10. EQUITY INCENTIVE PLAN

Hyperfine Inc. 2021 Equity Incentive Plan

A total of 16,013,762 shares of common stock are reserved for issuance under the Company's 2021 Equity Incentive Plan (the “Hyperfine Plan”). The Hyperfine Plan is administered by the Company's board of directors. The board of directors may grant restricted stock and options to purchase shares either as incentive stock options or non-qualified stock options. The option grants are subject to certain terms and conditions, option periods and conditions, exercise rights and privileges as set forth in the Hyperfine Plan. During the year ended December 31, 2022, the number of shares available for grant increased by 2,813,293 shares pursuant to the evergreen provision in the Hyperfine Plan that provides for an automatic annual increase in the number of shares available for grant under the Hyperfine Plan equal to the lesser of (i) 4% of the number of outstanding shares of common stock outstanding on the first day of the fiscal year, and (ii) an amount determined by the administrator of the Hyperfine Plan, beginning in fiscal year 2022 and ending on the second day of fiscal year 2031. At December 31, 2022, 6,522,133 shares of common stock remain available for issuance under the Hyperfine Plan.

Prior to the Business Combination, Legacy Hyperfine and Liminal were distinct entities with separate equity incentive plans for their employees and nonemployees. Both plans were subsequently adopted and assumed by the Company as a consequence of the Business Combination.

Stock option activity

Each stock option grant carries varying vesting schedules whereby the options become exercisable at the participant’s sole discretion provided they are an employee, director or consultant of the Company on the applicable vesting date. Each option shall terminate not more than ten years from the date of the grant.

During the fourth quarter of 2022, the Company granted certain equity awards to the newly hired Chief Executive Officer. These awards include an option award to purchase 3,175,000 shares of Class A common stock which will vest based on continued service over a four year period.

During the quarter ended December 31, 2022, the Company initiated and carried out certain restructuring actions in order to reduce costs, including termination of employees. As part of the employees’ severance, for certain employees the Company accelerated the vesting of unvested awards including 90,003 option awards and 33,281 of restricted stock unit awards and extended the exercise period for 346,028 vested options post-termination, which were treated as the modification of awards in connection with the termination of employees and resulted in an additional stock-based compensation expense of $143 representing the incremental fair value of the modified awards.

During the years ended December 31, 2022 and 2021, the Company granted certain equity awards to the Chief Executive Officer hired during 2021. These awards include (1) an option award to purchase 1,899,500 shares of Class A common stock which will vest based on continued service over a four year period, and (2) two separate option

awards to purchase 474,875 shares of Class A common stock (949,750 options total), which will be fully vested upon the occurrence of various service, performance, and market conditions. The following awards were granted to the Chief Executive Officer during the year ended December 31, 2022: (1) 474,875 share option award which will vest based on continued service over a five year period, (2) a 300,000 share option award which will vest based on continued service over a four year period, (3) a restricted stock unit (RSU) award for 150,000 shares which will vest based on continued service over a four year period, and (4) an RSU award granted on April 26, 2022 for 649,350 shares which will vest in four installments from February 2023 through November 2023. On July 29, 2022, the former Chief Executive Officer’s employment with the Company terminated; the 649,350 RSUs awarded on April 26, 2022 continue to remain outstanding until paid in accordance with the schedule set forth in the grant notice agreement.

Certain equity awards were also granted to the Executive Chairperson of the Legacy Hyperfine board of directors. The equity compensation included (1) an option award to purchase 712,312 shares of Class A common stock which will vest based on continued service, over four years and (2) two separate option awards to purchase 237,437 shares each of Class A common stock (474,874 shares in total), which will be fully vested upon the occurrence of various certain service, performance, and market conditions.

The service condition for these awards is satisfied by providing service to the Company based on the defined service period per the award agreement. The performance-based condition is satisfied upon the occurrence of a special purpose acquisition company (“SPAC”) transaction, initial public offering (“IPO”), or financing event as defined in the award agreement. The market condition is satisfied by achieving various multiples of a defined price per share. The achievement of the performance condition and the commencement of the related expense recognition event cannot occur until the event is deemed probable, which only occurs once a SPAC transaction, IPO, or financing event has occurred. The performance condition was satisfied as a result of the Business Combination and the Company recognized a credit to stock-based compensation expense of $904 and an expense of $1,772 in connection with these awards during the year ended December 31, 2022 and 2021. None of the market conditions have been satisfied and as such, none of the awards are exercisable as of December 31, 2022 and 2021.

During the year ended December 31, 2021, the Company also granted 258,833 option awards subject to certain service and performance conditions. The service condition required the participant’s continued employment with the Company through the applicable vesting date, and the performance condition required the consummation of a Sale, IPO, or SPAC transaction as defined in the option award agreement. These awards were forfeited and cancelled prior to the consummation of the Business Combination. As a Sale, IPO, or SPAC transaction did not occur prior to forfeiture, the Company did not record any stock-based compensation expense related to these option awards.

All options granted by the Company during the years ended December 31, 2022 and 2021 were granted with exercise prices equal to the estimated fair value of the Company's common stock at the date of grant, as determined by the Company's board of directors.

