| STOCKHOLDERS' EQUITY | 7. STOCKHOLDERS’ EQUITY Sales Agreements On August 28, 2015, we entered into an At Market Issuance Sales Agreement, or the 2015 Sales Agreement, with MLV & Co. LLC, or MLV, under which we could elect to issue and sell shares of our common stock having an aggregate offering price of up to $50,000,000. Pursuant to the 2015 Sales Agreement, common stock was sold at market prices prevailing at the time of sale through MLV as our sales agent. We paid MLV an aggregate commission rate equal to up to 3.0% of the gross proceeds of the sales price per share for common stock sold through MLV under the 2015 Sales Agreement. In December 2017, we sold an aggregate of 614,230 shares of our common stock pursuant to the 2015 Sales Agreement, resulting in net cash proceeds to us of approximately $1,060,000 after deducting sales commissions and offering expenses payable by us. From January 2018 through April 2018, we completed the sale of the remaining common stock subject to the 2015 Sales Agreement and issued an aggregate of 13,195,106 shares of our common stock, resulting in net cash proceeds to us of approximately $47,651,000 after deducting sales commissions and offering expenses payable by us. No further shares of common stock may be sold under the 2015 Sales Agreement. On May 18, 2018, we entered into an At Market Issuance Sales Agreement, or the 2018 Sales Agreement, with B. Riley FBR, Inc., or B. Riley FBR, pursuant to which we may elect to issue and sell shares of our common stock having an aggregate offering price of up to $100,000,000 in such quantities and on such minimum price terms as we set from time to time through B. Riley FBR as our sales agent. We pay B. Riley FBR an aggregate commission rate equal to up to 3.0% of the gross proceeds of the sales price per share for common stock sold through B. Riley FBR under the 2018 Sales Agreement. From May 2018 through July 2018, we sold an aggregate of 10,083,079 shares of our common stock pursuant to the 2018 Sales Agreement, resulting in net cash proceeds to us of approximately $38,366,000 after deducting sales commissions and offering expenses payable by us. The 2018 Sales Agreement will expire upon the earlier of: (a) the sale of all common stock subject to the 2018 Sales Agreement and (b) May 18, 2021. Warrant In connection with each disbursement under a previous loan agreement with the California Institute for Regenerative Medicine, or CIRM, we were obligated to issue to CIRM a warrant to purchase Geron common stock. Such warrants and the underlying common stock were unregistered. We have no further obligations to issue any additional warrants to CIRM. As of December 31, 2018, a warrant to purchase 537,893 shares of our common stock remained outstanding. The warrant was issued to CIRM in August 2011 at an exercise price of $3.98 per share and expires in August 2021. Equity Plans 2002 Equity Incentive Plan The 2002 Equity Incentive Plan, or 2002 Plan, expired in May 2012. Upon the adoption of the 2011 Incentive Award Plan in May 2011 (see below), no further grants of options or stock purchase rights were made from the 2002 Plan. Options granted under the 2002 Plan expire no later than ten years from the date of grant. Option exercise prices were equal to 100% of the fair market value of the underlying common stock on the date of grant. Service‑based stock options under the 2002 Plan generally vested over a period of four years from the date of the option grant. Other stock awards (restricted stock awards and restricted stock units) had variable vesting schedules which were determined by our board of directors on the date of grant. All outstanding awards granted under the 2002 Plan remain subject to the terms of the 2002 Plan and the individual award agreements thereunder. 2011 Incentive Award Plan In May 2011, our stockholders approved the adoption of the 2011 Incentive Award Plan, or 2011 Plan. The 2011 Plan provided for grants of either incentive stock options or nonstatutory stock options and stock purchase rights to employees (including officers and employee directors) and consultants (including non‑employee directors). Upon the adoption of the 2018 Equity Incentive Plan in May 2018 (see below), no further grants of options or stock purchase rights were made from the 2011 Plan. Options granted under the 2011 Plan expire no later than ten years from the date of grant. Option exercise prices were equal to the fair market value of the underlying common stock on the date of grant. Service‑based stock options under the 2011 Plan generally vested over a period of four years from the date of the option grant. Other stock awards (restricted stock awards and restricted stock units) had variable vesting schedules which were determined by our board of directors on the date of grant. All outstanding awards granted under the 2011 Plan remain subject to the terms of the 2011 Plan and the individual award agreements thereunder. Under certain circumstances, options may be exercised prior to vesting, subject to our right to repurchase the shares underlying such option at the exercise price paid per share. Our repurchase rights would generally terminate on a vesting schedule identical to the vesting schedule of the exercised option. During 2018, we have not repurchased any shares under the 2011 Plan. As of December 31, 2018, we have no shares outstanding subject to repurchase under