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.

On June 10, 2021, 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 for issuance thereunder. 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. In November 2021, in connection with the Lemonaid Acquisition, the Company registered an additional 2,990,386 shares of Class A common stock issuable under the 2021 Plan, which represent shares of Class A common stock issuable in exchange for outstanding options initially granted under Lemonaid Health’s 2014 Equity Incentive Plan, as amended.

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 (the “Evergreen Provision”). On June 15, 2022, in accordance with the Evergreen Provision, the Company registered an additional 13,384,415 shares of Class A common stock issuable under the 2021 Plan.

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.

Restricted stock units (“RSUs”) granted under the 2021 Plan 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 Class A common stock and the shares underlying the awards are not considered issued and outstanding.

In February 2022, the Compensation Committee of the Company’s Board of Directors adopted a RSU conversion and deferral program for non-employee directors. The purpose of the program is to provide non-employee directors with the option to convert all or a portion of their cash compensation into a RSU award under the 2021 Plan and the opportunity to defer settlement of all or a portion of their RSU awards. As of December 31, 2022, four non-employee directors have elected to convert all of their cash compensation into RSU awards, and two non-employee directors have elected to defer settlement of their RSU awards under the program.

On June 9, 2022, the Compensation Committee of the Company’s Board of Directors adopted an annual incentive plan (the “2022 AIP”), pursuant to which, beginning in fiscal year 2023, which began on April 1, 2022, employees and certain service providers of 23andMe, Inc. and its affiliates will be eligible to receive annual incentive bonuses in the form of cash or RSUs issued by the Company under the 2021 Plan, based upon the Company’s achievement of certain pre-established financial, operational, and strategic performance metrics. If the pre-established performance metrics for the one-year performance period ending March 31, 2023 are achieved, the Company anticipates that the 2022 annual incentive bonuses will be paid in the form of RSUs (collectively, the “2022 AIP Awards”). The number of RSUs will be determined by dividing the dollar amount of the 2022 AIP Awards by the trailing average closing price of the Company’s Class A common stock for the 90 days preceding the date of payment. The Company accounts for the 2022 AIP Awards as liability awards and adjusts the liability and corresponding expenses at the end of each quarter until the date of settlement, considering the probability that the performance conditions will be satisfied. The Company recorded stock-based compensation expense related to the 2022 AIP Awards of $10.0 million and $19.8 million for the three and nine months ended December 31, 2022, respectively. As of December 31, 2022, the liability of the 2022 AIP Awards was $19.8 million, which was included in other current liabilities on the condensed consolidated balance sheet.

Stock option activity and activity regarding shares available for grant under the 2021 Plan are 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, 2022		73,609,565		$	4.21	6.9		$	35,979
Granted		4,866,230		$	3.50
Exercised		(2,592,856	)	$	1.57
Cancelled/forfeited/expired		(6,793,318	)	$	4.73
Balance as of December 31, 2022		69,089,621		$	4.20		6.3	$	10,109
Vested and exercisable as of December 31, 2022		46,306,985		$	4.11		5.2	$	7,165

The weighted average grant date fair value of options granted for the nine months ended December 31, 2022 was $2.42. The intrinsic value of vested options exercised for the nine months ended December 31, 2022 was $4.4 million. As of December 31, 2022, unrecognized stock-based compensation cost related to unvested stock options was $75.3 million, which is expected to be recognized over a weighted-average period of 2.6 years. Due to a valuation allowance on deferred tax assets, the Company did not recognize any tax benefit from stock option exercises for the three and nine months ended December 31, 2022 and 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 weighted average Black-Scholes assumptions used to value stock options at the grant dates are as follows:


	Three Months Ended December 31,												Nine Months Ended December 31,
	2022						2021						2022						2021
	Min			Max			Min			Max			Min			Max			Min			Max
Expected term (years)		6.0			6.0			3.3			6.1			6.0			6.8			3.3			6.1
Expected volatility		79	%		79	%		72	%		72	%		76	%		81	%		72	%		73	%
Risk-free interest rate		4.2	%		4.2	%		1.2	%		1.4	%		2.8	%		4.2	%		1.0	%		1.4	%
Expected dividend yield	—				—			—			—		—			—			—			—

The following table summarizes the RSU activity under the equity incentive plans and related information:


	Unvested RSUs			Weighted-Average Grant Date Fair Value Per Share
Balance as of March 31, 2022		10,676,378		$	9.70
Granted		24,694,698		$	3.34
Vested		(4,673,354	)	$	6.75
Cancelled/forfeited		(2,952,268	)	$	5.60
Balance as of December 31, 2022		27,745,454		$	4.97

As of December 31, 2022, unrecognized stock-based compensation expense related to outstanding unvested RSUs was $128.4 million, which is expected to be recognized over a weighted-average period of 3.1 years.

In November 2021, in connection with the Lemonaid Acquisition, the Company granted 3,747,027 shares of Class A common stock with an aggregate grant date fair value of $43.9 million to two recipients, each of whom was a former stockholder and officer of Lemonaid and each of whom, following the closing of the Lemonaid Acquisition, joined the Company’s management team. The shares vest over a four-year period in quarterly installments beginning on February 1, 2022, subject to the respective recipient’s continued employment with the Company. The Company recognized stock-based compensation expense related to these awards of $2.8 million and $8.2 million for the three and nine months ended December 31, 2022, respectively, within general and administrative expenses. Unrecognized stock-based compensation expense of $31.1 million is expected to be recognized over a weighted average period of 2.8 years.

On June 10, 2021, 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. Pursuant to the terms of 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. As of December 31, 2022, 1,130,337 shares of the Company’s Class A common stock have been issued and 10,289,663 shares remained available for future issuance under the ESPP.

The ESPP provides for concurrent 12-month offerings with successive six-month purchase intervals commencing on March 1 and September 1 of each year and purchase dates occurring on the last day of each such purchase interval (i.e., August 31 and February 28). The ESPP contains a rollover provision whereby if the price of the Company’s Class A common stock on the first day of a new offering

period is less than the price on the first day of any preceding offering period, all participants in a preceding offering period with a higher first day price will be automatically withdrawn from such preceding offering period and re-enrolled in the new offering period. The rollover feature, when triggered, will be accounted for as a modification to the preceding offering period, resulting in incremental expense to be recognized over the new offering period.

Total stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, is included in costs and expenses as follows:


	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Cost of revenue	$	3,200	$	1,098	$	8,940	$	2,841
Research and development		15,188		7,697		39,267		18,754
Sales and marketing		2,444		1,178		7,336		2,941
General and administrative		13,506		7,436		38,225		12,937
Total stock-based compensation expense	$	34,338	$	17,409	$	93,768	$	37,473