The Company received cash proceeds from the exercise of stock options of $7 and $1,497 during the years ended December 31, 2022 and 2021, respectively.

The total intrinsic value (the amount by which the stock price exceeds the exercise price of the option on the date of exercise) of the stock options exercised during the years ended December 31, 2022 and 2021, was $47 and $2,752, respectively. The weighted-average grant date fair value of options granted during the year ended December 31, 2022 and 2021 was $0.62 and $0.66, respectively.

During the years ended December 31, 2022 and 2021, the Company recognized $3,483 and $6,604, respectively, of share‑based compensation expense for stock options granted to employees.

Tax benefits from tax deductions for exercised options and disqualifying dispositions in excess of the deferred tax asset attributable to stock compensation costs for such options are credited to additional paid‑in capital. The benefits are recognized against income taxes. Realized excess tax benefits related to stock options exercises was zero for each of the years ended December 31, 2022 and 2021.

As of December 31, 2022, there was approximately $7,357 of unrecognized compensation cost, related to unvested stock options, which is expected to be recognized over a weighted average period of 2.89 years.

Stock Option Repricing

On September 26, 2022, stockholders controlled by Jonathan M. Rothberg, Ph.D., Vice Chairperson of the Company, representing a majority in voting power with respect to the Company’s Class A common stock and the Company’s Class B common stock, approved a one-time stock option repricing (the “Option Repricing”). The Board of Directors of the Company previously approved the Option Repricing on August 24, 2022, contingent upon stockholder approval of the Option Repricing. Stock options held by Dr. Rothberg were not repriced in the Option Repricing. The Option Repricing was effected on October 31, 2022. Unexercised options held by current employees and certain non-employee directors with exercise prices ranging from $1.28 to $5.24 per share were repriced on a one-for-one basis to $0.91 per share which represented the per share fair value of our Class A common stock as of the date of the repricing. There was no other modification to the vesting schedule of the previously issued options. As a result, 5,378,308 outstanding options, including 4,903,434 awards with service conditions and 474,874 awards with market and performance-based conditions, originally granted to purchase Class A common stock at prices ranging from $1.28 to $5.24 per share were repriced under this program.

The Company treated the repricing as a modification of the original awards and calculated additional compensation costs for the difference between the fair value of the modified award and the fair value of the original award on the modification date. The repricing of the awards with service conditions resulted in incremental stock-based compensation expense of $1,460. Expense of $456 related to vested shares was expensed on the repricing date and expense related to unvested shares is being amortized over the remaining vesting period of such stock options.

The repricing of the awards with market and performance-based conditions resulted in incremental stock-based compensation expense of $1, which is being amortized over the remaining requisite service period.

Stock option valuation inputs

The Company utilized the Black-Scholes option pricing model for determining the estimated fair value for service awards. The Black-Scholes model requires the use of subjective assumptions which determine the fair value of stock-based awards. The assumptions used to value option grants to employees and nonemployees for the years ended December 31, 2022 and 2021 were as follows:

Risk free interest rate

The risk free interest rate for periods within the expected term of the awards is based on the U.S. Treasury yield curve in effect at the time of the grant.

Expected dividend yield

The Company has never declared or paid any cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Expected term

For employee awards, the Company calculates the expected term using the “simplified” method, which is the simple average of the vesting period and the contractual term. The simplified method is applied as the Company does not have sufficient historical data to provide a reasonable basis for an estimate of the expected term. The Company calculates expected term for employee awards that take into account the effects of employee’s expected exercise and post-vesting employment termination behavior.

Expected volatility

During the year ended December 31, 2022, the expected volatility was determined using the historical volatilities of several publicly listed peer companies over a period equivalent to the expected term of the awards.

During the year ended December 31, 2021, as Legacy Hyperfine was privately held from inception through the Closing and all option grants during 2021 occurred prior to the Closing Date, there was no specific historical or implied volatility information available. Accordingly, the Company estimates the expected volatility on the historical stock volatility of a group of similar companies that are publicly traded over a period equivalent to the expected term of the stock-based awards. Point estimates of expected annual equity volatility of 70% for December 31, 2021, were selected in the guideline companies’ historical range.

Exercise price

The exercise price is taken directly from the grant notice issued to employees and nonemployees.

Incentive Unit and Preferred Stock Award Activity

Incentive unit grants typically vest over a four year period provided the holder is an employee, director or consultant of the Company on the applicable vesting date. Upon termination of service, pursuant to the terms of the grant, the participant 1) immediately forfeits any unvested (but issued) incentive units and 2) the Company has the right, but not the obligation, to repurchase at the fair market value on the date of termination, any vested incentive units. The repurchase right is valid for 18 months commencing with the date of service.

