.

The Plan is administered by the committee, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Options granted under the Plan expire no later than ten years from the date of grant. The exercise price of each option may not be less than 100% of the fair market value of the common stock at the date of grant, except if an incentive stock option is granted to a Plan participant possessing more than 10% of the Company’s common stock, as defined by the Plan, the exercise price may not be less than 110% of the fair value of the common stock at the date of grant. Employee stock options generally vest over four years.

Stock Options

A summary of the status of the Company’s stock options are as follows:

				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
		Exercise Price		Contractual	Value
	Shares	Per Share		Life (years)	(in thousands)
Outstanding at December 31, 2020	1	$	106,534,131.00		$	—
Vested options obtained due to merger	7,329		1,794.00
Options granted	15,814		181.00
Options exercised	(3,654)		114.00
Options cancelled	(1,788)		51,261.50
Outstanding at December 31, 2021	17,702		398.57		$	—
Options granted	11,201		59.00
Options exercised	—		—
Options cancelled	(7,487)		139.16
Outstanding at December 31, 2022	21,416		311.65	7.2	$	—
Exercisable at December 31, 2022	14,659		412.85	6.7		—
Vested and expected to vest at December 31, 2022	21,416		311.65	7.2		—

As of December 31, 2022, stock options under the Plan that were outstanding, exercisable and vested, and expected to vest, had no intrinsic value. The unrecognized share-based expense at December 31, 2022 was $0.7 million and will be recognized over a weighted average period of 2.5 years.

Stock option awards outstanding under the Company’s incentive plans have been granted at exercise prices that are equal to the market value of its common stock on the date of grant. Such options generally vest over a period of four years and expire at ten years after the grant date. The Company recognizes compensation expense ratably over the vesting period. The Company uses a Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of both subjective and objective assumptions as follows:

Expected Term – The estimate of expected term is based on the historical exercise behavior of grantees, as well as the contractual life of the options granted.

Expected Volatility – The expected volatility factor is based on the volatility of the Company’s common stock.

Risk-free Interest Rate – The risk-free interest rate is determined using the implied yield for a traded zero-coupon U.S. Treasury bond with a term equal to the expected term of the stock options.

Expected Dividend Yield – The expected dividend yield is based on the Company’s historical practice of paying dividends on its common stock.

The Company’s weighted average assumptions used to estimate fair value of stock options granted were as follows:

	Year Ended December 31,
	2022	2021
		As Restated
Risk-free interest rate	2.67%	1.19%
Expected term (in years)	6.25	6.25
Expected dividend yield	0%	0%
Expected volatility	80.40%	82.68%

Restricted Stock Units

A summary of the Company’s unvested RSUs award activity for the year ended December 31, 2022, were as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Unvested RSUs at December 31, 2020	—	$	—
Granted	72,212		218.00
Vested	(37,986)		218.00
Cancelled/Forfeited	—		—
Unvested RSUs at December 31, 2021	34,226		218.00
Granted	32,777		16.92
Vested (1)	(50,131)		97.44
Cancelled/Forfeited	(12,342)		189.88
Non-vested RSUs at September 30, 2022	4,530		174.01

(1) At December 31, 2022, there were 278 shares of common stock related to RSU awards that have vested and the shares were not released to the participants until January of 2023.

The fair value of each RSU is the closing price on the Nasdaq of the Company’s common stock on the date of grant. Upon vesting, a portion of the RSU award may be withheld to satisfy the statutory income tax withholding obligation. The remaining RSUs will be settled in shares of the Company’s common stock after the vesting period. The unrecognized compensation cost related to RSUs at December 31, 2022 was $0.7 million and is expected to be recognized over a period of 1.6 years.

Compensation expense related to stock options was recognized as follows:

	Year Ended
	December 31,
	2022		2021
			As Restated
Sales and marketing	$	280	$	949
General and administrative		1,494		10,126
Research and development		313		1,152
Total stock-based compensation expense	$	2,087	$	12,227