Stock-Based Compensation |
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| Stock-Based Compensation | Stock-Based Compensation Equity Incentive Plan
In 2016, Legacy Grove adopted the 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan provides for the granting of stock-based awards to employees, directors and consultants under terms and provisions established by the Board of Directors. In April 2022, the Company’s Board of Directors authorized an increase in the number of shares available for issuance under the 2016 Plan by 3,500,000. In addition, all equity awards of Legacy Grove that were issued under the 2016 Plan were converted into comparable equity awards that are settled or exercisable for shares of the Company’s Class B common stock. As a result, each of Legacy Grove’s equity awards were converted into a comparable equity award with respect to shares of the Company’s Class B common stock based on an exchange ratio of approximately 1.1760. As of the effective date of the 2022 Plan (as defined below), no further stock awards have been or will be granted under the 2016 Plan.
In June 2022, the stockholders of the Company approved the Grove Collaborative Holdings, Inc. 2022 Equity and Incentive Plan (the “2022 Plan”). The Plan provides for the granting of stock-based awards to eligible
participants, specifically officers, other employees, non-employee directors, consultants, independent contractors under terms and provisions established by the Board of Directors.
The 2022 Plan authorizes the issuance of the Company’s Class A common stock of up to 24,555,528 shares. The number of shares available shall increase annually on the first day of each calendar year, beginning with the calendar year ending December 31, 2023 and continuing until (and including) calendar year December 31 2032, with annual increases equal to lesser of (i) 5% of the number of shares of the Company’s Class A and Class B common stock issued and outstanding on December 31 of the immediately preceding fiscal year, and (ii) an amount determined by the Board of Directors.
Stock option activity under the 2016 Plan is as follows (in thousands, except share and per share amounts):
The weighted-average grant date fair value of stock options granted during the year ended December 31, 2021 and 2020 was $3.73 and $2.07 per share, respectively. No stock options were granted during the year ended December 31, 2022. The total grant date fair value of stock options that vested during the year ended December 31, 2022, 2021 and 2020 was $10.5 million, $13.3 million and $5.9 million, respectively. The aggregate intrinsic value of options exercised during the year ended December 31, 2022, 2021 and 2020 was $1.0 million, $4.3 million and $9.9 million, respectively. The aggregate intrinsic value is the difference between the current fair value of the underlying common stock and the exercise price for in-the-money stock options.
Early Exercise of Employee Stock Options
The Company allows certain employees to exercise stock options granted under the 2016 Plan prior to vesting in exchange for shares of restricted common stock. The unvested shares, upon termination of employment, are subject to repurchase by the Company at the original purchase price. The proceeds are recorded in other current liabilities in the consolidated balance sheets at the time of the early exercise of stock options and reclassified to common stock and additional paid-in capital as the Company’s repurchase right lapses (i.e., as the underlying stock options vest). No and 11,025 shares of Class B common stock were issued due to early exercise of unvested stock options during the year ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the aggregate price of the
restricted common stock subject to repurchase was zero and $0.2 million, respectively. A summary of the restricted common stock activity is as follows:
Determination of Fair Value
The fair value of stock option awards granted was estimated at the date of grant using the Black-Scholes option-pricing model, with the following assumptions:
Market-Based Stock Options
In February 2021, the Company granted 1,017,170 stock options with market and liquidity event-related performance-based vesting criteria with an exercise price of $3.77 per share. 100% of the stock options vest upon valuation of the Company’s stock at a stated price upon occurrence of specified transactions. Fair value was determined using the probability weighted expected term method (“PWERM”), which involves the estimation of future potential outcomes as well as values and probabilities associated with each potential outcome. Two potential scenarios were used in the PWERM that utilized 1) the value of the Company’s common equity, and 2) a Monte Carlo simulation to specifically value the award. The total grant date fair value of the award was determined to be $5.5 million. Since a liquidity event is not deemed probable until such event occurs, no compensation cost related to the performance condition was recognized prior to the Business Combination on June 16, 2022. Subsequently, the Company recorded stock-based compensation expense of $4.6 million for service periods completed prior to the Business Combination. As of December 31, 2022, the market-based vesting criteria had not been met.