the 2011 Plan. 2018 Equity Incentive Plan On May 15, 2018, our stockholders approved the adoption of the 2018 Equity Incentive Plan, or 2018 Plan, as the successor to the 2011 Plan. The 2018 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other stock awards, and performance awards that may be settled in cash, stock, or other property. Eligible participants under the 2018 Plan include our employees, consultants and directors. The number of shares reserved for issuance under the 2018 Plan (subject to adjustment for certain changes in capitalization) is equal to the sum of (i) the unallocated shares of common stock remaining available for grant under the 2011 Plan as of May 15, 2018, (ii) 10,000,000 newly reserved shares of common stock and (iii) the number of shares subject to awards granted under the 2002 Plan, and the 2011 Plan as such shares become available from time to time, referred to as the Prior Plans’ Returning Shares. Such Prior Plans’ Returning Shares become available for issuance under the 2018 Plan if outstanding stock awards granted under the 2002 Plan and the 2011 Plan, after May 15, 2018, expire or terminate for any reason prior to exercise or settlement or are forfeited, cancelled or otherwise returned to us because of the failure to meet a contingency or condition required for the vesting of such shares, or, subject to certain exceptions, are reacquired or withheld (or not issued) by us to satisfy a tax withholding obligation in connection with a stock award. Options granted under the 2018 Plan expire no later than ten years from the date of grant. Option exercise prices shall be equal to the fair market value of the underlying common stock on the date of grant. If, at the time we grant an option, the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all classes of our stock, the option exercise price shall be at least 110% of the fair market value of the underlying common stock and shall not be exercisable more than five years after the date of grant. We grant service-based and performance-based stock options to employees under the 2018 Plan. Service-based options generally vest over a period of four years from the date of the option grant. Performance-based options vest upon the achievement of specified milestones. Other stock awards (restricted stock awards and restricted stock units) have variable vesting schedules as determined by our board of directors on the date of grant. Under certain circumstances, options may be exercised prior to vesting, subject to our right to repurchase the shares underlying such option at the exercise price paid per share. Our repurchase rights would generally terminate on a vesting schedule identical to the vesting schedule of the exercised option. During 2018, we have not repurchased any shares under the 2018 Plan. As of December 31, 2018, we have no shares outstanding subject to repurchase under the 2018 Plan. As of December 31, 2018, our Non‑Employee Director Compensation Policy adopted by our board of directors in March 2014 and amended by our board of directors in February 2015, May 2015, February 2016, January 2018, May 2018, October 2018 and January 2019 provides for the automatic grant to non‑employee directors of the following types of equity awards under the 2018 Plan: First Director Option. Each person who becomes a non‑employee director, whether by election by our stockholders or by appointment by our board of directors to fill a vacancy, will automatically be granted an option to purchase 120,000 shares of common stock, or First Director Option, on the date such person first becomes a non‑employee director. The First Director Option vests annually over three years upon each anniversary date of appointment to our board of directors. Subsequent Director Option. Each non‑employee director (other than any director receiving a First Director Option on the date of the annual meeting) will automatically be granted a subsequent option to purchase 70,000 shares of common stock, a Subsequent Director Option, on the date of the annual meeting of stockholders in each year during such director’s service on our board of directors. The Subsequent Director Option vests in full on the earlier of: (i) the date of the next annual meeting of our stockholders or (ii) the first anniversary of the date of grant. 2006 Directors’ Stock Option Plan The 2006 Directors’ Stock Option Plan, or 2006 Directors Plan, was terminated by our board of directors and replaced by the 2011 Plan in March 2014. No further grants of options were made from the 2006 Directors Plan upon the 2006 Directors Plan’s termination. All outstanding awards granted under the 2006 Directors Plan remain subject to the terms of the 2006 Directors Plan and the individual award agreements thereunder. The options granted to non‑employee directors under the 2006 Directors Plan were nonstatutory stock options, and they expire no later than ten years from the date of grant. The option exercise price was equal to the fair market value of the underlying common stock on the date of grant. The First Director Option granted to non‑employee directors under the 2006 Directors Plan vested annually over three years upon each anniversary date of appointment to the board of directors. The Subsequent Director Option granted to non‑employee directors on the date of the annual meeting of stockholders in each year during such director’s service on our board of directors under the 2006 Directors Plan vested one year from the date of grant. 