The Company’s stock-based compensation plans consist of the Restated 2020 Equity Incentive Plan (the “Restated 2020 Plan”) and the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”). The Company’s board of directors has designated its Compensation Committee as the administrator of the foregoing plans (the “Plan Administrator”). Among other things, the Plan Administrator selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures, if any, and other provisions of the award.

The Restated 2020 Plan provides for (a) approximately 424,000 shares of common stock that can be issued under the Restated 2020 Plan and (b) an annual increase in the number of shares reserved for issuance on January 1 of each year from 2022 through 2031 equal to the lesser of (i) 5% of the number of shares of common stock outstanding on the immediately preceding December 31 and (ii) such smaller number of shares of common stock as may be determine by the board of directors (the “Annual Evergreen Shares”). Based on the number of shares of common stock outstanding on December 31, 2022, the maximum increase to the number of Annual Evergreen Shares of common stock that can be issued under the Restated 2020 Plan in 2023 is approximately 256,000 shares. As of December 31, 2022, there have been no Annual Evergreen Shares added to the Restated 2020 Plan.

Awards under the Restated 2020 Plan may be granted to officers, directors, employees and consultants of the Company. Stock options granted under the Restated 2020 Plan may either be incentive stock options or nonqualified stock options, may have a term of up to ten years, and are exercisable at a price per share not less than the fair market value on the date of grant. As of December 31, 2022, there was approximately 166,000 shares of common stock remaining to be issued under the Restated 2020 Plan. As of December 31, 2021, there were approximately 258,000 stock options outstanding under the Restated 2020 Plan. There were no RSUs outstanding under the Restated 2020 Plan as of December 31, 2022.

The 2021 Inducement Plan provides for the grant of up to 75,000 share-based awards as material inducement awards to new employees in accordance with the employment inducement grant rules set forth in Section 711(a) of the NYSE American LLC Company Guide. The 2021 Inducement Plan expires in May 2031. As of December 31, 2022, there was approximately 57,000 shares of common stock remaining to be issued under the Restated 2020 Plan. As of December 31, 2021, there were approximately 12,000 stock options outstanding and approximately 4,000 RSUs outstanding under the Restated 2020 Plan.

The Company records stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as expense over the requisite service period on a straight-lined basis.

The risk-free rate is based on the observed interest rates appropriate for the expected life. The expected life (estimated period of time outstanding) of the stock options granted is estimated using the “simplified” method as permitted by the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment. Expected volatility is based on the volatility of the Company’s peer group over the expected life of the stock option granted, and the Company assumes no dividends. Forfeitures are recognized as incurred.

Pursuant to a separation agreement entered into in May 2022 with the Company’s former chief executive officer, Dr. Howard Federoff, the Company accelerated the vesting of approximately 40,000 stock options under certain time-based vesting stock option grants previously awarded to Dr. Federoff. The Company also waived a performance condition under a performance-based stock option grant and accelerated the vesting of approximately 21,000 stock options under such grant. Lastly, the Company extended the post-termination exercise period from 90 days to 36 months immediately following his separation date for any options that were vested, including the options that accelerating in vesting, as described above.

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 during 2022 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 during 2022 of stock compensation expense in full since there was no future service period required to be provided.

As of December 31, 2022, the unamortized stock-based compensation expense related to outstanding unvested options was approximately $3.2 million with a weighted average remaining requisite service period of 2.70 years. The Company expects to amortize this expense over the remaining requisite service period of these stock options.

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. There were no RSUs that vested during the year ended December 31, 2021. The following table shows the number of RSUs that vested and were settled during the year ended December 31, 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):

Pursuant to the Merger, Eterna 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 year ended December 31, 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 year ended December 31, 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 December 31, 2022 there were no shares of unvested restricted stock outstanding.