Equity-Based Compensation |
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Equity-Based Compensation | Equity-Based Compensation In connection with the Reverse Recapitalization, the Company adopted the Vacasa Inc. 2021 Incentive Award Plan (the "2021 Plan") and the Vacasa, Inc. 2021 Non-Qualified Employee Stock Purchase Plan (the "ESPP Plan"). 2021 Plan Under the 2021 Plan, the Board of Directors may grant incentive stock options ("ISOs") to employees of the Company and certain subsidiaries and nonqualified stock options ("NSOs"), restricted stock ("RSAs"), restricted stock units ("RSUs"), stock appreciation rights ("SARs"), performance units and performance bonus awards, and performance stock units ("PSUs") to employees, members of the Board of Directors and consultants of the Company and its subsidiaries. Under the 2021 Plan, ISOs, NSOs and SARs may be granted at a price not less than 100% of the fair market value of the underlying Class A Common Stock on the date of grant (110% of fair value for ISOs issued to holders of 10% or more of voting stock). Options and SARs are exercisable over a period not to exceed 10 years (five years for incentive stock options granted to holders of 10% or more of the voting stock) from the date of grant. The term of each stock award under the plan will not exceed 10 years and each award generally vests between and four years. As of December 31, 2022, there were 13,613,239 shares of the Company's Class A Common Stock reserved for future grants under the 2021 Plan. The number of shares reserved for issuance is subject to an annual increase on the first day of each fiscal year beginning in 2022 and ending in 2031, equal to the least of (a) 3% of the shares of our Class A Common Stock outstanding on the last day of the immediately preceding fiscal year, (b) an amount of additional shares such that the total number of shares available for issuance under the 2021 Plan on such first day of the year, after giving effect to the additional shares, equals 5% of the shares of our Class A Common Stock outstanding on the last day of the immediately preceding fiscal year and (c) such smaller number of shares of our Class A Common Stock as determined by our Board; provided, however, that no more than 25,000,000 shares of our Class A Common Stock may be issued upon the exercise of ISOs. Pursuant to the annual increase provision, an additional 334,520 shares of our Class A Common Stock became reserved for issuance effective January 1, 2023. ESPP Plan In connection with the Reverse Recapitalization, the Company adopted the ESPP Plan. The ESPP Plan authorizes the issuance of shares of Class A Common Stock pursuant to purchase rights granted to employees. As of December 31, 2022, there were 7,946,327 shares of our Class A Common Stock reserved for future sale to employees under the ESPP Plan. The number of shares reserved for issuance is subject to an annual increase on the first day of each fiscal year beginning in 2022 and ending in 2031, equal to the least of (a) 1% of the shares of our Class A Common Stock outstanding on the last day of the immediately preceding fiscal year, (b) an amount of additional shares such that the total number of shares available for issuance under the ESPP on such first day of the year, after giving effect to the additional shares, equals 2% of the shares of our Class A Common Stock outstanding on the last day of the immediately preceding fiscal year, and (c) such number of shares of our Class A Common Stock as determined by our Board. The shares reserved for issuance under the ESPP may be authorized but unissued shares or reacquired shares. Pursuant to the annual increase provision, an additional 133,808 shares of our Class A Common Stock became reserved for issuance effective January 1, 2023. SARs and Options Prior to the Reverse Recapitalization, Vacasa Holdings granted unit appreciation rights ("UARs") to employees, consultants, and board members under the UAR plan. Following the effectiveness of the 2021 Plan at the date of the Reverse Recapitalization, the Company ceased granting UAR awards. In connection with the Reverse Recapitalization, UARs were converted into Company SAR Awards which entitle the holder to receive a number of shares of the Company's Class A Common Stock, cash or other assets equal to the appreciation in value between the grant date and the exercise date. The historical UARs were generally subject to both service-based and liquidity-based vesting conditions. The service-based vesting condition is satisfied based on continued service over a period of time that is set forth in the applicable award agreement. The liquidity-based vesting condition is satisfied upon (i) a change in control (as defined in the UAR Plan) or (ii) the occurrence of the date that is six months and one day following an initial public offering of the Company's securities. The Business Combination Agreement, as described in Note 3, Reverse Recapitalization, provides that the liquidity-based vesting condition will be deemed satisfied if the holder of a Vacasa SAR Award (into which UARs were converted) remains a service provider of the company through the 180th day following the closing of the Reverse Recapitalization. In connection with the Reverse Recapitalization, each UAR that was outstanding immediately prior to the Reverse Recapitalization was