Effective May 1, 2012, the Company adopted the 2012 Stock Plan (the “2012 Plan”). Options granted under the 2012 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options (“ISOs”) may be granted only to employees (including officers and directors). Non-qualified stock options (“NSOs”) may be granted to employees and consultants. The exercise price of ISOs and NSOs shall not be less than 100% of the estimated fair value of the common shares on the date of grant, respectively, as determined by the Company’s board of directors. The exercise price of an ISO granted to a 10% or greater stockholder shall not be less than 110% of the estimated fair value of the common shares on the date of grant. Options generally vest over a period of four years.

In July 2021, the Company’s board of directors adopted, and the Company’s stockholders approved, the 2021 Equity Incentive Plan (the “2021 Plan”), which became effective on July 14, 2021. The Company’s 2012 Stock Plan was terminated immediately prior to the effectiveness of the 2021 Plan.

The 2021 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s employees and any parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and performance awards to the Company’s employees, directors, and consultants and the Company’s parent and subsidiary corporations’ employees and consultants.

Subject to the adjustment provisions of and the automatic increase described in the 2021 Plan, a total of 23,000,000 shares of the Company’s Class A common stock were reserved for issuance pursuant to the 2021 Plan, plus 36,101,718 shares of the Company’s Class A common stock reserved for future issuance under the 2012 Stock Plan. Subject to the adjustment provisions of the 2021 Plan, the number of shares available for issuance under the 2021 Plan will also include an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to the least of (a) 34,500,000 shares of Class A common stock, (b) 5% of the total number of shares of all classes of the Company’s common stock outstanding on the last day of immediately preceding fiscal year, or (c) such other amount as the Company’s board of directors (or its committee) may determine. Options granted under the 2021 Plan vest over periods ranging from one to four years.


	Number of options	Weighted average exercise price		Weighted average remaining contractual life	Aggregate intrinsic value




	(In thousands)			(In years)	(In thousands)
Balance as of December 31, 2020	33,750	$	1.74	7.95	$	175,444
Granted	13,790	12.29
Exercised	(12,988)	1.95
Cancelled and forfeited	(2,877)	6.51
Balance as of December 31, 2021	31,675	$	5.81	8.01	$	108,826


Vested and exercisable as of December 31, 2021	11,067	$	2.18	6.72	$	61,011

The estimated grant date fair values of the employee stock options granted under the 2012 and 2021 Plan were calculated using the Black-Scholes Merton Option pricing model, based on the following weighted average assumptions:


	Year Ended December 31,
		2021	2020	2019
Expected term (years)		5.93	5.90	6.24
Expected volatility		32.85%	35.14%	38.83%
Risk-free interest rate		1.04%	0.58%	1.97%
Expected dividend yield		—	—	—

Expected Term. The expected term represents the period that the Company’s share-based awards are expected to be outstanding. The Company applies the simplified method in determining the expected life of the stock options as the Company has limited historical basis upon which to determine historical exercise periods.

Expected Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

Expected Volatility. Expected volatility of the stock is based on the average historical volatility of the Company’s peer group after consideration of their size, maturity, profitability, growth, risk, and return on investment as the Company has limited historical volatility.

Fair Value. Prior to the IPO, the Company’s board of directors and in part based upon a valuation provided by a third-party valuation firm, determined the fair value of the Company’s common stock in connection with the grant of stock options and stock awards. Due to there being no public market for the Company’s common stock, its board of directors considered the third-party valuation and other factors, including but not limited to, secondary sales of the Company’s common stock, revenue growth, the current status of its operations, its financial condition, its stage of development, and its competition to establish the fair market value of the Company’s common stock at the time of grant of the stock option or stock award. For grants issued subsequent to the Company’s IPO, the Company used the closing market price of its stock on the date of grant.

As of December 31, 2021, the total unrecognized stock-based compensation expense for stock options issued under the 2012 Plan and the 2021 Plan was approximately $75.0 million, which is expected to be recognized over a weighted average period of 2.9 years.

The Company’s board of directors has authorized certain stock option holders to exercise unvested options to purchase shares of Class A common stock. Shares received from such early exercises are subject to repurchase in the event of the optionee’s termination of service as a service provider (as defined in the 2012 Plan and the 2021 Plan), at the original issuance price, until the options are fully vested.

