STOCK AND UNIT-BASED COMPENSATION | NOTE 13 STOCK AND UNIT-BASED COMPENSATION Post-IPO Equity Awards 2021 Equity Incentive Plan Effective June 9, 2021, the Company’s Board of Directors (the "Board") and its stockholders as of that date adopted and approved the LifeStance Health Group, Inc. 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”). All equity-based awards subsequent to June 9, 2021 will be granted under the 2021 Plan. The 2021 Equity Incentive Plan permits the grant of awards or restricted or unrestricted common stock, stock options, stock appreciation rights, restricted stock units, performance awards, and other stock-based awards to employees and directors of, and consultants and advisors to, the Company and its affiliates. The maximum number of shares of the Company’s common stock that may be delivered in satisfaction of awards under the 2021 Equity Incentive Plan is 47,037 shares. The share pool will automatically increase on January 1 of each year beginning in 2022 and continuing through and including 2031 by the lesser of (i) five percent of the number of shares of the Company’s common stock outstanding as of the close of business on the immediately preceding December 31 and (ii) the number of shares determined by the Board on or prior to such date for such year. Restricted Stock The restricted stock was issued as part of the Organizational Transactions (see Note 1). The following is a summary of restricted stock transactions as of and for the three and nine months ended September 30, 2021 (Successor): Unvested Shares Weighted-Average Grant Date Unvested, June 30, 2021 (Successor) 30,766 $ 11.98 Converted — — Granted — — Vested ( 17 ) 12.01 Unvested, September 30, 2021 (Successor) 30,749 $ 11.98 Unvested Shares Weighted-Average Grant Date Unvested, June 9, 2021 (Successor) — $ — Converted 30,766 11.98 Granted — — Vested ( 17 ) 12.01 Unvested, September 30, 2021 (Successor) 30,749 $ 11.98 Restricted Stock Units The restricted stock units (“RSUs”) were granted in connection with the IPO and subsequent to the IPO. RSUs are accounted for as equity using the fair value method, which requires measurement and recognition of compensation expense for all awards granted to employees, directors and consultants based upon the grant-date fair value. The following is a summary of RSU transactions as of and for the three and nine months ended September 30, 2021 (Successor): Unvested Shares Weighted-Average Grant Date Outstanding, June 30, 2021 (Successor) 6,128 $ 18.00 Converted — — Granted 80 12.87 Vested — — Outstanding, September 30, 2021 (Successor) 6,208 $ 17.93 Unvested Shares Weighted-Average Grant Date Outstanding, June 9, 2021 (Successor) — $ — Converted — — Granted 6,208 17.93 Vested — — Outstanding, September 30, 2021 (Successor) 6,208 $ 17.93 The Company recognized $ 120,689 and $ 149,674 in stock-based compensation expense related to restricted stock and RSUs for the three and nine months ended September 30, 2021 (Successor), respectively, within general and administrative expenses in the unaudited consolidated statements of income/(loss) and comprehensive income/(loss). As of September 30, 2021 (Successor), the Company had $ 331,241 in unrecognized compensation expense related to all non-vested awards (restricted stock and RSUs) that will be recognized over the weighted-average remaining service period of 1.9 years. 2021 Employee Stock Purchase Plan Effective June 9, 2021, the Board and its stockholders as of that date adopted and approved the LifeStance Health Group, Inc. 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP permits the grant to eligible employees of the Company and its participating subsidiaries of options to purchase shares of the Company’s common stock. The aggregate number of shares of the Company common stock available for purchase pursuant to the exercise of options under the ESPP is 6,817 shares, plus an automatic annual increase, as of January 1 of each year beginning in 2022 and continuing through and including 2031, equal to the lesser of (i) one percent of the number of shares of the Company’s common stock outstanding as of the close of business on the immediately preceding December 31 and (ii) the number of shares determined by the Board on or prior to such date for such year, up to a maximum of 42,500 shares of the Company’s common stock in the aggregate. The ESPP allows participants to purchase common stock through payroll deductions of up to 15 % of their eligible compensation. The purchase price of the shares will be 85 % of the lower of the fair market value of the Company’s common stock on the grant date or the exercise date. The ESPP will generally be implemented by a series of separate offerings referred to as “Option Periods”. Unless otherwise determined by the administrator, the Option Periods will be successive periods of approximately six months commencing on the first business day in January and July of each year, anticipated to be on or around January 1 and July 1, and ending approximately six months later on the last business day in June or December, as applicable, of each year, anticipated to be on or around June 30 and December 31. The last business day of each Option Period will be an “Exercise Date”. The administrator may change the Exercise Date, the commencement date, the ending date and the duration of each Option Period, in each case, to the extent permitted by Section 423 of the Internal Revenue Code; provided, however, that no option may be exercised after 27 months from its grant date. As of September 30, 2021 (Successor) , no shares of common stock have been purchased under the Company’s ESPP. Pre-IPO Equity Awards Class C Units and Class A Units (Predecessor) For the period from January 1, 2020 to May 14, 2020 and prior (Predecessor), the Board of Directors of LifeStance Health, LLC issued Class C Units and Class A Units options, which represented options to purchase membership units in LifeStance Health, LLC. All Class C Units and Class A Units options were fully vested and exercised as of May 14, 2020, and all holders were granted LifeStance TopCo Class A-1 Units upon the TPG Acquisition occurring. No