converted into a SAR of the Company on terms substantially identical to those in effect prior to the Reverse Recapitalization, except for adjustments to the underlying number of shares and the exercise price based on the determined exchange ratio. The exchange was treated as a modification of the awards which did not result in any incremental compensation expense at the closing of the Reverse Recapitalization. Through December 6, 2021, no equity-based compensation expense had been recognized for the historical UAR awards with the liquidity-event performance-based vesting condition based on the occurrence of a qualifying event, as such qualifying event was not probable. Upon the Reverse Recapitalization, the liquidity-event performance-based condition was met and $18.4 million of equity-based compensation expense was recognized related to these awards. Prior to the Reverse Recapitalization, Vacasa Holdings recognized equity-based compensation for option awards granted and outstanding under the TurnKey Vacations, Inc., 2014 Equity Incentive Plan, as a result of the TurnKey Acquisition. As a result of the Reverse Recapitalization, stock options outstanding under such plan were converted into 5,553,275 of Class A stock options of the Company based on the Exchange Ratio determined in accordance with the terms of the Reverse Recapitalization. The exchange of such stock options for stock options of the Company's Class A Common Stock was treated as a modification of the awards. The modification of the stock options did not result in any incremental compensation expense to be recognized at the closing of the Reverse Recapitalization. Equity-based Award Activities Restricted Stock Units A summary of the RSU activity was as follows during the period indicated:
(1) In connection with his departure as Chief Executive Officer, Matt Roberts received accelerated vesting of 280,200 of his RSUs. The remaining 217,933 of his unvested RSUs were forfeited. As of December 31, 2022, there was unrecognized compensation expense of $19.3 million related to unvested RSUs, which is expected to be recognized over a weighted-average period of 3.2 years. Performance Stock Units The Company has granted PSUs to certain members of its leadership team, which vest based upon the achievement of performance criteria and requisite service. The performance criteria are based on the achievement of certain share price appreciation targets. Attainment of each share price appreciation target is measured based on either the trailing 45-day or 60-day average closing trading price of our Class A Common Stock or, in the event of a change in control, the amount per share of Class A Common Stock to be paid to a stockholder in connection with such change in control. For certain of the awards, depending on the performance achieved, the actual number of shares of Class A Common Stock issued to the holder may range from 0% to 200% of the target number of PSUs granted. The number of PSUs granted included in the table below is based on the maximum potential achievement for all awards. In the event that performance criteria and requisite service are not achieved, the corresponding portion of the PSUs that do not vest will be forfeited. A summary of the PSU activity was as follows during the period indicated:
(1) In connection with his departure as Chief Executive Officer, Matt Roberts received accelerated vesting of 404,732 of his PSUs. The remaining 840,598 of his unvested PSUs were forfeited. As of December 31, 2022, there was unrecognized compensation expense of $5.3 million related to unvested PSUs, which is expected to be recognized over a weighted-average period of 2.8 years. Stock Appreciation Rights A summary of the SARs activity was as follows during the period indicated:
The aggregate intrinsic value of SARs exercised during the year ended December 31, 2022 was $5.4 million. As of December 31, 2022, there was $0.6 million of unrecognized compensation expense for the Company's SARs that will be recognized over a weighted-average remaining recognition period of 1.1 years. As of December 31, 2022, the Company's outstanding SARs had a weighted-average remaining contractual life of 6.3 years and no intrinsic value. Stock Options A summary of the stock options activity was as follows during the period indicated:
The aggregate intrinsic value of stock options exercised during the year ended December 31, 2022 was $1.5 million. As of December 31, 2022, there was $0.3 million of unrecognized compensation expense for the Company's stock options that will be recognized over a weighted-average remaining recognition period of 1.6 years. As of December 31, 2022, the Company's outstanding stock options had a weighted-average remaining contractual life of 5.4 years and an intrinsic value of $2.3 million. Employee Equity Units A summary of the Vacasa Employee Holdings LLC employee equity units is as follows:
