STOCK INCENTIVE PLANS | 13. In April 2016, we adopted the 2016 Equity Incentive Plan (the “2016 Plan”) as a successor and continuation of the 2006 Plan. Under the 2016 Plan, the Company was permitted to grant awards of stock options and RSUs, as well as stock appreciation rights and other stock awards. During the year ended December 31, 2021, the Company amended the 2016 Plan to increase the number of shares of common stock reserved for issuance by 6,667,478 to an aggregate of 48,347,329. As of the Closing Date of the Business Combination, the Company no longer has shares available for issuance under the 2016 Plan. The 2016 Plan provides for incentive stock options to be granted to employees at an exercise price not less than 100% of the fair value at the grant date as determined by the Board of Directors, unless the optionee is a 10% stockholder, in which case the option price will not be less than 110% of such fair market value. Options granted generally have a maximum term of 10 years from grant date, are exercisable upon vesting unless otherwise designated for early exercise by the Board of Directors at the time of grant, and generally vest over a four -year -year On April 26, 2022, the stockholders of the Company approved the SoundHound AI, Inc. 2022 Incentive Award Plan (the “2022 Incentive Plan”)(collectively, with the 2006 Plan and the 2016 Plan, the “Plans”), which became effective upon the Closing. The Company initially reserved 19,650,371 -year -statutory -based On April 26, 2022, the stockholders of the Company approved the SoundHound AI, Inc. 2022 Employee Stock Purchase Plan (the “ESPP”), which became effective upon the Closing. An aggregate of 3,930,074 -year -month -back Option Activity Stock option activity under the Plans was as follows for the nine months ended September 30, 2022: Number of Shares Weighted Weighted Average Outstanding, December 31, 2021 30,361,405 $ 3.45 6.78 $ 168,923 Granted 391,619 6.17 Exercised (3,139,565 ) 1.16 21,751 Forfeited or cancelled (663,656 ) 4.51 Outstanding, September 30, 2022 26,949,803 $ 3.73 6.53 14,790 Exercisable, September 30, 2022 18,698,462 $ 2.83 5.66 14,511 Stock option activity under the Plans was as follows for the nine months ended September 30, 2021: Number of Shares Weighted Weighted Average Outstanding, December 31, 2020 28,772,180 $ 2.38 6.75 $ 36,987 Granted 5,203,804 6.84 Exercised (2,178,412 ) 0.87 5,947 Forfeited or cancelled (1,801,023 ) 3.11 Outstanding, September 30, 2021 29,996,549 $ 3.22 6.85 172,816 Exercisable, September 30, 2021 17,350,839 $ 2.06 5.22 119,390 Options exercised early are subject to the vesting provisions mentioned above, and any unvested shares are subject to repurchase at the original price upon termination of employment, death, or disability. There were no option exercises during the nine months ended September 30, 2022 or year ended December 31, 2021 that were subject to repurchase. The total fair value of options vested was approximately $3.8 million and $7.2 million during the three and nine months ended September 30, 2022, respectively, as compared to $0.9 million and $2.9 million for the three and nine months ended September 30, 2021, respectively. For the purpose of determining the estimated fair value of share -based -Scholes -pricing -based The assumptions under the Black -Scholes -pricing -month September 30, September 30, Expected dividend yield 0 % 0 % Expected volatility 51 % 42 % Expected term (years) 5.88 6.01 Risk free interest rate 2.58 % 1.11 % As of September 30, 2022, the unamortized expense related to outstanding options was $18.8 million. The weighted average remaining amortization period over which the balance as of September 30, 2022 is to be amortized is 2.54 years. No income tax benefit was recognized for this compensation expense in the condensed consolidated statements of operations and comprehensive loss, as the Company does not anticipate realizing any such benefit in the future. Restricted Stock Unit Activity Restricted stock unit activity under the Plans was as follows for the nine months ended September 30, 2022: Number of Shares Weighted Outstanding, December 31, 2021 — $ — Granted 15,802,990 5.02 Vested (631,925 ) 3.79 Forfeited (68,772 ) 9.77 Outstanding, September 30, 2022 15,102,293 $ 5.02 The Company assessed an accounting grant date on June 2, 2022 for the issuance of 2,310,000 RSUs, 870,000 Performance -Based -Based The Company recorded stock -based -Based -Based To derive the fair value of Market -Based -based The assumptions under the Monte Carlo simulation model and the calculated fair value of the Market -Based September 30, Expected volatility 52 % Expected term (years) 4 Drift rate 2.9 % The weighted average grant date fair value of the Market -Based -based -Based -Based During the three and nine months ended September 30, 2022, the fair value of RSUs that vested was $2.7 million and $3.6 million, respectively. During the three and nine months ended September 30, 2022 the Company recorded $7.1 million and $11.6 million, respectively, of stock -based Employee Stock-Based Compensation The Company’s founders held 7,270,503 of Legacy SoundHound common stock pre -conversion -based During the three and nine months ended September 30, 2022, the Company’s stock compensation expense was $9.2 million and $19.5 million, respectively, as compared to $1.3 million and $4.0 million for the three and nine months ended September 