The Company’s 2016 Equity Incentive Plan (the “2016 Plan”), became effective on September 15, 2016. The 2016 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights and performance share awards to employees, directors and consultants of the Company. The number of shares of common stock reserved for issuance under the 2016 Plan will automatically increase on January 1 of each year by 3% of the number of shares of the Company’s capital stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s board of directors.

On December 16, 2022, the Board of Directors (the “Board”) adopted the Everbridge, Inc. 2022 Inducement Plan (the “2022 Inducement Plan”). The 2022 Inducement Plan was adopted without stockholder approval pursuant to Nasdaq Listing Rule 5635(c)(4) and will be administered by the Compensation Committee of the Board (the “Committee”). The Board reserved 600,000 shares of Common Stock for issuance under the 2022 Inducement Plan. The only persons eligible to receive grants of Inducement Awards (as defined below) under the 2022 Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq Listing Rule 5635(c)(4). Inducement Awards may only be granted by: (i) the Committee, provided such committee is comprised solely of “independent directors” (as defined by Nasdaq Listing Rule 5605(a)(2)) or (ii) a majority of the Company’s “independent directors.” An “Inducement Award” means any right to receive Common Stock, cash or other property granted under the 2022 Inducement Plan (including nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards, performance cash awards or other stock-based awards). The Board also adopted a (i) form of stock option grant notice, option agreement, and notice of exercise (the “Inducement Option Grant Package”) and (ii) form of restricted stock unit award grant notice and award agreement (the “Inducement RSU Grant Package”) for use under the Inducement Plan.

The Company’s Employee Stock Purchase Plan (the “2016 ESPP”) became effective on September 15, 2016. The number of shares reserved for issuance under the 2016 ESPP will automatically increase on January 1 of each year by the lesser of 200,000 shares of the Company’s common stock, 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s board of directors.

The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations. The 2016 ESPP provides for separate six-month offering periods beginning each March and September of each fiscal year.

On each purchase date, eligible employees will purchase the Company’s stock at a price per share equal to 85% of the lesser of (i) the fair market value of the Company’s common stock on the offering date or (ii) the fair market value of the Company’s common stock on the purchase date.

For the years ended December 31, 2022, 2021 and 2020, 105,696, 41,164, and 49,319 shares of common stock, respectively, were purchased under the 2016 ESPP. As of December 31, 2022, 2021 and 2020, total recognized compensation cost was $1.7 million, $1.8 million, and $1.4 million, respectively. As of December 31, 2022, unrecognized compensation cost related to the 2016 ESPP was $0.4 million which will be amortized over a weighted-average period of 0.16 years.

The fair value of shares issuable under the 2016 ESPP is determined using the Black-Scholes option pricing model with the following weighted-average assumptions:


	Year Ended December 31,
	2022	2021	2020
Employee Stock Purchase Plan:
Expected term (in years) (1)	0.50	0.50	0.50
Expected volatility (2)	65% - 70%	45% - 60%	55% - 65%
Risk-free interest rate (3)	0.85% - 3.33%	0.05% - 0.06%	0.12% - 0.29%
Dividend rate (4)	0%	0%	0%

(1)

The expected term represents the contractual term of the 2016 ESPP;

(2)

The expected volatility of the Company’s common stock on the date of grant is based on the weighted average of the Company’s historical volatility as a public company, the implied volatility of publicly-traded options on the Company’s common stock and the volatilities of publicly traded peer companies that are reasonably comparable to the Company’s own operations;

(3)

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the grant; and

(4)

The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on the Company’s common stock.

Stock option awards are granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant based on the closing market price of its common stock as reported on The Nasdaq Global Market. The option awards generally vest over four years and are exercisable any time after vesting. The stock options expire ten years after the date of grant.

There were no stock options granted during the years ended December 31, 2022 and 2021. The Company recorded stock-based compensation expense of $0.1 million, $1.2 million and $3.5 million for the years ended December 31, 2022, 2021 and 2020, respectively, attributed to stock options.

The total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $0.2 million, $12.7 million and $30.6 million, respectively. This intrinsic value represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option. Based on the fair market value of the Company’s common stock at December 31, 2022, 2021 and 2020 the total intrinsic value of all outstanding options was $1.2 million, $6.9 million and $34.5 million, respectively.

There was no unrecognized compensation cost related to nonvested stock options as of December 31, 2022. The amount of cash received from the exercise of stock options during the years ended December 31, 2022, 2021 and 2020 was $0.1 million, $3.1 million, and $8.2 million, respectively.

The following table summarizes the Company’s stock option activity:


	Stock options outstanding			Weighted average exercise price
Outstanding at December 31, 2021		157,740		$	23.83
Exercised		(9,883	)		14.58
Forfeited		(5,655	)		38.66
Outstanding at December 31, 2022		142,202			23.89

Stock options outstanding, vested and expected to vest and exercisable are as follows:


	As of December 31, 2022
	Number of shares		Remaining contractual life (years)		Weighted- average exercise price
Outstanding		142,202		4.15	$	23.89
Vested and expected to vest		142,202		4.15		23.89
Exercisable		142,202		4.15		23.89

Vested and nonvested stock option activity was as follows:


	Vested				Nonvested
	Options outstanding		Weighted average exercise price		Options outstanding		Weighted average exercise price
Outstanding at December 31, 2022		142,202	$	23.89		—	$	—

During the year ended December 31, 2022, the Company granted 2,920,954 RSUs to members of its senior management and certain other employees pursuant to the 2016 Plan. There were 685,583 RSUs that vested during the year ended December 31, 2022. The Company accounts for RSUs issued to employees at fair value, based on the market price of the Company’s common stock on the date of grant. The weighted-average grant date fair values of RSUs granted during the years ended December 31, 2022, 2021 and 2020 were $39.51, $124.4 and $122.82, respectively. The fair values of RSUs that vested during the years ended December 31, 2022, 2021 and 2020, were $44.9 million, $25.6 million and $18.2 million, respectively. During the years ended December 31, 2022, 2021 and 2020, the Company recorded $40.9 million, $28.1 million, and $20.1 million respectively, of stock-based compensation related to the RSUs.