2018 Inducement Award Plan In December 2018, our board of directors approved the adoption of the 2018 Inducement Award Plan, or the Inducement Plan, pursuant to which we reserved 3,000,000 shares of Geron common stock (subject to customary adjustments in the event of a change in capital structure) to be used exclusively for grants of inducement awards to individuals who were not previously Geron employees or directors, other than following a bona fide period of non-employment. The Inducement Plan provides for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock awards, and all awards under the Inducement Plan are intended to meet the standards under Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the Inducement Plan and the inducement awards to be granted thereunder are substantially similar to the 2018 Plan. As of December 31, 2018, we had not granted any awards under the Inducement Plan Directors’ Market Value Stock Purchase Plan In October 2018, our board of directors adopted a Directors’ Market Value Stock Purchase Plan, or the Directors Market Plan. A total of 1,000,000 shares of Geron common stock has been reserved for the Directors Market Plan. Under the Directors Market Plan, non-employee directors may purchase shares of Geron common stock at the prevailing market price on the purchase date with cash compensation payable to them for their services as a board member. As stated in Geron’s Non-Employee Director Compensation Policy, each non-employee director receives annual cash compensation, payable quarterly in arrears, for their services on the board and various committees of the board. As provided in the Non-Employee Director Compensation Policy, a non-employee director may elect to receive fully vested shares of common stock in lieu of cash and such shares shall be issuable from the Directors Market Plan. As of December 31, 2018, we have not issued any shares under the Directors Market Plan. Aggregate option and award activity for the 2002 Plan, 2011 Plan, 2018 Plan, 2006 Directors Plan, Inducement Plan and Directors Market Plan is as follows:
Outstanding Options
Weighted Average
Aggregate
Shares
Weighted Average
Remaining
Intrinsic
Available
Number of
Exercise Price
Contractual Life
Value
For Grant
Shares
Per Share
(In years)
(In thousands)
Balance at December 31, 2017
6,202,727
22,408,529
$
2.96
Additional shares authorized
14,000,000
—
$
—
Options granted
(9,265,000
)
9,265,000
(1)
$
2.07
Awards granted
(139,652
)
—
$
—
Options exercised
—
(3,144,878
)
$
2.20
Options cancelled/forfeited/expired
1,166,324
(1,242,699
)
$
3.48
Balance at December 31, 2018
11,964,399
27,285,952
(1)
$
2.72
6.71
$
—
Options exercisable at December 31, 2018
16,464,746
$
3.13
5.10
$
—
Options fully vested and expected to vest at December 31, 2018
26,293,625
$
2.75
6.61
$
—
(1)
Includes 4,500,000 performance-based stock options that have not achieved certain strategic milestones. The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on Geron’s closing stock price of $1.00 per share as of December 31, 2018, which would have been received by the option holders had all the option holders exercised their options as of that date. We have not granted any options with an exercise price below or greater than the fair market value of our common stock on the date of grant in 2018, 2017 or 2016. As of December 31, 2018, 2017 and 2016, there were 16,464,746, 17,249,032 and 14,074,457 exercisable options outstanding at weighted average exercise prices per share of $3.13, $3.03 and $2.99, respectively. The total pretax intrinsic value of stock options exercised during 2018, 2017 and 2016 was $8,812,000, $15,000 and $595,000, respectively. Cash received from the exercise of options in 2018, 2017 and 2016 totaled approximately $6,929,000, $18,000 and $493,000, respectively. Information about stock options outstanding as of December 31, 2018 is as follows:
Options Outstanding
Weighted Average
Weighted Average
Remaining
Number of
Exercise Price
Contractual Life
Exercise Price Range
Shares
Per Share
(In years)
$1.10 - $1.72
10,290,050
$
1.61
7.04
$1.73 - $2.45
7,144,384
$
2.27
7.65
$2.54 - $5.01
8,055,105
$
3.95
6.06
$5.09 - $7.31
1,796,413
$
5.33
4.03
$1.10 - $7.31
27,285,952
(1)
$
2.72
6.71
(1)
Includes 4,500,000 performance-based stock options that have not achieved certain strategic milestones. Aggregate restricted stock activity for the 2011 Plan and the 2018 Plan is as follows:
Weighted Average
Weighted Average
Grant Date
Remaining
Number of
Fair Value
Contractual Term
Shares
Per Share
(In years)
Non-vested restricted stock at December 31, 2017
—
$
—
—
Granted
73,980
$
1.91
Vested
(73,980
)
$
1.91
Non-vested restricted stock at December 31, 2018
—
$
—
—
