During the three and nine months ended September 30, 2022, options to purchase approximately 124,000 shares of common stock were granted to Dr. Matthew Angel, the Company’s Interim Chief Executive Officer. Dr. Angel’s stock options vest at rate of 1/24 on the grant date with the remaining options to vest in 46 substantially equal monthly installments thereafter. For the nine months ended September 30, 2022, stock options to purchase approximately 21,000 shares of common stock were granted to Dr. Howard J. Federoff, who served as the Company’s Chief Executive Officer and President until May 26, 2022 (the “March 2022 Stock Option Grant”). The March 2022 Stock Option Grant vests in 36 substantially equal monthly installments from the grant date and had an exercise price equal to the closing price of the Company’s common stock on the grant date.

During the nine months ended September 30, 2021, options to purchase approximately 161,000 shares of common stock were granted to Dr. Federoff upon his appointment as Chief Executive Officer and President in April 2021. Approximately 131,000 stock options were under a time-based grant (the “Time-Based Grant”) and approximately 30,000 stock options were under a performance-based grant (the “Milestone Grant”). The Time-Based Grant vests over four years, with 25% vesting on the one-year anniversary of the grant date and the remaining options vesting in 36 substantially equal monthly installments thereafter. The Milestone Grant vests upon the first concurrence by the U.S. Food and Drug Administration that a proposed investigation may proceed following review of a Company filed investigational new drug application in connection with that the License Agreement. Both the Time-Based Grant and the Milestone Grant had an exercise price equal to the closing price of the Company’s common stock on the grant date.

As discussed above, pursuant to the Separation Agreement with Dr. Federoff, the Company accelerated the vesting of approximately 7,000 stock options under the March 2022 Stock Option Grant and approximately 33,000 stock options under the Time-Based Grant. The Company also waived the performance condition under the Milestone Grant and accelerated the vesting of approximately 21,000 stock options under the Milestone Grant. Lastly, the Company extended the post-termination exercise period from 90 days to 36 months immediately following the Separation Date for all options that were vested after such accelerations.

The above modifications to Dr. Federoff’s stock options grants resulted in modification accounting under ASC 718, Compensation – Stock Compensation. As a result, the Company immediately recognized approximately $0.1 million for the incremental fair value of stock options that were vested prior to the modification by calculating the difference between the fair value of the modified award and the fair value of the original award immediately before it was modified. For stock options that were not vested prior to the modification but then vested as a result of the acceleration, the Company reversed any stock compensation expense previously recognized, remeasured the fair value of the modified award and immediately recognized approximately $0.1 million of stock compensation expense in full since there was no future service period required to be provided.

During the three and nine months ended September 30, 2021, there were 65 options exercised for total cash proceeds of $10,202. The options exercised had a total intrinsic value of $57,212. There were no options exercised during the three and nine months ended September 30, 2022.

The Company recognizes the fair value of RSUs granted as expense on a straight-line basis over the requisite service period. For performance based RSUs, the Company begins recognizing the expense once the achievement of the related performance goal is determined to be probable.

Outstanding RSUs are settled in an equal number of shares of common stock on the vesting date of the award. An RSU award is settled only to the extent vested. Vesting generally requires the continued employment or service by the award recipient through the respective vesting date. Because RSUs are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date, which is the grant date.

In lieu of paying cash to satisfy withholding taxes due upon the settlement of vested RSUs, at the Company’s discretion, an employee may elect to have shares of common stock withheld that would otherwise be issued at settlement, the value of which is equal to the amount of withholding taxes payable. The following table shows the number of RSUs that vested and were settled during the three and nine months ended September 30, 2022, as well as the number of shares of common stock withheld to cover the withholding taxes and the net shares issued upon settlement (in thousands):

The 55,000 RSUs granted during the nine months ended September 30, 2022 are performance-based RSUs (the “2022 PSUs”), of which approximately 21,000 were awarded to Dr. Federoff. The 2022 PSUs are subject to the achievement of four performance goals, which are weighted equally. Once a performance goal is achieved, the tranche of shares allocated to that performance goal will be earned and will begin to vest over a three-year annual basis beginning on the date the performance goal was achieved. If a performance goal is not achieved, the tranche of shares allocated to that performance goal will be unearned and forfeited. As of September 30, 2022, two of the performance goals were not achieved by the due date, and as a result, approximately 28,000 2022 PSUs were cancelled and any previously recognized stock compensation expense was reversed.

Pursuant to Dr. Federoff’s Separation Agreement, Dr. Federoff’s 21,000 2022 PSUs were canceled in full (a portion of which included the PSUs allocated to the performance goal that was not achieved timely), and a lump sum cash severance benefit in the amount of $0.1 million was paid to Dr. Federoff, which represents the value Dr. Federoff would have received if he were entitled to receive a settlement of a pro rata portion of his 2022 PSUs through the expiration of the Separation Period, assuming the performance metrics were waived and assuming a per share value of $16.20. Any stock compensation expense previously recognized on Dr. Federoff’s 2022 PSUs was reversed and approximately $0.1 million was recognized as compensation expense.

Pursuant to the Merger, Brooklyn LLC’s approximately 3,000 outstanding restricted common units were exchanged for approximately 32,000 shares of Eterna’s restricted common stock. There were no changes to any conditions and requirements of the restricted common stock. The shares vested quarterly beginning on March 31, 2021 and were to continue through December 31, 2022, contingent on continued service. Due to the modification of the restricted common units, the fair value of the restricted common stock immediately after the Merger was compared to the fair value of the restricted common units immediately prior to the Merger, and the change in fair value of $0.3 million was recognized in the statement of operations during the nine months ended September 30, 2021. The Company recognizes the fair value of restricted common stock as an expense on a straight-line basis over the requisite service period. During the nine months ended September 30, 2022, approximately 4,000 shares of unvested restricted common stock were forfeited due to the holders of such shares no longer providing services to the Company. As of September 30, 2022, there were no shares of unvested restricted stock outstanding.