As of December 31, 2022, there was $11.0 million of unrecognized compensation expense related to unvested employee equity units, which is expected to be recognized over a weighted-average period of 2.2 years. Prior to the Reverse Recapitalization, Vacasa Holdings had granted its executives “employee equity units” of Vacasa Employee Holdings LLC, which are intended to constitute “profits interests” within the meaning of IRS Revenue Procedure 93-27, as clarified by IRS Revenue Procedure 2001-43. The employee equity units have no intrinsic value on the date of grant, and have actual value to the executive only to the extent the equity value of Vacasa Holdings appreciates following the grant date. Employee equity units are subject to a time-based vesting condition. The time-based vesting condition is generally satisfied over four years with 25% of the units vesting on the one year anniversary of the vesting commencement date of the award, followed by 1/48th of the units vesting each month over the subsequent three years. Prior to the consummation of the Reverse Recapitalization (as described in Note 3, Reverse Recapitalization), Vacasa Holdings effectuated the Vacasa Holdings Recapitalization, pursuant to which all outstanding employee equity units were recapitalized in accordance with the OpCo LLC Agreement, which continue to be subject to the same vesting conditions as applied to such employee equity units before the recapitalization. Upon vesting of each employee equity unit, a corresponding OpCo unit vests and a Class B common share of the Company is issued. The modification did not result in any incremental compensation expense to be recognized. No grants of employee equity units are to be made following the Reverse Recapitalization. Prior to the consummation of the Reverse Recapitalization, the determination of the fair value of awards on the date of grant utilized an option-pricing model which used the value of the Company's equity units on the date of grant, the expected term of the awards, volatility, risk-free interest rate, and discount for lack of marketability. The Company's computation of expected volatility was based on the historical volatility of selected comparable publicly traded companies over a period equal to the expected term of the award. The risk-free interest rate reflected the U.S. Treasury yield curve for a similar instrument with the same expected term in effect at the time of the grant. The value of the Company's equity units was determined by first determining the BEV of Vacasa Holdings and then allocating that equity fair value to Vacasa Holdings' redeemable convertible preferred units, common units and common unit equivalents. The BEV was estimated primarily using a market approach, which measures the value of a business through an analysis of recent sales or offerings of comparable investments or assets and comparing a business to a group of its peer companies. Employee Stock Purchase Plan In connection with the Business Combination, the Company adopted the 2021 Nonqualified ESPP. Under the ESPP, eligible participants may purchase shares of the Company’s Class A Common Stock using payroll deductions, which may not exceed 15% of their total cash compensation. Offering and purchase periods begin on June 1 and December 1 of each year. Participants will be granted the right to purchase shares at a price per share that is 85% of the lesser of the fair market value of the shares at (i) the participant’s entry date into the applicable one-year offering period or (ii) the end of each six-month purchase period within the offering period. The ESPP does not meet the criteria of Section 423 of the Internal Revenue Code and is considered a non-qualified plan for federal tax purposes. The Company has treated the ESPP as a compensatory plan under GAAP. For the year ended December 31, 2022, there were 915,464 shares of Class A Common Stock purchased under the ESPP at a weighted-average price of $1.33 per share. Equity-Based Compensation Expense The Company recorded equity-based compensation expense for the periods presented in the consolidated statements of operations as follows (in thousands):
Vacasa Holdings LLC Equity For the year-to-date period ended April 1, 2021, Vacasa Holdings redeemable convertible preferred units were probable of becoming redeemable in the future and were recorded at their maximum redemption amount, which was the greater of the original preferred unit issue price plus an amount equal to the preferred unpaid return or the then current fair value, at each balance sheet date. The Company recorded a loss of $426.1 million remeasurement of its redeemable convertible preferred units during the year ended December 31, 2021. Subsequent to April 1, 2021, the Company did not adjust the carrying amount of the Vacasa Holdings redeemable convertible preferred units to the deemed liquidation value of such units, as a qualifying liquidation event was not probable. In connection with the Reverse Recapitalization on December 6, 2021, all of the existing holders of Vacasa Holdings preferred units exchanged their interests in Vacasa Holdings for Class A Common Stock or Class B Common Stock and OpCo Units in Vacasa Holdings, and the Vacasa Holdings redeemable convertible preferred units are no longer outstanding. For the year ended December 31, 2021, Vacasa Holdings common unit warrants were measured and recorded at fair value on a recurring basis. The Company recorded a loss of $11.5 million to remeasure the common unit warrants to their fair values during the year ended December 31, 2021. In connection with the Reverse Recapitalization on December 6, 2021, these warrants were net exercised in accordance with their terms and were no longer outstanding as of December 31, 2021.
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