options to purchase Class C Units or Class A Units were outstanding at May 14, 2020. On the grant date, recipients of the Class C Units and Class A Units purchased for cash the units at their fair market value. The Company recorded total unit-based compensation expense of $ 0 for the period from January 1, 2020 to May 14, 2020 (Predecessor) related to both Class C Units and Class A Units. Class B Profits Interests Units (Successor) On May 14, 2020, the Board of Directors of LifeStance TopCo adopted a form of Partnership Interest Award Agreement (“Award Agreement”). From May 14, 2020 through June 9, 2021 (Successor), the Company granted awards in the form of Profits Interests Units to employees, officers and directors on terms set forth in the Award Agreement. These Profits Interests represented profits interest ownership in the Company tied solely to the accretion, if any, in the value of the Company following the date of issuance of such Profits Interests. Profits Interests participated in any increase of the Company value related to their profits interests after the hurdle value had been achieved. A maximum of 179,190 Class B Profits Interests Units were available to be granted under the Award Agreement. Awards were granted on a discretionary basis and were subject to the approval of the Board of Directors of LifeStance TopCo. The Company granted 152,865 Class B Profits Interests Units awards from May 14, 2020 through June 9, 2021 (Successor). Holders of the Profits Interests Units received distributions (other than tax distributions) only upon a liquidity event, as defined, that exceeded a threshold equivalent to the fair value of the Company, as determined by the Company’s Board, at the grant date. All awards included a repurchase option at the election of the Company for the vested portion upon termination of employment or service and any unvested awards would be forfeited. Profits Interests Units are accounted for as equity using the fair value method, which requires the measurement and recognition of compensation expense for all profit interest-based payment awards made to the holders based upon the grant-date fair value. The Company has concluded that both the Service-Vesting Units and the Performance-Vesting Units are subject to a market condition and has assessed the market condition as part of its determination of the grant date fair value. Accordingly, the Company determined the fair value of each award on the date of grant using a Monte Carlo simulation model with the following assumptions used for the grants issued for the nine months ended September 30, 2021 (Successor), for the three months ended September 30, 2020 (Successor) and for the period from April 13, 2020 to September 30, 2020 (Successor): Successor Nine Months Ended Three Months Ended September 30, 2020 April 13 to Risk-free rate 0.14 % 0.20 % 0.20 % Volatility 80.00 % 40.00 % 40.00 % Time to liquidity event (years) 2.00 3.00 3.00 Discount for lack of marketability (DLOM) — 20.00 % 20.00 % The volatility assumption used in the Monte Carlo simulation model is based on the expected volatility of public companies in similar industries, adjusted to reflect the differences between the Company and other public companies in size, resources, time in industry, and breadth of service offerings. In connection with the IPO, the outstanding Profits Interests were contributed to LifeStance Health Group in exchange for common stock, including restricted stock. The following is a summary of Class B Profits Interests Units for the nine months ended September 30, 2021 (Successor), for the three months ended September 30, 2020 (Successor) and for the period from April 13, 2020 to September 30, 2020 (Successor): Class B Profits Weighted- Outstanding, December 31, 2020 143,343 $ 0.13 Granted 9,522 0.16 Forfeited ( 245 ) 0.13 Converted ( 152,620 ) 0.13 Outstanding, September 30, 2021 (Successor) — $ — Class B Profits Weighted- Outstanding, June 30, 2020 134,855 $ 0.13 Granted 627 0.13 Outstanding, September 30, 2020 (Successor) 135,482 $ 0.13 Class B Profits Weighted- Outstanding, April 13, 2020 — $ — Granted 135,482 0.13 Outstanding, September 30, 2020 (Successor) 135,482 $ 0.13 There were no Class B Profits Interests Units outstanding as of June 30, 2021 (Successor) and September 30, 2021 (Successor). Stock and Unit-Based Compensation Expense The Company recognized unit-based compensation expense related to the Class B Profits Interests within general and administrative expenses in the unaudited consolidated statements of income/(loss) and comprehensive income/(loss) as follows: Successor Three Months Ended Nine Months Ended April 13 to Unit-based compensation expense $ 573 $ 1,135 $ 865 As part of the Organizational Transactions, the Class B Profits Interests Units that were subject to vesting over a period of continuous employment or service and were unvested upon the Organizational Transactions were converted to restricted stock that vests over a modified requisite service period of three years. The unvested Class B Profits Interests Units that were subject to vesting upon the sale of the Company were converted to restricted stock that were modified to add both a market and service condition and vest between six months and two years following the IPO. These awards, which were subject to vesting upon the sale of the Company, were deemed improbable until June 10, 2021 when the IPO occurred. As a result of this vesting condition being deemed probable on the date of the IPO, the equity holders of these awards received 30,766 shares of common stock issued as restricted stock that are subject to market and service-based vesting conditions. The stock compensation expense recorded for these modifications to convert the Class B Profits Interests Units to restricted stock, acceleration of vesting terms, and the additional RSUs granted at the time of IPO is included in the $ 149,674 of stock-based compensation expense for the nine months ended September 30, 2021 (Successor) . This amount was recognized within general and administrative expenses in the unaudited consolidated statements of income/(loss) and comprehensive income/(loss). |