The 2014 Plan

Under the 2014 Stock Option Plan of Hotshine Holdings, Inc. (the “2014 Plan”), the Company may grant incentive stock options or nonqualified stock options to purchase common shares of the Company to its employees, directors, officers, outside advisors and non-employee consultants.

All stock options granted under the 2014 Plan are equity-classified and have a contractual life of ten years. Under the 2014 Plan, 60% of the shares in a grant contain service-based vesting conditions and vest ratably over a five-year period and 40% of the shares in a grant contain performance-based vesting conditions (“Performance Vesting Options”).

The 2021 Plan

In June 2021, the Board adopted the 2021 Incentive Award Plan (the “2021 Plan”), which was subsequently approved by the Company's stockholders and became effective on June 25, 2021. Under the 2021 Plan, the Company may grant incentive stock options, nonqualified stock options, restricted stock units (“RSUs”), restricted stock, and other stock- or cash-based awards to its employees, directors, officers, and non-employee consultants. Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan is 29,800,000 new shares of common stock, which includes 256,431 shares of common stock that remained available for issuance under the 2014 Plan at June 25, 2021. Any shares of common stock subject to outstanding stock awards granted under the 2014 Plan and, following June 25, 2021, terminate, expire or are otherwise forfeited, reacquired or withheld will become available for issuance under the 2021 Plan.

All stock options granted under the 2021 Plan are equity-classified and have a contractual life of ten years. Under the 2021 Plan, the stock options contain service-based vesting conditions and generally vest ratably over a three- to five-year period (collectively with stock options under the 2014 Plan, the “Time Vesting Options”). The exercise prices for stock options granted under the 2021 Plan were not less than the fair market value of the common stock of the Company on the date of grant.

RSUs granted under the 2021 Plan are equity-classified and contain service-based conditions and generally vest ratably over one- to five-year periods. Each RSU represents the right to receive one share of the Company’s common stock upon vesting. The fair value is calculated based upon the Company’s closing stock price on the date of grant, and the stock-based compensation expense is recognized over the requisite service period, which is generally the vesting period.

The 2021 ESPP

In June 2021, the Board adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by the Company’s stockholders and became effective in June 2021. The 2021 ESPP authorizes the initial issuance of up to 5,000,000 shares of the Company’s common stock to eligible employees of the Company or, as designated by the Board, employees of a related company. The 2021 ESPP provides for offering periods not to

exceed 27 months, and each offering period will include purchase periods. The Company determined that offering periods would commence at approximately the six-month period beginning with an enrollment date and ending with the next exercise date.

The 2021 ESPP provides that the number of shares reserved and available for issuance under the 2021 ESPP will automatically increase on January 1 of each calendar year from January 1, 2022 through January 1, 2031 by an amount equal to the lesser of (i) 0.5% of the outstanding number of shares of common stock on the immediately preceding December 31 and (ii) such lesser number of shares of common stock as determined by the Board.

The grant date fair value of Time Vesting Options granted and stock purchase rights granted under the 2021 ESPP are determined using the Black-Scholes option-pricing model.

2021 ESPP Valuation

The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of stock purchase rights granted under the 2021 ESPP Plan during the periods presented as follows:


	Year Ended December 31,
	2025	2024	2023
Expected volatility	36.95 % - 42.14%	38.34% - 55.99%	36.30% - 55.99%
Risk-free interest rate	3.81% - 4.44%	4.44% - 5.41%	4.53% - 5.38%
Expected term (in years)	0.49 - 0.50	0.49 - 0.50	0.49 - 0.50
Expected dividend yield	None	None	None

Time Vesting Options

The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of Time Vesting Options granted under the 2014 Plan and 2021 Plan during the periods presented as follows:


	Year Ended December 31,
	2025	2024	2023
Expected volatility	45.75% - 46.74%	45.98% - 46.18%	43.74% - 46.58%
Risk-free interest rate	3.77% - 4.07%	4.08% - 4.52%	3.68% - 4.21%
Expected term (in years)	6.0	6.0	6.0 - 6.26
Expected dividend yield	None	None	None

Stock Options

A summary of the Company’s stock option activity during the most recent period presented is as follows:


	Time Vesting Options			Performance Vesting Options			Total Number of Stock Options			Weighted-Average Exercise Price
Outstanding as of December 31, 2024		9,137,994			1,897,467			11,035,461		$	5.70
Granted		1,673,403			—			1,673,403		$	6.98
Exercised		(1,355,891	)		(847,744	)		(2,203,635	)	$	1.30
Forfeited		(476,982	)		—			(476,982	)	$	9.45
Outstanding as of December 31, 2025		8,978,524			1,049,723			10,028,247		$	6.70
Options vested or expected to vest as of December 31, 2025		8,617,506			1,049,723			9,667,229		$	9.15
Options exercisable as of December 31, 2025		5,432,632			1,049,723			6,482,355		$	6.02

The number and weighted-average grant date fair value of stock options during the most recent period presented is as follows:


	Number of Stock Options					Weighted-Average Grant Date Fair Value
	Time Vesting Options			Performance Vesting Options		Time Vesting Options		Performance Vesting Options
Unvested as of December 31, 2024		3,544,956			—	$	4.05		—
Granted		1,673,403			—	$	3.51		—
Vested		(1,464,537	)		—	$	4.12		—
Forfeited		(207,929	)		—	$	4.28		—
Unvested as of December 31, 2025		3,545,893			—	$	3.77		—

The total grant date fair value of Time Vesting Options granted during the year ended December 31, 2025 was approximately $5,871. The total intrinsic value of options exercised during the years ended December 31, 2025, 2024 and 2023 was $12,376, $65,821 and $54,975, respectively.

The fair value of stock options vested during the years ended December 31, 2025, 2024 and 2023 was $10,501, $10,227 and $10,611, respectively.

The weighted-average fair value of time vesting options granted in 2025, 2024 and 2023, estimated on the dates of grant using the Black-Scholes option pricing model, was $3.51, $3.13 and $4.35, respectively.

As of December 31, 2025 and 2024, the weighted-average remaining contractual life of outstanding stock options was approximately 5.73 years and 5.41 years.

As of December 31, 2025 and 2024, the weighted-average remaining contractual life of currently exercisable stock options was approximately 4.21 years and 4.05 years.

Restricted Stock Units

The following table summarizes our RSU activity during the periods presented as follows:


	Restricted Stock Units			Weighted-Average Grant Date Fair Value
Unvested as of December 31, 2024		4,812,481		$	8.10
Granted		3,326,994			6.93
Vested		(1,934,289	)		8.55
Forfeited		(806,532	)		7.35
Unvested as of December 31, 2025		5,398,654		$	7.33

The total fair value of RSUs that vested during the year ended December 31, 2025 was $13,596.

As of December 31, 2025 and 2024, the weighted-average remaining contractual life of outstanding RSUs was approximately 8.82 years and 8.89 years, respectively.

Stock-Based Compensation Expense

The Company estimated a forfeiture rate of 10.26% for awards with service-based vesting conditions based on historical experience and future expectations of the vesting of these share-based payments. The Company used this rate as an assumption in calculating stock-based compensation expense for Time Vesting Options, RSUs, and stock purchase rights granted under the 2021 ESPP.

Total stock-based compensation expense, by caption, recorded in the consolidated statements of operations and comprehensive income for the periods presented is as follows:


	Year Ended December 31,
	2025			2024			2023
Cost of labor and chemicals	$	11,230		$	10,403		$	8,879
General and administrative		15,403			15,160			15,122
Total stock-based compensation expense	$	26,633		$	25,563		$	24,001
Income tax benefit for stock-based compensation expense	$	(4,848	)	$	(4,524	)	$	(4,380	)

Total stock-based compensation expense, by award type, recorded in the consolidated statements of operations and comprehensive income for the periods presented is as follows:


	Year Ended December 31,
	2025		2024		2023
Time Vesting Options	$	6,469	$	6,156	$	6,812
RSUs		19,450		18,596		16,230
2021 ESPP		714		811		959
Total stock-based compensation expense	$	26,633	$	25,563	$	24,001

As of December 31, 2025, total unrecognized compensation expense related to unvested Time Vesting Options was $6,139, which is expected to be recognized over a weighted-average period of 1.71 years.

As of December 31, 2025, there was no unrecognized compensation expense related to unvested Performance Vesting Options as the completion of the IPO in June 2021 satisfied the performance condition and as a result, all outstanding Performance Vesting Options vested.

As of December 31, 2025, total unrecognized compensation expense related to unvested RSUs was $17,941, which is expected to be recognized over a weighted-average period of 1.90 years.

Mister Car Wash, Inc. 10-K