In 2006, the Company established its 2006 Equity Incentive Plan, as amended (the “2006 Plan”), which provides for the grant of stock options and restricted stock to employees, directors, officers and consultants of the Company. The Plan allows for time-based or performance-based vesting for the awards. The Plan has been amended and restated at various times since its adoption. As of June 30, 2021, there have been no performance-based awards granted under the Plan.

On June 10, 2021, at an extraordinary general meeting of shareholders of VGAC (the “VGAC Shareholder Meeting”), the shareholders of VGAC approved the 23andMe Holding Co. 2021 Incentive Equity Plan (the “2021 Plan”) and reserved 136,000,000 authorized shares of the Company’s Class A common stock. In addition, all equity awards of 23andMe, Inc. that were issued under the Plan were converted into comparable equity awards that are settled or exercisable for shares of the Company’s Class A common stock. As a result, each 23andMe, Inc. stock option was converted into an option to purchase shares of the Company’s Class A common stock based on an exchange ratio of 2.293698169. As of the effective date of the 2021 Plan, no further stock awards have been or will be granted under the 2006 Plan.

The Incentive Equity Plan authorizes the issuance or transfer of up to 136,000,000 shares of Class A common stock. The number of shares of Class A common stock reserved for issuance under the 2021 Plan will automatically increase on January 1 of each calendar year, starting in 2022, in an amount equal to (i) 22,839,019 shares of Class A common stock, (ii) 3.0% of the aggregate number of shares of Class A common stock and Class B common stock outstanding, or (iii) a lesser number of shares determined by the Company’s board of directors prior to the applicable January 1.

Options under the Plan have a contractual life of up to ten years. The exercise price of a stock option shall not be less than 100% of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. For Incentive Stock Options (“ISO”) as defined in the Internal Revenue Code of 1986 (“the Code”), the exercise price of an ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the underlying stock on the date of grant as determined by the Board of Directors. The Company’s options generally vest over four years. Under the Plan, stock option awards entitle the holder to receive one share of common stock for every option exercised.

In connection with the Merger, all the 23andMe, Inc. option holders received an equivalent award at an exchange ratio of 2.293698169 that vest in accordance with the original terms of the award. The Company determined this to be a Type I modification but did not record any incremental stock-based compensation expense since the fair value of the modified awards immediately after the modification was not greater than the fair value of the original awards immediately before the modification.

Stock option activity and activity regarding shares available for grant under the Plan is as follows:


	Options Outstanding
	Outstanding Stock Options			Weighted-Average Exercise Price			Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
	(in thousands, except share, years, and per share data)
Balance as of March 31, 2021		29,375,026		$	9.37		7.1		$	403,498
Recapitalization		38,002,437		$	(5.28	)
Balance as of March 31, 2021		67,377,463		$	4.09
Granted		—
Exercised		(818,479	)	$	3.12
Cancelled/Forfeited/Expired		(596,316	)	$	4.79
Balance as of June 30, 2021		65,962,668		$	4.09			6.9	$	501,155
Vested and exercisable as of June 30, 2021		39,327,557		$	3.49			5.7	$	322,319

The weighted average grant-date fair value of options granted for the three months ended June 30 2020 was $3.00 per share, and the intrinsic value of vested options exercised was $5.7 million and $2.3 million for the three months ended June 30, 2021 and 2020, respectively. There were no options granted during the three months ended June 30, 2021. As of June 30, 2021, unrecognized stock-based compensation cost related to unvested stock options was $73.6 million, which is expected to be recognized over a weighted-average period of 2.5 years. The cash flows resulting from the tax benefits for tax deductions resulting from the exercise of stock options in excess of the compensation expense recorded for those options (excess tax benefits) are classified as a cash flow from financing activities. Due to a full valuation allowance on deferred tax assets, the Company did not recognize any tax benefit from stock option exercises for the three months ended June 30, 2021.

The Company estimated the fair value of options granted using the Black-Scholes option-pricing model. The fair value of stock options is being amortized on a straight-line basis over the requisite service period of the awards.

The Black-Scholes assumptions used to value stock options at the grant dates are as follows:


	Three Months Ended June 30,
	2020
	Min			Max
Expected term (years)		6.0			6.1
Expected volatility		67	%		68	%
Risk-free interest rate		0.4	%		0.5	%
Expected dividend yield	—			—

Under the 2006 Plan and 2021 Plan, RSUs may be granted to employees, non-employee directors and consultants. The RSUs vest ratably over a period ranging from one to four years and are subject to the participant’s continuing service to the Company over that period. Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.

The following table summarizes the restricted stock unit activity under the equity incentive plans and related information:


	RSUs
	Unvested RSUs		Weighted-Average Grant Date Fair Value Per Share
Balance as of March 31, 2021		—		—
Granted		2,837,769	$	10.08
Vested		—		—
Cancelled/forfeited		—		—
Balance as of June 30, 2021		2,837,769	$	10.08
Expected to vest, June 30, 2021		2,837,769	$	10.08

As of June 30, 2021, unrecognized stock-based compensation expense related to outstanding unvested RSUs was $27.7 million, which is expected to be recognized over a weighted-average period of 3.7 years.

On June 10, 2021, at the VGAC Shareholder Meeting, the shareholders of VGAC approved the 23andMe Holding Co. Employee Stock Purchase Plan (the “ESPP”).

The Company expects to file a registration statement on Form S-8 to register the shares of Class A common stock issuable pursuant to the terms of the ESPP once it is eligible to do so. Accordingly, as of June 30, 2021, no shares of our Class A common stock have been purchased under the ESPP.

The total share-based compensation expense related to stock options and restricted stock units by line item in the accompanying unaudited condensed consolidated statements of operations is summarized as follows:


	Three Months Ended June 30,
	2021		2020
	(in thousands)
Cost of revenue	$	798	$	179
Research and development		5,607		4,199
Sales and marketing		903		829
General and administrative		2,329		4,494
Total stock-based compensation expense	$	9,637	$	9,701

During the three months ended June 30, 2020, certain current and former employees sold shares of common stock to certain existing shareholders at a sales price that was above the then-current fair value. Since the purchasing parties are entities affiliated with a holder of economic interest in the Company and acquired the shares from current and former employees at a price in excess of fair value of such shares, the amount paid in excess of the fair value of common stock at the time of the secondary sales was recorded as compensation expense.

Total stock-based compensation expense related to the secondary sale transactions of $1.7 million included in the unaudited condensed consolidated statements of operations for the three months ended June 30, 2020 was recorded within general and administrative expenses.