On April 2, 2021, 4Bionics executed a plan of liquidation and dissolution and its ownership in Liminal was distributed to its members and to the holders of incentive units. Immediately subsequent to the dissolution, all outstanding unvested incentive unit awards under 4Bionic’s 2019 Equity Incentive Plan were replaced with preferred stock awards indexed to and settled in the preferred stock of the former 4Bionics subsidiaries Liminal, Detect, Inc. (f/k/a Homodeus Inc.), and identifeye HEALTH Inc. (f/k/a Tesseract Health, Inc.). The preferred stock awards are subject to service vesting conditions only. No incremental value was provided to participants as a result of the modification of the awards as the modification date fair value of the incentive unit awards was equal to modification date fair value of the stock underlying the restricted stock awards. Moreover, the remaining vesting period before and after modification was unchanged. No incremental compensation expense was recognized as a result of the modification.

Prior to the dissolution of 4Bionics, a portion of total 4Bionics stock-based compensation expense was allocated to Liminal based on the level of service provided by the relevant employees and nonemployees to Liminal over the term of the award. Subsequent to the dissolution of 4Bionics, the Company recognizes the stock-based compensation expense related to the replacement preferred stock awards and no allocation methodology is required. In connection with the Business Combination, all replacement preferred stock awards were accelerated to fully vest. The Company recognized stock-based compensation expense of $578 related to the incentive unit awards and replacement preferred stock awards during the years ended December 31, 2021.

Restricted Stock Units

The following table summarizes the changes in the Company’s outstanding restricted stock units (“RSUs”) for the year ended December 31, 2022:

During the year ended December 31, 2022, the Company granted 2,493,335 RSUs to employees of the Company. The RSUs vest over a four year period, contingent on the ongoing service of the employees. The grant date fair value of the RSUs was measured using the fair value of the underlying Class A common stock, which had a prices ranging from $0.78 to $3.85 per share on the grant date. The total grant date fair value of $8,316 will be recognized evenly over the four year period as the service condition is satisfied.

The Company recognized $4,243 and $9 of share‑based compensation expense, related to RSUs during the years ended December 31, 2022 and 2021. The weighted average grant date fair value per share of RSUs granted was $3.34 and $9.19 for the years ended December 31, 2022 and 2021, respectively. The aggregate fair market value of RSUs that vested during the year ended December 31, 2022 was $491.

On June 27, 2022, David Scott delivered his resignation as the Company’s President, Chief Executive Officer and member of the Board of Directors, effective as July 29, 2022. Pursuant to the terms of the Restricted Stock Unit Award Grant Notice and Agreement dated April 26, 2022 with Mr. Scott under the Hyperfine Plan, the 649,350 RSUs awarded on April 26, 2022, which were fully vested upon grant and the stock-based compensation expense for these fully vested awards were recognized immediately upon grant and will continue to remain outstanding until paid in accordance with the schedule set forth in the grant notice. In addition, 150,000 unvested RSUs and 3,124,252 unvested options held by Mr. Scott ceased to vest as of the resignation date of July 29, 2022 and were immediately forfeited. The previously recognized stock-based compensation expense of $4,501 related to these awards was recaptured in accordance with ASC 718 as a credit to general and administrative expense.

In December 2021, immediately following the Business Combination, the Company granted 117,516 restricted stock units (“RSUs”) to members of the Company’s Board of Directors. The RSUs vest over a three year period, contingent on the ongoing service of the Directors. The grant date fair value of the RSUs was measured using the fair value of the underlying Class A common stock, which was $9.19 per share on the grant date. The total grant date fair value of $1,080 will be recognized evenly over the three year period as the service condition is satisfied.

Earn-Out Shares

During the year ended December 31, 2022, no earnout shares were granted. During the year ended December 31, 2021, subject to the achievement of certain milestones, certain employees are entitled to a total of 933,933 Earn-Out Shares. These Earn-Out Shares fall within the scope of ASC 718, pursuant to which such Earn-Out Shares are equity classified and their grant date fair value will be recognized as compensation expense over the vesting period.

During the years ended December 31, 2022 and 2021, the Company recorded $2,926 and $288, respectively, of share‑based compensation expense related to Earn-Out Shares.

Earn-out valuation inputs

The Company utilized a Monte Carlo Simulation pricing model for determining the estimated fair value for Earn-Out Shares. The fair value is based on the simulated price of the Company over the maturity date of the Earn-Out Shares. The key assumptions used in the valuation were as follows:

Risk free interest rate

The risk free interest rate for periods within the expected term of the awards is based on the U.S. Treasury yield curve in effect at the time of the grant.

Expected dividend yield

The Company has never declared or paid any cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Expected term

For Earn-Out Shares, the expected term is determined to be three years from the Closing as this is the period over which the market price milestone may be achieved. As there is no dependent vesting period, the shares are exercisable at the point that the market condition is reached.

Expected volatility

As Legacy Hyperfine was privately held from inception through the Closing, there was no specific historical or implied volatility information available.

Accordingly, the Company estimates the expected volatility on the historical stock volatility of a group of similar companies that are publicly traded over a period equivalent to the expected term of the earn-out awards. A point estimate of expected annual equity volatility of 55% for December 31, 2021 was selected in the guideline companies’ historical range.

Stock-Based Compensation Expense

Total unrecognized stock-based compensation expense as of December 31, 2022 was $10,074 which will be recognized over the remaining vesting period of 2.84 years.