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 (the “Board”). Additionally, on December 16, 2022, the Board adopted the Everbridge, Inc. 2022 Inducement Plan (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). 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 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.

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 six months ended June 30, 2023 and 2022, 88,863 and 58,747 shares of common stock were purchased under the 2016 ESPP, respectively. The Company recorded stock-based compensation expense of $0.5 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively. The Company recorded stock-based compensation expense of $0.9 million and $0.8 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, unrecognized compensation cost related to the 2016 ESPP was $0.3 million which will be amortized over a weighted-average period of 0.17 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:


	Six Months Ended June 30,
	2023	2022
Employee Stock Purchase Plan:
Expected term (in years) (1)	0.50	0.50
Expected volatility (2)	60%	65%
Risk-free interest rate (3)	5.18%	0.86%
Dividend rate (4)	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 six months ended June 30, 2023. There was no stock-based compensation expense recorded during the six months ended June 30, 2023 or the three months ended June 30, 2022 as stock options were fully vested. The Company recorded stock-based compensation expense of $0.1 million for the six months ended June 30, 2022 attributed to stock options.

The total intrinsic value of options exercised for the six months ended June 30, 2023 and 2022 was $1.1 million and less than $0.1 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 June 30, 2023 and 2022, the total intrinsic value of all outstanding options was $0.2 million and $1.1 million, respectively.

There were no nonvested stock options as of June 30, 2023. The amount of cash received from the exercise of stock options during the six months ended June 30, 2023 and 2022 was $1.3 million and less than $0.1 million, respectively.

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


	Stock options outstanding			Weighted average exercise price
Outstanding at December 31, 2022		142,202		$	23.89
Exercised		(72,036	)		17.71
Forfeited		(1,901	)		43.86
Outstanding at June 30, 2023		68,265			29.85


	As of June 30, 2023
	Number of shares		Remaining contractual life (years)		Weighted- average exercise price
Outstanding and exercisable		68,265		4.10	$	29.85

During the six months ended June 30, 2023, the Company granted 1,069,092 restricted stock units (“RSUs”) to members of its senior management and certain other employees pursuant to the 2016 Plan. There were 472,978 RSUs that vested during the six months ended June 30, 2023. 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 six months ended June 30, 2023 and 2022 were $31.72 and $42.41, respectively. The fair values of RSUs that vested during the six months ended June 30, 2023 and 2022, were $24.1 million and $17.3 million, respectively. During the three months ended June 30, 2023 and 2022, the Company recorded $12.0 million and $11.9 million, respectively, of stock-based compensation related to RSUs. During the six months ended June 30, 2023 and 2022, the Company recorded $22.5 million and $18.9 million, respectively, of stock-based compensation related to RSUs.

As of June 30, 2023, there was $89.3 million of unrecognized compensation expense related to unvested RSUs which is expected to be recognized over a weighted-average period of approximately 2.23 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.

During the six months ended June 30, 2023, the Company granted 337,639 performance-based restricted stock unit (“PSU”) to members of its management pursuant to the 2016 Plan. There were 22,999 PSUs that vested during the six months ended June 30, 2023. Starting in 2023, PSU grants vest based on the achievement of pre-determined performance-based milestones including annual recurring revenue growth thresholds and adjusted earnings before interest, taxes, depreciation and amortization thresholds, as well as the employee’s continued employment with the Company through the date of achievement; through 2022 PSU grants vest based on revenue growth thresholds as well as the employee’s continued employment with the Company through the date of achievement. The measurement periods for the PSUs are two and three years with awards vesting after each measurement period. PSUs contain minimum, target and maximum milestones for each performance-based milestone. The number of shares of common stock to be issued at vesting will range from zero to 125% of the target number of PSUs starting in 2023 and from zero to 150% of the target number of PSUs through 2022. During the six months ended June 30, 2023, the share price of the Company’s common stock on the date of issuance of the PSUs ranged from $32.31 to $34.13 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 values of PSUs granted during the six months ended June 30, 2023 and 2022 were $34.09 and $39.76, respectively.

During the three months ended June 30, 2023 and 2022, the Company recognized $3.8 million and $3.6 million, respectively, of stock compensation expense in connection with PSU awards. During the six months ended June 30, 2023 and 2022, the Company recognized $6.4 million and $2.2 million, respectively, of stock compensation expense in connection with PSU awards. As of June 30, 2023, there was $13.5 million of unrecognized compensation expense related to unvested PSUs which is expected to be recognized over a weighted-average period of approximately 1.77 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, 2022		3,233,298
Granted		1,406,743
Vested		(495,977	)
Forfeited		(142,592	)
Outstanding at June 30, 2023		4,001,472

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 June 30, 2023 and 2022 was $4.0 thousand and $0.3 million, respectively. During the three months ended June 30, 2023 and 2022, the Company recognized a credit of $0.1 million related to stock compensation expense and $0.3 million of stock compensation expense, respectively, in connection with these awards. During the six months ended June 30, 2023 and 2022, the Company recognized a credit of $0.2 million related to stock compensation expense and $0.3 million of stock compensation expense, respectively, in connection with these awards.

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


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Market-Based Grants:
Expected term (in years)	0.23	1.23	0.23 - 0.48	1.23 - 1.50
Expected volatility	51%	66%	51% - 57%	58% - 66%
Risk-free interest rate	5.35%	2.81%	4.88% - 5.35%	1.97% - 2.81%
Dividend rate	0%	0%	0%	0%

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	1,817	$	1,469	$	3,472	$	2,298
Sales and marketing		6,201		6,561		10,948		7,905
Research and development		3,770		3,796		7,496		5,373
General and administrative		4,342		4,385		7,663		6,719
Total	$	16,130	$	16,211	$	29,579	$	22,295

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