On July 29, 2020, the Board of Directors approved the adoption of the Porch Group, Inc. 2020 Stock Incentive Plan (the “2020 Plan”) and on December 22, 2020, the Porch Group, Inc. stockholders voted in favor of adoption of the 2020 Plan. The 2020 Plan became effective immediately upon the closing of the Merger.

As of December 31, 2022, the aggregate number of shares of common stock reserved for future issuance under the 2020 Plan is 11,189,745. The number of shares of common stock available under the 2020 Plan will increase annually on the first day of each calendar year, beginning with the calendar year ending December 31, 2021, and continuing until (and including) the calendar year ended December 31, 2030, with such annual increase equal to the lesser of (i) 5% of the number of shares of common stock issued and outstanding on December 31st of the immediately preceding fiscal year and (ii) an amount determined by the Porch Board of Directors.

The 2020 Plan provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance awards (“PRSUs”) and other stock awards to employees, officers, non-employee directors and independent service providers of the Company, collectively referred to as “Awards” or “Equity Awards.”

Legacy Porch’s 2012 Equity Incentive Plan (the “2012 Plan”) provided for the grant of equity awards to employees, directors and consultants of Legacy Porch prior to the Merger. Each Legacy Porch option from the 2012 Plan that was outstanding immediately prior to the Merger and held by current employees or service providers, whether vested or unvested, was converted into an option to purchase a number of shares of common stock and continued to be governed by the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Legacy Porch option immediately prior to the consummation of the Merger.

Stock-based compensation consists of expense related to equity awards in the normal course, earnout restricted stock and a secondary market transaction as described below:

In 2019 and 2020, the Company’s CEO and certain executives of the Company entered into a series of secondary market transactions related to Porch.com redeemable convertible preferred stock. In 2020, stock-based compensation expense of $1.6 million was recorded related to these awards. The remaining stock-based compensation expense of $1.9 million related to these awards was recognized in the first quarter of 2021.

Options granted under the 2020 Plan and 2012 Plan to employees typically vest 25% of the shares one year after the options’ vesting commencement date and the remainder ratably on a monthly basis over the following three years. Other vesting terms are permitted and are determined by the Board of Directors or the Compensation Committee of the Board of Directors. Options have a term of no more than ten years from the date of grant and vested options are generally cancelled three months after termination of employment.

Detail related to stock option activity for the year ended December 31, 2022 is as follows:

The fair value of each employee stock option granted during the years ended December 31, 2022, 2021 and 2020, were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

The risk-free interest rate used in the Black-Scholes option-pricing model is based on the implied yield currently available in the U.S. Treasury securities at maturity with an equivalent term. The expected term for options granted to employees is estimated using the simplified method. The Company has not declared or paid any dividends through December 31, 2022 and does not currently expect to do so in the future. The Company bases its estimate of expected volatility on the historical volatility of comparable companies from a representative peer group selected based on industry, financial, and market capitalization data. The Company uses the average expected volatility rates reported by the comparable group for an expected term that approximates the expected term estimated by the Company.

The fair value of stock options that vested during the years ended December 31, 2022, 2021 and 2020, was $1.9 million, $2.6 million and $1.8 million, respectively.

The total amount of unrecognized stock-based compensation expense for options granted to employees and nonemployees as of December 31, 2022 is approximately $1.4 million and is expected to be recognized over a weighted-average period of 1.2 years.

During 2022, the Company granted RSUs under various equity award programs. RSUs granted to employees typically vest 25% of the shares one year after the vesting commencement date and the remainder ratably on a quarterly or semi-annual basis over the following three years. Certain RSUs vest quarterly over three years from the vesting commencement date.

The following table summarizes the activity of RSUs for the year ended December 31, 2022:

The total amount of unrecognized stock-based compensation expense for RSUs granted to employees and nonemployees as of December 31, 2022 is approximately $36.3 million and is expected to be recognized over a weighted-average period of 1.2 years.

The Company has two types of PRSUs outstanding - awards for which the vesting is subject to both a time-based vesting schedule and either (a) only market condition achievement (the “Market Only Awards”) or (b) the achievement of both performance conditions and market conditions (the “Performance and Market Awards”).

The Market Only Awards will be earned if, within 36 months following the grant date, the closing price of a share of the Company’s common stock is greater than or equal various target prices over any 20 trading days within any 30-consecutive trading day period (each a “Stock Price Hurdle”) as defined in the award terms. The requirement to achieve the Stock Price Hurdles meets the definition of a market condition. To the extent a Stock Price Hurdle is achieved, the Market Only Awards vest in accordance with the defined time-based graded vesting schedule, subject to the individual’s employment or service with the Company through the applicable vesting date.

The Performance and Market Awards are subject to two performance goals each year over a three-year performance period (each year, an “Achievement Period”):

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the price of a share of the Company’s common stock must achieve specified compound growth rates over any 20 trading days within any 30-consecutive trading day period during the applicable Achievement Period (the “Absolute Share Price Requirement”), and

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the Company must achieve a revenue target in comparison to the Board-approved budget during the applicable Achievement Period (the “Revenue Condition”). If the Revenue Condition was not achieved in the prior Achievement Period, the target revenue amount for the following Achievement Period is increased from the next year’s budget based on the prior year shortfall.