As of December 31, 2021 and December 31, 2020, 1,819,558 and 162,317 shares of Class A common stock and pre-IPO Class B common stock, respectively, were subject to repurchase. As of December 31, 2021 and December 31, 2020, the cash proceeds received for unvested shares of Class A common stock and pre-IPO Class B common stock, respectively, recorded within Other long-term liabilities in the consolidated balance sheets were $7.0 million and $0.3 million.


	Number of RSUs	Weighted average grant date fair value per share
	(In thousands)
Balance as of December 31, 2020	—	$	—
Granted	2,717	9.15
Vested	(108)	13.94
Cancelled and forfeited	(20)	13.89
Balance as of December 31, 2021	2,589	$	8.91

As of December 31, 2021, there was $21.0 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 0.6 years. RSUs granted under the 2021 Plan generally vest quarterly over a period of one year from the grant date.

In March 2021, the Company’s board of directors granted to its Co-Founder and Head of Blend a stand-alone stock option issued outside of the 2012 Plan covering a maximum of 26,057,181 shares of Class B common stock with an exercise price of $8.58 per share. The award has a 15-year term (subject to earlier termination when shares subject to the award are no longer eligible to vest) and vests upon the satisfaction of a service condition, liquidity event-related performance condition, and performance-based market conditions.

The terms of the award stipulated that if an IPO is completed within 15 months of the date of grant, the first tranche of 1,954,289 shares will vest. The remaining tranches of shares will vest dependent on performance goals tied to the Company’s stock price hurdles with specified expiration dates for each tranche.

On June 30, 2021, the Company’s board of directors approved a modification to the Co-Founder and Head of Blend award related to market-based performance targets that impact the Company stock price hurdles. The impact of the modification did not result in stock-based compensation expense as of the modification date as the satisfaction of the IPO performance condition was not probable at that time.

The estimated fair value of the first tranche as of the modification date was determined using Black-Scholes Merton Option pricing model, which resulted in fair value of $12.27 per share based on the following assumptions:

The remaining tranches were valued using a Monte Carlo simulation model. The weighted average estimated fair value of the remaining tranches as of the modification date was $3.80 per share based on the following assumptions:

In July 2021, the first tranche of 1,954,289 shares of the Co-Founder and Head of Blend stock option award vested upon completion of the IPO. Upon the completion of the IPO, the Company recognized $24.0 million in stock-based compensation expense related to this tranche, and additional catch up expense of $5.7 million related to the remaining tranches. The total stock-based compensation expense recognized for this award for the year ended December 31, 2021 was $38.8 million. The total unrecognized compensation expense related to the award for all tranches was $46.0 million as of December 31, 2021, which will be recognized over an estimated weighted average remaining period of 3.4 years.


	Year Ended December 31,
		2021		2020		2019
		(In thousands)
Cost of revenue		$	753	$	79	$	46
Research and development		13,184		4,250		3,431
Sales and marketing		7,167		3,675		966
General and administrative		49,740		2,120		5,446
Total		$	70,844	$	10,124	$	9,889

Included in stock-based compensation expense are amounts related to the sale of employee stock on the secondary market to existing investors at a price above fair market value at the time of the sale. Stock-based compensation related to the secondary sales, which represents the amount paid to purchase shares of the Company’s common stock in excess of fair value, was as follows:


	Year Ended December 31,
		2021		2020		2019
		(In thousands)

Research and development		$	325	$	1,524	$	1,694
Sales and marketing		300		1,607		96
General and administrative		166		325		4,372
Total		$	791	$	3,456	$	6,162

In January 2021, the Company’s board of directors approved a third-party tender offer, which allowed for eligible option holders and stockholders to sell shares of capital stock to the Series G investors. The third-party tender offer was completed in March 2021, in which an aggregate of 442,469 shares of common stock and Convertible Preferred Stock were purchased from participating stockholders and option holders. There was no stock-based compensation recognized related to such third-party tender offer as the purchase price was lower than the fair value at the time of the tender offer closing.