In connection with the IPO, on March 25, 2021, our Board of Directors adopted the 2021 Equity Incentive Plan (the “2021 Plan”). Under the 2021 Plan, employees, consultants and directors of our company and our affiliates that perform services for us are eligible to receive awards. The 2021 Plan provides for the grant of incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), stock

appreciation rights, restricted shares, performance awards, other share-based awards (including restricted stock units) and other cash-based awards. ISOs may be granted only to employees, including officers. All other awards may be granted to employees, including officers, non-employee directors and consultants. The maximum number of shares available for issuance under the 2021 Plan may not exceed 20,744,444 shares (subject to a discretionary annual increase of up to 4% effective as of January 1 of each year for 10 years).

Stock options generally vest 25% annually over four years and generally expire 10 years from the date of the grant. The 2021 Plan provides that stock option grants will be made at no less than the estimated fair value of common stock at the date of the grant.

The following is a summary of the stock option transactions as of and for the three and six months ended June 30, 2021:


	Stock Options Outstanding
(amounts in thousands, except shares and per share amount)	Shares Subject to Options Outstanding			Weighted- Average Exercise Price per Option		Weighted- Average Remaining Contractual Terms (in years)		Aggregate Intrinsic Value
Balances as of December 31, 2020		—		$	—
Options granted		11,123,391			18.00
Options exercised		—			—
Options forfeited / expired		—			—
Balances as of March 31, 2021		11,123,391		$	18.00
Options granted		14,560			26.06
Options exercised		—			—
Options forfeited / expired		(20,227	)		18.00
Balances as of June 30, 2021		11,117,724		$	18.01		9.67	$	59,624
Vested		—		$	—		—	$	—
Exercisable as of June 30, 2021		—		$	—		—	$	—

Aggregate intrinsic value represents the difference between the exercise price of the option and the closing price of our common stock. The aggregate intrinsic value of options exercised for the three months ended June 30, 2021 and 2020 and the six months ended June 30, 2021 and 2020 was $0. The fair value of options granted during the three months ended June 30, 2021 and 2020 was $158 and $0, respectively. The fair value of options granted during the six months ended June 30, 2021 and 2020 was $84,140 and $0 respectively.

The weighted-average assumptions used to determine the fair value of stock options granted during the periods presented were as follows:


	Six Months Ended June 30,
	2021		2020
Expected term (in years)(1)		6.25	N/A
Expected volatility(2)	41.5% - 41.7%		N/A
Risk-free interest rate(3)	1.1%		N/A
Dividend yield(4)	0%		N/A

(1)

An estimated expected life of 6.25 years before exercise was used based on the midpoint of the vesting date and the full contractual term (known as the simplified method). We do not have sufficient history of exercise for similar awards.

(2)

The expected volatility for new options granted post-IPO was estimated based on the historical daily price changes of our peer companies’ common stock over the most recent period equal to the expected term of the option, adjusted for debt-equity leverage.

(3)

The risk-free interest rate for period equal to the expected term of the option was based on the rate of treasury securities with the same term as the option as of the grant date.

(4)

An expected dividend yield of 0% was used because we have not historically paid dividends.

New restricted stock awards ("RSAs") granted generally vest 25% annually over four years. RSAs converted from Pre-IPO awards generally vest on the later of the fourth anniversary of the original vesting commencement date or 50% annually on the first and second anniversary of the IPO (see “Pre-IPO Equity” and "Modifications" sections below for details).

The following is a summary of RSA transactions as of and for the three and six months ended June 30, 2021:


	Restricted Shares			Weighted-Average Grant Date Fair Value
Unvested and outstanding as of December 31, 2020		—		$	—
Converted		10,348,789			7.85
Granted		214,669			18.00
Vested		—			—
Unvested and outstanding as of March 31, 2021		10,563,458		$	8.05
Converted		—			—
Granted		—			—
Vested		(192,578	)		0.38
Unvested and outstanding as of June 30, 2021		10,370,880		$	8.20

The following is a summary of RSU transactions as of and for the three and six months ended June 30, 2021:


	Restricted Stock Units			Weighted-Average Grant Date Fair Value
Unvested and outstanding as of December 31, 2020		—		$	—
Granted		1,517,000			18.00
Vested		—			—
Unvested and outstanding as of March 31, 2021		1,517,000		$	18.00
Granted		148,892			24.08
Vested		—			—
Cancelled/forfeited		(28,442	)		18.27
Unvested and outstanding as of June 30, 2021		1,637,450		$	18.55

During the three and six months ended June 30, 2021, total payment of $0 and $10,328, respectively, under the Company’s Stock Payment arrangement, as discussed in Note 2, was settled upon our successful IPO in 573,782 shares of our common stock at $18 per share with 214,669 of such common stock restricted and vesting over of a performance period of four years. The unrecognized stock compensation related to these RSAs of $3,329 will be recognized over a graded vesting schedule over the performance period of the award.

Our Parent issued Incentive Units to certain employees, board members, and advisors, which were profits interests issued in Class B and Class C units. As of the IPO, only the time-vesting portion of Class B Incentive Units were fully vested.