For the Achievement Periods in each of 2022, 2023, and 2024, the percentage of the target shares earned varies based on the achieved growth rate during the period, provided that the Revenue Condition is also met for the applicable Achievement Period. The maximum payout of the award is 200% of the target PRSUs for all Achievement Periods.

Therefore, the number of shares of the Company’s common stock earned by the grantee will depend on the level of achievement as compared to the target.

Any earned PRSUs will time vest as of the Compensation Committee’s determination of achievement following the Achievement Period in 2024, subject to the individual’s employment or service with the Company through the end of the Achievement Period in 2024.

For the Performance and Market Awards, each of the Achievement Periods effectively represents a separate award. The grant date of each annual award is not established until the associated Revenue Condition has been established via the Board-approved Company budget for the applicable fiscal year. The requisite employment or service period for each tranche is from the applicable grant date through the end of the Achievement Period in 2024. The Absolute Share Price Requirement represents a market condition, and the Revenue Condition represents a performance condition.

The following table summarizes the activity of PRSUs for the year ended December 31, 2022:


	Number of
	Performance	Weighted
	Restricted	Average
	Stock Units	Fair Value
Balances as of January 1, 2022	37,184	$	21.51
Granted	1,185,336		3.63
Vested	—		—
Forfeited	(301,596)		1.85
Balances as of December 31, 2022	920,924	$	4.94

During 2022, 301,596 Performance and Market Awards were forfeited due to the failure to satisfy the required performance condition. The total amount of unrecognized stock-based compensation expense for the remaining PRSUs as of December 31, 2022, is approximately $1.8 million and is expected to be recognized over a weighted-average period of 0.9 years.

Employee Earnout Restricted Stock

Upon the Merger, 976,331 restricted common shares, subject to vesting and forfeiture conditions, were issued to employees and service providers pursuant to their holdings of pre-Merger options, RSUs or restricted shares (the “employee earnout shares”). The employee earnout shares were issued in three equal tranches with separate market vesting conditions. One-third of the employee earnout shares will meet the market vesting condition when the closing price of the Company’s common stock price is greater than or equal to $18.00 over any twenty trading days within any thirty-consecutive trading day period within 36 months of the closing date of the Merger. An additional one-third will vest when the Company’s common stock price is greater than or equal to $20.00 over the same measurement period. The final one-third will vest when the Company’s common stock price is greater than or equal to $22.00 over the same measurement period. The employee earnout shares are forfeited by the employee upon termination of employment. Upon forfeiture, the forfeited shares will be redistributed to all remaining holders of earnout shares. Upon redistribution of earnout shares, the awards will be recorded as new awards. The fair value of the award on the grant date is an average of $12.08 per share and was recognized as stock-based compensation expense on a graded vesting basis over the derived service period of 1 year or shorter if the awards vest. During 2020, the Company recorded $0.3 million in stock-based compensation expense related to the employee earnout shares.

During 2021, 641,526 restricted employee earnout shares became fully vested, as the first and second market conditions for vesting were fully satisfied as a result of the Company’s stock price and trading activity. The Company recorded $11.2 million in stock-based compensation expense related to the employee earnout shares in 2021.

During 2022, 73,623 shares were forfeited due to employee terminations. This resulted in the grant of 12,019 additional shares to employee holders at a weighted-average grant date fair value of $0.31. Stock-based compensation expense related to the employee earnout shares was immaterial in 2022.

CEO Earnout Restricted Stock

Prior to the closing of the Merger, the Company’s CEO, Matt Ehrlichman, was granted a restricted stock award under the 2012 Plan which was converted into an award of 1,000,000 restricted shares of common stock upon the closing of the Merger. The award will vest in one-third installments if certain stock price triggers are achieved within 36 months following the closing of the Merger. One-third of the restricted shares will meet the market vesting condition when the Company’s common stock is greater than or equal to $18.00 over any twenty trading days within any thirty-consecutive trading day period within 36 months of the closing date of the Merger. An additional one-third will vest when the Company’s common stock price is greater than or equal to $20.00 over the same measurement period. The final one-third will vest when the Company’s common stock price is greater than or equal to $22.00 over the same measurement period. If Mr. Ehrlichman’s employment with the Company is terminated prior to the award being fully vested, then the award will be terminated and cancelled, provided that if Mr. Ehrlichman’s employment is terminated by the Company without cause or Mr. Ehrlichman resigns due to good reason (in each case, as defined in the award agreement), the award will remain outstanding and will vest to the extent the stock price triggers are achieved during the 36-month period. The fair value of the award on the grant date is an average of $12.08 per share and was recognized as stock-based compensation expense on a graded vesting basis over the derived service period of 1 year or shorter if the awards vest. During 2020, the Company recorded $0.3 million in stock-based compensation expense related to the award.

During 2021, 666,666 CEO restricted earnout shares became fully vested, as the first and second market conditions for vesting were fully satisfied as a result of the Company’s stock price and trading activity. The Company recorded $11.8 million in stock-based compensation expense related to the restricted stock award in 2021.

No stock-based compensation expense related to CEO earnout shares was recognized in 2022.