Note 12 – Equity Compensation

In June 2021, the Company adopted the 2021 Omnibus Incentive Plan (“2021 Plan”) under which the Company may grant options, restricted stock units and other equity-based awards. The number of shares available for issuance under the 2021 Plan shall not exceed in the aggregate the sum of (i) 5,745,507 shares of Class A common stock and (ii) the number of shares of Class A common stock issuable pursuant to awards previously granted under the First Amended and Restated Profits Interest Plan of H&W Franchise Holdings LLC (“Pre-IPO Plan”)(taking into account any conversion of such outstanding Awards). As of December 31, 2021, there were 4,622,630 shares available for future grants under the Plan, less the variable number of shares relating to RSU awards granted with performance conditions classified as a liability. As an accounting policy election, the Company recognizes forfeitures as they occur.

Phantom stock –

Club Pilates and CycleBar issued 13,158 and 165 phantom stock units, respectively, to certain employees that settle, or are expected to settle, with cash payments. The phantom stock units are awarded with vesting conditions that include a service period and/or performance targets and a change of control and are subject to certain forfeiture provisions prior to vesting. There was no expense recorded for the years ended December 31, 2021, 2020 and 2019 related to the phantom stock units as vesting is not considered probable. During the years ended December 31, 2021 and 2020, 13,158 phantom stock units issued by Club Pilates and 165 phantom stock units issued by CycleBar were cancelled, respectively.

Profit interest units –

Under the Pre-IPO Plan, the Parent granted time-based and performance-based profit interest units to certain key employees of the Company and its subsidiaries. Subsequent to the IPO, the profit interest units converted to Class B shares. The fair value of the time-based grants is recognized as compensation expense over the vesting period (generally four years), with an increase to Member’s contribution / Additional Paid-in Capital in Member’s / Stockholders' equity. The fair value of the time-based grants was calculated using a Black-Scholes option-pricing model with the following assumptions:

As of December 31, 2021, the Company had $216 of unrecognized compensation expense expected to be recognized over a weighted average period of approximately 1.11 years for the time-based grants. For the years ended December 31, 2021, 2020 and 2019, compensation expense of $906, $1,751 and $2,064, respectively, was included within SG&A expenses.

The performance-based grants are awarded with vesting conditions based on performance targets connected to the value received from change of control of the Parent and are subject to certain forfeiture provisions prior to vesting. There was no expense recorded for the years ended December 31, 2020 and 2019 related to the performance-based awards as vesting was not considered to be probable.

In June 2021, the Parent amended the vesting condition associated with the previously issued profit interest units with performance-based vesting conditions. The vesting condition, as amended, is based on the average trading price of XPO Inc. common stock exceeding the IPO threshold price, as defined in the agreement. The amendment of these units is treated as a modification with the compensation cost of the amended units of $18,127 recognized over the new estimated service period through November 2022. The Company recorded expense of $6,069 for the year ended December 31, 2021, related to the modified awards. As of December 31, 2021, the Company had $12,058 of unrecognized compensation expense expected to be recognized in 2022.

Restricted stock units –

Restricted stock units are valued at the Company’s closing stock price on the date of grant, and generally vest over a one- to three-year period. Compensation expense for restricted stock units is recognized on a straight-line basis. Total compensation expense recognized for restricted stock units was $2,372 for the year ended December 31, 2021. At December 31, 2021, the Company had $13,082 of total unamortized compensation expense related to non-vested restricted stock units. That cost is expected to be recognized over a weighted-average period of 2.33 years. In the year ended December 31, 2021, there were no forfeitures and no awards vested.

The Company granted RSU awards with performance conditions of meeting certain EBITDA targets through the year ending December 31, 2024. The awards were granted with fixed dollar valuation and the number of shares granted depends on the trading price at the closing date of the period in which the EBITDA target is met. As such, these awards are classified as a liability. As of December 31, 2021, management believes that the EBITDA targets will be achieved and is accordingly recognizing expense ratably over the vesting period. Management performs a regular assessment to determine the likelihood of meeting the targets and adjusts the expense recognized if necessary. As of December 31, 2021, the Company recognized $352 of expense and had $7,523 of total unrecognized expense relating to these grants.