As of December 31, 2022, there was $80.5 million of unrecognized compensation expense related to unvested RSUs which is expected to be recognized over a weighted-average period of approximately 2.35 years. For RSUs subject to graded vesting, the Company recognizes compensation cost on a straight-line basis over the service period for the entire award.

On February 9, 2022, the Compensation Committee of the Company’s Board of Directors approved a modification to the performance thresholds of the Company’s PSU awards which affected 785 grantees and excluded our Named Executive Officers for 2021. The modified PSUs vest based on the Company achieving certain revenue growth thresholds which range from 1% to 40% compounded annual growth over the measurement period. For the portion of the PSUs where the expectation of the achievement of performance conditions changed from improbable prior to the modification to probable post-modification, the Company accounted for this change as a Type III modification under ASC 718, Compensation—Stock Compensation. The modification date fair value for the PSUs was $55.31. As of the modification date, total incremental stock-based compensation expense was $17.5 million which will be recognized over the remaining service periods of the PSU less subsequent forfeitures.

During the year ended December 31, 2022, the Company granted 720,064 PSUs to members of its management pursuant to the 2016 Plan. There were 157,819 PSUs that vested during the year ended December 31, 2022. The PSUs, other than those modified on February 9, 2022 as described above, generally vest based on the Company achieving certain revenue growth thresholds which ranged from 20% to 40% compounded annual growth for grants through 2020 and 15% to 35% compounded annual growth for grants starting in 2021 over a measurement period of two years for the first 50% of PSUs and three years for the remaining PSUs. The vesting of the PSUs is subject to the employee’s continued employment with the Company through the date of achievement. During the year ended December 31, 2022, the share price of the Company’s common stock on the date of issuance of the PSUs ranged from $25.50 to $55.31 per share. The fair value is based on the value of the Company’s common stock at the date of issuance and the probability of achieving the performance metric. Compensation cost is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions. The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2022, 2021 and 2020 was $35.27, $123.94 and $119.78, respectively. For the years ended December 31, 2022, 2021 and 2020, the Company recognized $4.7 million, $13.0 million and $21.8 million, respectively, of stock compensation expense in connection with the PSU awards. During the three months ended December 31, 2021 and three months ended March 31, 2022 prior to the PSU modification, as a result of forecasted decreases in the compounded annual growth rate, the Company reduced the expected achievement of performance metrics and recognized a reduction in stock-based compensation expense. This reduction was offset by the incremental compensation expense recognized for the modified PSUs.

As of December 31, 2022, there was $11.4 million of unrecognized compensation expense related to unvested PSUs which is expected to be recognized over a weighted-average period of approximately 1.65 years. Compensation cost is recognized under the accelerated method and is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions.

The following table summarizes the Company’s RSU and PSU activity:


	Number of Shares
Outstanding at December 31, 2021		1,579,738
Granted		3,641,018
Vested		(843,402	)
Forfeited		(1,144,056	)
Outstanding at December 31, 2022		3,233,298

There were no tax benefits recognized for the tax deductions from stock options exercised or RSU and PSU awards vested during the years ended December 31, 2022, 2021 and 2020, as tax benefits increased net operating losses which were analyzed for a valuation allowance along with the Company’s other deferred tax assets.

During the three months ended March 31, 2022, the Company issued market-based grants, which are payable in cash to partially settle a vendor contract. The grants vest contingent upon the achievement of pre-determined market and service conditions. Cash payment at settlement will range from zero to approximately $1.3 million based on the Company’s total stockholder return (“TSR”) relative to the performance of peer companies through September 2023. The market-based grants are classified as a liability on the Company’s balance sheet and will be remeasured at each reporting period until settlement. Fair value of the market-based grants at the grant date and as of December 31, 2022 was $0.4 million and $0.2 million, respectively. During the year ended December 31, 2022, the Company recognized $0.2 million of stock compensation expense in connection with these awards.

Fair value of the market-based grants is determined using the Monte-Carlo simulation with the following assumptions:


		Year Ended December 31, 2022
Market-Based Grants:
Expected term (in years)		0.73 - 1.50
Expected volatility		58% - 71%
Risk-free interest rate		1.97% - 4.69%
Dividend rate		0%

During 2022, the Company updated the presentation of the allocation of stock-based compensation capitalized for software development. Prior periods have been recast to conform to the current presentation. The Company recorded the total stock-based compensation expense as follows (in thousands):


	Year Ended December 31,
	2022		2021		2020
Cost of revenue	$	5,468	$	3,678	$	2,966
Sales and marketing		15,917		15,936		15,836
Research and development		9,967		8,717		8,935
General and administrative		16,268		15,764		19,018
Total	$	47,620	$	44,095	$	46,755

Stock-based compensation expense is recognized over the award’s expected vesting schedule, which is reduced for forfeitures.