Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v3.21.2
Stock-Based Compensation
6 Months Ended
Jun. 30, 2021
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

12. Stock-Based Compensation

The 2014 Plan

Under the 2014 Stock Option Plan of Hotshine Holdings, Inc. (the “2014 Plan”), the Company may grant incentive stock options or nonqualified stock options to purchase common shares of the Company to its employees, directors, officers, outside advisors and non-employee consultants.

All stock options granted under the 2014 Plan are equity-classified and have a contractual life of ten years. Under the 2014 Plan, 60% of the shares in a grant contain service-based vesting conditions and vest ratably over a five-year period and 40% of the shares in a grant contain performance-based vesting conditions (“Performance Vesting Options”). The condition for the Performance Vesting Options is a change in control or an initial public offering, where (i) 50% of the Performance Vesting Options vest and become

exercisable if the Principal Stockholders receive the Target Proceeds at the Measurement Date and (ii) the remaining 50% of the Performance Vesting Options vest and become exercisable if the Principal Stockholders receive the Maximum Amount at the Measurement Date. Principal Stockholders is defined in the 2014 Plan as (a) Green Equity Investors VI, L.P., (b) Green Equity Investors Side VI, L.P., (c) LGP Associates VI-A, LLC, (d) LGP Associates VI-B LLC, and (e) the affiliates of the foregoing entities. Measurement Date is defined as the date of a change in control or an initial public offering, whichever comes first. The Target Proceeds and Maximum Amount are defined and measured by either multiples of invested capital or an annual compounded pre-tax internal rate of return on investment. In June 2021, the Company modified all outstanding shares of Performance Vesting Options to remove, subject to the successful completion of the IPO, the requirement that the Principal Stockholders receive the Target Proceeds and the Maximum Amount as conditions for the Performance Vesting Options to vest. The exercise prices for stock options granted under the 2014 Plan were not less than the fair market value of the common stock of the Company on the date of grant. For the avoidance of doubt, the IPO constituted a performance measurement date under the applicable option agreements for the Performance Vesting Options and the Performance Vesting Options vested in full in connection with the IPO.

The 2021 Plan

In June 2021, the Board adopted the 2021 Incentive Award Plan (the “2021 Plan”), which was subsequently approved by the Company's stockholders and became effective on June 25, 2021. Under the 2021 Plan, the Company may grant incentive stock options, nonqualified stock options, restricted stock units ("RSUs"), restricted stock, and other stock- or cash-based awards to its employees, directors, officers, and non-employee consultants. Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan is 29,800,000 new shares of common stock, which includes 256,431 shares of common stock that remained available for issuance under the 2014 Plan at June 25, 2021. In connection with the IPO, stock option and RSU awards were granted with respect to 3,726,305 shares. Any shares of common stock subject to outstanding stock awards granted under the 2014 Plan and, following June 25, 2021, terminate, expire or are otherwise forfeited, reacquired or withheld will become available for issuance under the 2021 Plan.

All stock options granted under the 2021 Plan are equity-classified and have a contractual life of ten years. Under the 2021 Plan, the stock options contain service-based vesting conditions and generally vest ratably over a three- or five-year period (collectively with stock options under the 2014 Plan, the “Time Vesting Options”). The exercise prices for stock options granted under the 2021 Plan were not less than the fair market value of the common stock of the Company on the date of grant.

RSUs granted under the 2021 Plan are equity-classified and contain service-based conditions and generally vest ratably over one- to five-year periods. Each RSU represents the right to receive one share of the Company’s common stock upon vesting. The fair value is calculated based upon the Company’s closing stock price on the date of grant, and the stock-based compensation expense is recognized over the requisite service period, which is generally the vesting period.

 

The 2014 Plan and 2021 Plan are administered by the Board or, at the discretion of the Board, by a committee thereof. The exercise prices for stock options, the vesting of awards, and other restrictions are determined at the discretion of the Board, or its committee if so delegated.

The 2021 ESPP

In June 2021, the Board adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by the Company’s stockholders and became effective in June 2021. The 2021 ESPP authorizes the initial issuance of up to 5,000,000 shares of the Company’s common stock to eligible employees of the Company or, as designated by the Board, employees of a related company. The 2021 ESPP provides for offering periods not to exceed 27 months, and each offering period will include purchase periods. The Company determined that offering periods would commence at approximately the six-month period beginning with an enrollment date and ending with the next exercise date, except that the first offering period commenced on the effective date of the Company's registration statement and will end on November 9, 2021.

 

The 2021 ESPP provides that the number of shares reserved and available for issuance under the 2021 ESPP will automatically increase on January 1 of each calendar year from January 1, 2022 through January 1, 2031 by an amount equal to the lesser of (i) 0.5% of the outstanding number of shares of common stock on the immediately preceding December 31 and (ii) such lesser number of shares of common stock as determined by the Board.

 

Stock Option Valuation

The grant date fair value of Time Vesting Options granted is determined using the Black-Scholes option-pricing model. The grant date fair value of Performance Vesting Options is determined using a Monte Carlo simulation model and a barrier-adjusted Black-Scholes option-pricing model.

