In 2006, 23andMe, Inc. established its 2006 Equity Incentive Plan, as amended (the “2006 Plan”), which provides for the grant of stock options and restricted stock to its employees, directors, officers, and consultants. The 2006 Plan allows for time-based or performance-based vesting for the awards. The 2006 Plan has been amended and restated at various times since its adoption. As of September 30, 2021, there have been no performance-based awards granted under the 2006 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 2006 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 2021 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 2021 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, as amended (“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 2021 Plan, stock option awards entitle the holder to receive one share of Class A common stock for every option exercised.

In connection with the Merger, all of 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 2021 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		98,832		$	8.20
Exercised		(1,555,196	)	$	3.51
Cancelled/Forfeited/Expired		(1,219,918	)	$	4.91
Balance as of September 30, 2021		64,701,181		$	4.09			6.6	$	321,468
Vested and exercisable as of September 30, 2021		41,966,104		$	3.59			5.7	$	229,424

The weighted average grant-date fair value of options granted for the six months ended September 30, 2021 and 2020 was $5.23 and $2.93 per share, respectively. The intrinsic value of vested options exercised for the six months ended September 30, 2021 and 2020 was $9.7 million and $3.7 million, respectively. As of September 30, 2021, unrecognized stock-based compensation cost related to unvested stock options was $64.2 million, which is expected to be recognized over a weighted-average period of 2.3 years. 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 and six months ended September 30, 2021 and 2020.

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 September 30,												Six Months Ended September 30,
	2021						2020						2021						2020
	Min			Max			Min			Max			Min			Max			Min			Max
Expected term (years)		6.0			6.0			4.0			6.1			6.0			6.0			4.0			6.1
Expected volatility		73	%		73	%		65	%		68	%		73	%		73	%		65	%		68	%
Risk-free interest rate		1.0	%		1.0	%		0.2	%		0.4	%		1.0	%		1.0	%		0.2	%		0.5	%
Expected dividend yield	—			—			—			—			—			—			—			—

Under the 2006 Plan and 2021 Plan, restricted stock units ("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 RSU 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		3,537,876	$	9.72
Vested		—		—
Cancelled/forfeited		26,376	$	10.08
Balance as of September 30, 2021		3,511,500	$	9.71
Expected to vest, September 30, 2021		3,511,500	$	9.71

As of September 30, 2021, unrecognized stock-based compensation expense related to outstanding unvested RSUs was $30.9 million, which is expected to be recognized over a weighted-average period of 3.4 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”). A total of 11,420,000 shares of the Company's Class A common stock were initially reserved for issuance under the ESPP. The number of shares of the Company's Class A common stock reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2023, by the lesser of (i) an amount equal to one percent (1.0%) of the total number of shares of Class A and Class B common stock outstanding as of the last day of the immediately preceding December 31st, (ii) 5,000,000 shares, or (iii) a lesser number of shares as determined by the Board of Directors in its discretion.

Generally, all regular employees, including executive officers, employed by the Company, except for those holding five percent or more of the total combined voting power or value of all classes of the Company’s stock, may participate in the ESPP and may contribute, normally through payroll deductions, up to 15% of their earnings (as defined in the ESPP) for the purchase of the Company's Class A common stock under the ESPP. Class A common stock will be purchased for the accounts of employees participating in the ESPP at a price per share that is at least the lesser of (i) 85% of the fair market value of a share of the Company's Class A common stock on the first date of an offering, or (ii) 85% of the fair market value of a share of the Company's Class A common stock on the date of purchase. No employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of the Company's Class A common stock based on the fair market value per share of the Company’s Class A common stock at the beginning of an offering for each calendar year such purchase right is outstanding. As of September 30, 2021, no shares of the Company's Class A common stock have been purchased under the ESPP.

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


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Cost of revenue	$	945	$	181	$	1,743	$	360
Research and development		5,450		4,486		11,057		8,685
Sales and marketing		860		1,039		1,763		1,868
General and administrative		3,172		5,095		5,501		9,589
Total stock-based compensation expense	$	10,427	$	10,801	$	20,064	$	20,502

The 2006 Plan allows for option awards that include the right to early exercise options for shares of common stock. For the options granted to the CEO (who is a related party), the Company’s Board of Directors authorized the CEO to exercise unvested options to purchase shares of common stock. Under the terms of the 2006 Plan, any shares issued as a result of the CEO's early exercise are subject to repurchase, at the option of the Company, at the original issuance price in the event of the CEO’s termination of service as a Service Provider (as defined in the 2006 Plan) for any reason, until the options would have been fully vested. In August 2020, the CEO was granted options for 3,000,000 shares, which were eligible for early exercise. In September 2020, the CEO exercised all 3,000,000 unvested stock options. The cash proceeds received for such exercise were $34.7 million.

During the three and six months ended September 30, 2020, certain current and former employees sold shares of common stock to certain existing stockholders 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 by line item in the accompanying unaudited condensed consolidated statements of operations is summarized as follows:


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Cost of revenue	$	—	$	2	$	—	$	2
Research and development		—		44		—		44
Sales and marketing		—		9		—		9
General and administrative		—		10		—		1,670
Total stock-based compensation expense	$	—	$	65	$	—	$	1,725