In 2014, Alignment Healthcare Holdings, LLC’s Board of Directors adopted a Stock Appreciation Rights Plan (“SARs Plan”), under which Alignment Healthcare Holdings, LLC had granted awards in the form of SARs to employees, officers, directors, consultants, and other service providers of the Company.

80% of each SAR award vested 25% annually over four years and only becomes payable to the extent vested upon a qualified change in control (“Time-vesting SARs”), while the remaining 20% vests concurrent to the change in control (“Performance-vesting SARs”). The IPO was not considered a change in control under the original terms of the SARs. We have the option to settle SARs in either cash or equity upon an IPO.

In conjunction with the IPO, on March 24, 2021, the Company modified the Performance-vesting SARs to be converted into RSAs which vest 50% annually on each of the first and second anniversaries of the IPO. Vested Time-vesting SARs were settled approximately 50% in cash and 50% in common stock. The conversion of SARs resulted in the issuance of 300,489 RSAs. There was no activity related to the SARs for the three months ended June 30, 2021 as the SARs were settled during the three months ended March 31, 2021.

The following table is a summary of SARs transactions as of and for the three and six months ended June 30, 2021:


	SARs
Balance as of December 31, 2020		179,925
Granted		—
Canceled		(11,800	)
Cash settlement or converted into common stock		(168,125	)
Unvested and outstanding as of March 31, 2021		—
Granted		—
Canceled		—
Cash settlement or converted into common stock		—
Unvested and outstanding as of June 30, 2021		—

A portion of Incentive Units vest annually over four years (“Time-vesting Incentive Units”) and the remaining Incentive Units vest upon a change in control (“Performance-vesting Incentives Units”). The IPO was not considered a change in control under the original terms of the Incentive Units. There was no activity related to these Incentive Units for the three months ended June 30, 2021 as these Incentive Units were converted to common stock and RSAs during the three months ended March 31, 2021.

The following table summarizes the equity-based awards activity as if the Series B and C Incentive Units were converted to RSA and common stock at the earliest period presented:


	Equivalent Shares of RSA and Common Stock
Balance as of December 31, 2020		23,882,595
Granted		—
Canceled		—
Redeemed		(231,313	)
Converted into common stock		(13,602,982	)
Converted into unvested RSAs		(10,048,300	)
Balance as of March 31, 2021		—
Granted		—
Canceled		—
Redeemed		—
Converted into common stock		—
Converted into unvested RSAs		—
Balance as of June 30, 2021		—


	Equivalent Shares of RSA and Common Stock
Balance as of December 31, 2019		22,185,514
Granted		—
Canceled		(324,330	)
Redeemed		—
Balance as of March 31, 2020		21,861,184
Granted		192,023
Canceled		—
Redeemed		—
Balance as of June 30, 2020		22,053,207

The following table summarizes unvested equity-based awards activity as if the Series B and C Incentive Units were converted to restricted common stock at the earliest period presented:


	Equivalent Shares of Restricted Common Stock
Balance as of December 31, 2020		11,805,828
Granted		—
Vested		(1,757,528	)
Converted into unvested RSAs		(10,048,300	)
Balance as of March 31, 2021		—
Granted		—
Vested		—
Converted into unvested RSAs		—
Balance as of June 30, 2021		—


	Equivalent Shares of Restricted Common Stock
Balance as of December 31, 2019		12,856,273
Granted		—
Vested		(1,988,819	)
Balance as of March 31, 2020		10,867,454
Granted		192,023
Vested		(175,087	)
Balance as of June 30, 2020		10,884,390

In conjunction with the Reorganization, the conversion of the Incentive Units into our RSAs was made pursuant to antidilution provisions of the original awards which required the award holders to be kept whole. As a result, there was no incremental compensation cost associated with the conversion.

In conjunction with the IPO, the Company modified the Time-vesting Incentive Units to be converted into RSAs and subject to the same time-vesting conditions upon the IPO, and modified the Performance-vesting SARs and Performance-vesting Incentive Units to be converted into RSAs which vest upon the later of the fourth anniversary of the original vesting commencement date or 50% annually on the first and second anniversary of the IPO.

Historically, no equity-based compensation expense was recognized for the SARs or Performance-vesting Incentive Units as the change in control was not probable.

As a result of the conversion and modification, we determined that the RSAs converted from the Performance-vesting SARs and the Performance-vesting Incentive Units should be remeasured as of the date of the modification (March 25, 2021).

The RSAs converted from the SARs were previously classified as liabilities and subject to remeasurement at fair value each reporting period. After the modification the converted RSAs were classified as equity, and were measured using the IPO stock price which will be recognized over the remaining modified vesting periods.

We recognized equity-based compensation expense as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(amounts in thousands)	2021		2020		2021		2020
Cash settlement of SARs	$	—	$	—	$	11,399	$	—
Modification charge from performance-based Incentive Units and SARs		—		—		921		—
Other		30,887		350		50,354		676
Total equity-based compensation expense	$	30,887	$	350	$	62,674	$	676

Total equity-based compensation expense was presented on the condensed statement of operations as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(amounts in thousands)	2021		2020		2021		2020
Selling, general and administrative expenses	$	28,430	$	350	$	53,651	$	676
Medical expenses		2,457		—		9,023		—
Total equity-based compensation expense	$	30,887	$	350	$	62,674	$	676