The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of stock options with service-based vesting conditions granted during the three months ended June 30, 2021:

 

 

Three Months Ended
June 30, 2021

Expected volatility

44.75%

Risk-free interest rate

1.19%

Expected term (in years)

6.43

Expected dividend yield

0.00%

 

Stock Options

The following table summarizes the Company’s stock option activity since December 31, 2020:

 

 

Time Vesting Options

 

 

Performance Vesting Options

 

 

Total Number of Stock Options

 

 

Weighted-Average Exercise Price

 

Outstanding as of December 31, 2020

 

19,958,043

 

 

 

13,341,504

 

 

 

33,299,547

 

 

$

0.78

 

Granted

 

3,208,581

 

 

 

747,936

 

 

 

3,956,517

 

 

$

10.24

 

Exercised

 

(2,640,888

)

 

 

-

 

 

 

(2,640,888

)

 

$

0.66

 

Forfeited

 

(55,776

)

 

 

(37,152

)

 

 

(92,928

)

 

$

2.31

 

Outstanding as of June 30, 2021

 

20,469,960

 

 

 

14,052,288

 

 

 

34,522,248

 

 

$

1.87

 

Options vested or expected to vest as of June 30, 2021

 

19,638,892

 

 

 

14,052,288

 

 

 

33,691,180

 

 

$

0.93

 

Options exercisable as of June 30, 2021

 

14,447,398

 

 

 

14,052,288

 

 

 

28,499,686

 

 

$

0.82

 

 

The number and weighted-average grant date fair value of stock options during the periods presented is as follows:

 

 

Number of Stock Options

 

 

Weighted-Average
Grant Date Fair Value

 

 

Time Vesting Options

 

 

Performance Vesting Options

 

 

Time Vesting Options

 

 

Performance Vesting Options

 

Non-vested as of December 31, 2020

 

3,450,607

 

 

 

13,341,504

 

 

$

0.96

 

 

$

0.59

 

Non-vested as of June 30, 2021

 

6,022,562

 

 

 

-

 

 

$

3.12

 

 

$

-

 

Granted during the period

 

3,208,581

 

 

 

747,936

 

 

$

5.11

 

 

$

2.26

 

Vested during the period

 

580,850

 

 

 

14,052,288

 

 

$

0.89

 

 

$

14.37

 

Forfeited/canceled during the period

 

55,776

 

 

 

37,152

 

 

$

0.73

 

 

$

1.27

 

 

The total grant date fair value of Time Vesting Options and Performance Vesting Options granted during the six months ended June 30, 2021 was approximately $16,408 and $3,895, respectively.

The fair value of stock options vested during the six months ended June 30, 2021 was $315,051.

As of June 30, 2021, the weighted-average remaining contractual life of outstanding stock options was approximately 5.12 years.

Restricted Stock Units

The following table summarizes the Company’s RSU activity since December 31, 2020:

 

 

Restricted Stock Units

 

 

Weighted-Average Grant Date Fair Value

 

Unvested as of December 31, 2020

 

-

 

 

$

-

 

Granted

 

1,639,868

 

 

$

15.00

 

Vested

 

(7,680

)

 

$

15.00

 

Forfeited

 

-

 

 

$

-

 

Unvested as of June 30, 2021

 

1,632,188

 

 

$

15.00

 

 

The Company granted 1,639,868 RSUs during the three and six months ended June 30, 2021.

The total fair value of RSUs that vested during the three and six months ended June 30, 2021 was $165.

Stock-Based Compensation Expense

The Company estimated a forfeiture rate of 6.96% for awards with service-based vesting conditions based on historical experience and future expectations of the vesting of these share-based payments. The Company used this rate as an assumption in calculating stock-based compensation expense for Time Vesting Options and RSUs.

Total stock-based compensation expense, by caption, recorded in the unaudited condensed consolidated statements of operations and comprehensive loss for the periods presented is as follows:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Cost of labor and chemicals

$

31,442

 

 

$

-

 

 

$

31,442

 

 

$

-

 

General and administrative

 

171,789

 

 

 

398

 

 

 

172,099

 

 

 

785

 

Total stock-based compensation expense

$

203,231

 

 

$

398

 

 

$

203,541

 

 

$

785

 

 

Total stock-based compensation expense, by award type, recorded in the unaudited condensed consolidated statements of operations and comprehensive loss for the periods presented is as follows:

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Time Vesting Options

$

964

 

 

$

398

 

 

$

1,274

 

 

$

785

 

Performance Vesting Options

 

201,985

 

 

 

-

 

 

 

201,985

 

 

 

-

 

RSUs

 

282

 

 

 

-

 

 

 

282

 

 

 

-

 

Total stock-based compensation expense

$

203,231

 

 

$

398

 

 

$

203,541

 

 

$

785

 

 

As of June 30, 2021, total unrecognized compensation expense related to unvested Time Vesting Options was $15,654, which is expected to be recognized over a weighted-average period of 3.57 years.

As of June 30, 2021, there was no unrecognized compensation expense related to unvested Performance Vesting Options as the completion of the IPO satisfied the performance condition and as a result, all outstanding Performance Vesting Options vested.

As of June 30, 2021, total unrecognized compensation expense related to unvested RSUs was $20,554, which is expected to be recognized over a weighted-average period of 3.78 years.

Modification of Stock Options

In February 2021, the Company modified a total of 7,874,304 shares of Performance Vesting Options for 12 grantees to provide for an additional service-based vesting condition related to the acceleration of vesting in connection with a grantees’ death. The Company did not recognize current incremental stock-based compensation expense in connection with the modification during the three months ended March 31, 2021 because the grants vest upon the earlier of a performance condition or a service condition, neither of which are probable of occurring until the condition is met. The modification resulted in an increase to unrecognized compensation expense related to unvested Performance Vesting Options of $75,217 during the three months ended March 31, 2021.

In June 2021, the Company modified all outstanding shares of Performance Vesting Options to remove, subject to the successful completion of the IPO, the requirement that the Principal Stockholders receive the Target Proceeds and the Maximum Amount as conditions for the Performance Vesting Options to vest. This modification resulted in incremental stock-based compensation expense of $117,708, which was recognized in the three months ended June 30, 2021 in connection with the completion of the IPO.