Restricted Stock Units
The following table summarizes the activity for all RSUs under all of the Company’s equity incentive plans for the years end December 31, 2022:
RSUs granted under the 2016 Plan contained vesting conditions based on continuous service and the occurrence of a specified liquidity event, which is considered a performance condition. The performance condition was satisfied on June 16, 2022 with the closing of the Business Combination. Accordingly, the Company started recognizing stock compensation expense in the three months ended June 30, 2022 using the accelerated attribution method from the grant date for RSUs granted under the 2016 Plan. The total cumulative catch up expense related to prior periods recognized for the RSUs was $11.9 million. There are no contingencies for the issuance of the vested but unissued RSUs other than passage of time.
Employee Stock Purchase Plan
In May 2022, the Company’s board of directors adopted the 2022 Employee Stock Purchase Plan (the “ESPP”), which was subsequently approved by the Company’s stockholders. The ESPP went into effect on November 16, 2022. Subject to certain limitations contained therein, the ESPP allows eligible employees to contribute, through payroll deductions, up to 20% of their eligible compensation to purchase the Company’s Class A common stock at a discounted price per share. Subject to adjustment in the case of certain capitalization events, a total of 3,274,070 shares of Class A common stock of the Company were available for purchase at adoption of the ESPP. Pursuant to the ESPP, beginning the fiscal year ended December 31, 2023 the annual share increase pursuant to the evergreen provision is determined based on the lesser of (i) 3,274,070 shares (ii) 1% of the number of shares of the Company’s Class A Common Stock and Class B Common Stock issued and outstanding on December 31 of the immediately preceding fiscal year, or (iii) such number of shares as determined by the Board of Directors. For the year ended December 31, 2022, the Company recognized $0.1 million of expense related to the ESSP and as of December 31, 2022, no shares of Class A common stock had been purchased under the ESPP.
Equity Award Modifications
During the year ended December 31, 2022, the Company modified stock options held by former and existing employees to accelerate vesting and to extend the post-termination exercise period of the awards from 60 days to 1, 2 or 10 years after termination, as well as accelerated the vesting of certain stock options and RSUs. The modifications resulted in modification expenses of $2.9 million during the year ended December 31, 2022.
On September 19, 2022, the Company’s Board of Directors approved a stock option exchange which permitted certain employee and non-employee option holders, subject to specified conditions, to exchange some or all of their outstanding stock options to purchase shares of the Company's common stock for RSUs to be issued under the 2022 Plan (the “Option Exchange”). The Option Exchange commenced on September 26, 2022 and concluded on October 21, 2022, with RSUs being issued in the Option Exchange on October 27, 2022 following approval by the Compensation Committee of the Company’s Board of Directors. For fully vested stock options that were tendered in the Option Exchange, the Company issued RSUs which were unvested immediately following the Option Exchange and vested or will vest 50% on each of February 15, 2023 and May 15, 2023. RSUs issued in exchange for unvested options vested or will vest in equal installments on each February 15, May 15, August 15 and November 15 until becoming fully vested in the calendar quarter in which the stock option tendered in exchange for such RSUs would have fully vested had it not been exchanged. As a result of the Option Exchange, 12,977,484 stock options, with a weighted average exercise price of $3.24, were exchanged for 9,582,252 RSUs. The aggregate incremental stock-based compensation to be recognized related to the Option Exchange is $4.4 million, of which $2.2 million was recognized during the year ended December 31, 2022.
Stock-Based Compensation Expense
For the years ended December 31, 2022, 2021, and 2020 the Company recognized a total of $43.6 million, $14.6 million and $7.8 million of stock-based compensation expense, respectively, related to stock options and RSUs granted to employees and non-employees. Stock-based compensation expense was predominately recorded in selling, general and administrative expenses in the statements of operations for each period presented. As of December 31, 2022, the total unrecognized compensation expense related to unvested options and RSUs was $30.1 million, which the Company expects to recognize over an estimated weighted average period of 2.5 years.
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