30, 2021, respectively. Stock -based Three Months Ended Nine Months Ended 2022 2021 2022 2021 Cost of revenues $ 57 $ — $ 68 $ — Sales and marketing 1,077 92 1,873 294 Research and development 4,668 943 9,011 2,939 General and administrative 3,371 280 8,548 816 Total $ 9,173 $ 1,315 $ 19,500 $ 4,049 | 12. The Board of Directors has authorized and in April 2016 adopted the 2016 Equity Incentive Plan (the “2016 Plan”) as a successor and continuation of the 2006 Plan (collectively, the “Plans”). Under the Plans, the Board of Directors may grant awards of options and restricted stock, as well as stock appreciation rights and other stock awards. During the year ended December 31, 2021, the Company amended the 2016 Plan to increase the number of shares of common stock reserved for issuance under the Plans by 1,200,000 to an aggregate of 8,701,460. The 2016 Plan provides for incentive stock options to be granted to employees at an exercise price not less than 100% of the fair value at the grant date as determined by the Board of Directors, unless the optionee is a 10% stockholder, in which case the option price will not be less than 110% of such fair market value. Options granted generally have a maximum term of 10 years from grant date, are exercisable upon vesting unless otherwise designated for early exercise by the Board of Directors at the time of grant, and generally vest over a four -year Option Activity Stock option activity under the Plans is as follows for the years ended December 31, 2021 and 2020: Shares Outstanding Weighted Weighted Average Intrinsic Outstanding, January 1, 2020 378,010 4,276,480 $ 10.35 6.44 $ 33,785 Authorized 650,000 — — — — Options granted (1,446,350 ) 1,446,350 19.98 — — Options exercised — (68,679 ) 2.82 — 1,138 Awards forfeited or cancelled 475,875 (475,875 ) 13.76 — — Outstanding, December 31, 2020 57,535 5,178,276 13.23 6.75 36,987 Authorized 1,200,000 — — — — Options granted (1,134,542 ) 1,134,542 40.10 — — Options exercised — (461,290 ) 5.34 — 9,667 Awards forfeited or cancelled 376,245 (376,245 ) 17.35 — — Outstanding, December 31, 2021 499,238 5,475,283 $ 19.19 6.78 $ 168,923 Options exercisable as of December 31, 2021 3,322,160 12.23 5.32 125,517 Options exercised early are subject to the vesting provisions mentioned above, and any unvested shares are subject to repurchase at the original price upon termination of employment, death, or disability. There were no option exercises during the year ended December 31, 2021 and 2020 that were subject to repurchase. The total fair value of options vested was approximately $5,358 and $5,400, during the years ended December 31, 2021 and 2020, respectively. The following table summarizes information with respect to stock options outstanding and exercisable as of December 31, 2021: Options Outstanding Options Exercisable Range of Exercise Prices Per Share Shares Weighted Shares Weighted $2.43 – $12.06 1,223,100 2.63 1,223,100 2.63 $12.07 – $15.34 1,223,673 5.91 1,154,889 5.87 $15.35 – $19.31 876,147 7.67 531,085 7.65 $19.32 – $24.17 1,156,561 8.84 404,605 8.78 $24.18 – $50.07 995,802 9.77 8,481 9.74 5,475,283 6.78 3,322,160 5.32 During the years ended December 31, 2021 and 2020, the Company’s stock compensation expense was $6,322 and $5,897, respectively. As of December 31, 2021, the unamortized expense related to outstanding awards was $25,572. The weighted average remaining amortization period over which the balance as of December 31, 2021 is to be amortized is 3.12 years. No income tax benefit was recognized for this compensation expense in the Consolidated Statement of Operations and Comprehensive Loss, as the Company does not anticipate realizing any such benefit in the future. Employee Stock-Based Compensation For the purpose of determining the estimated fair value of share -based -Scholes -pricing -based The assumptions under the Black -Scholes -pricing December 31, 2021 December 31, 2020 Fair value of common stock $ 40.83 $ 20.37 Dividend yield 0 % 0 % Expected volatility 42 % 44 % Expected term (years) 6.01 5.92 Risk free interest rate 1.14 % 0.64 % Stock -based December 31, 2021 December 31, 2020 Research and development $ 4,434 $ 3,605 Sales and marketing 509 414 General and administrative 1,379 1,878 Total $ 6,322 $ 5,897 Executive Options The Company historically issued option awards to key personnel with contractual expirations of 5 to 10 years. Certain individuals had not exercised their options prior to expiration. As a result of the expiration of unexercised but fully vested options awards, the Company issued new options for the same quantity previously granted, but with an exercise price set to the then fair value of common stock determined in accordance with a board approved 409A. Furthermore, in an effort to make the holders whole, the Company entered into a change in control bonus Letter Agreement with each individual. Pursuant to the agreement, each individual is entitled to an additional lump sum payment capped at the difference between the original aggregate exercise price and the new aggregate exercise price upon a change in control transaction as defined in the Company’s 2016 Equity Incentive Plan, provided that such a transaction also constitutes a “Liquidation Transaction” as defined in the Company’s Certificate of Incorporation. The maximum change in control bonus for executive award holders is $5,837 and remains unamortized as of December 31, 2021. |