The weighted average grant date fair value of restricted stock granted during the years ended December 31, 2018, 2017 and 2016 was $1.91, $2.20 and $2.44 per share, respectively. The total fair value of restricted stock that vested during 2018, 2017 and 2016 was $141,000, $159,000 and $54,000, respectively. Employee Stock Purchase Plan In March 2014, our board of directors adopted the 2014 Employee Stock Purchase Plan, or 2014 Purchase Plan. The 2014 Purchase Plan was approved by our stockholders in May 2014. The 2014 Purchase Plan replaced the 1996 Employee Stock Purchase Plan, or 1996 Purchase Plan, which was terminated effective as of the date the 2014 Purchase Plan was approved by our stockholders. Under the 2014 Purchase Plan, we are authorized to sell to eligible employees up to an aggregate of 1,000,000 shares of Geron common stock. As of December 31, 2018, an aggregate of 123,092 shares of our common stock have been issued under the 2014 Purchase Plan since its adoption. The 2014 Purchase Plan is comprised of a series of offering periods, each with a maximum duration (not to exceed 12 months) with new offering periods commencing on January 1st and July 1st of each year. The date an employee enters the offering period will be designated as the entry date for purposes of that offering period. An employee may participate only in one offering period at a time. Each offering period consists of two consecutive purchase periods of six months’ duration, with the last day of such period designated a purchase date. Under the terms of the 2014 Purchase Plan, employees can choose to have up to 10% of their annual salary withheld to purchase our common stock. An employee may not make additional payments into such account or increase the withholding percentage during the offering period. The purchase price per share at which common stock is purchased by the employee on each purchase date within the offering period is equal to 85% of the lower of (i) the fair market value per share of Geron common stock on the employee’s entry date into that offering period or (ii) the fair market value per share of Geron common stock on the purchase date. If the fair market value per share of Geron common stock on the purchase date is less than the fair market value at the beginning of the offering period, a new 12 month offering period will automatically begin on the first business day following the purchase date with a new fair market value. Stock‑Based Compensation for Employees and Directors We measure and recognize compensation expense for all share‑based payment awards made to employees and directors, including employee stock options, restricted stock awards and employee stock purchases, based on grant‑date fair values for these instruments. We use the Black Scholes option‑pricing model to estimate the grant‑date fair value of our service-based and performance-based stock options and employee stock purchases. The fair value for service‑based restricted stock awards is determined using the fair value of our common stock on the date of grant. As stock‑based compensation expense recognized in the statements of operations for the years ended December 31, 2018, 2017 and 2016 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures, but at a minimum, reflects the grant‑date fair value of those awards that actually vested in the period. Forfeitures have been estimated at the time of grant based on historical data and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. With the adoption of Accounting Standards Update No. 2016-09, Improvements to Employee Share Based Payment Accounting In 2018, our board of directors awarded performance-based stock options to certain employees. These performance-based stock options are included in the outstanding options table above. Performance-based options vest only upon achievement of discrete strategic milestones. Stock-based compensation expense for performance-based options is recognized over the period from the date the performance condition is determined to be probable of occurring through the date the applicable condition is expected to be met and is reduced for estimated forfeitures, as applicable. If the performance condition is not considered probable of being achieved, no stock-based compensation expense is recognized until such time as the performance condition is considered probable of being met, if ever. We recognize stock‑based compensation expense for service-based stock options on a straight‑line basis over the requisite service period, which is generally the vesting period. We have not recognized any stock-based compensation expense for performance-based stock options in our statements of operations for the year ended December 31, 2018, as the achievement of the specified strategic milestones was not considered probable during that time. The following table summarizes the stock‑based compensation expense related to service-based stock options, restricted stock awards and employee stock purchases for the years ended December 31, 2018, 2017 and 2016 which was allocated as follows:
Year Ended December 31,
(In thousands)
2018
2017
2016
Research and development
$
949
$
988
$
1,275
General and administrative
5,419
7,156
6,970
Stock-based compensation expense included in operating expenses
$
6,368
$
8,144
$
8,245
The fair value of stock options granted in 2018, 2017 and 2016 has been estimated at the date of grant using the Black Scholes option‑pricing model with the following assumptions:
Year Ended December 31,
2018
2017
2016
Dividend yield
0%
0%
0%
Expected volatility range
0.821 to 0.990
0.884 to 0.892
0.888 to 0.890
Risk-free interest rate range
2.55% to 3.11%
1.98% to 1.99%
1.21% to 1.38%
Expected term range
5.25 - 6.62 yrs
5.5 yrs
5.5 yrs The fair value of employee stock purchases in 2018, 2017 and 2016 has been estimated using the Black Scholes option‑pricing model with the following assumptions:
Year Ended December 31,
2018
2017
2016
Dividend yield
0%
0%
0%
Expected volatility range
0.437 to 0.475
0.577 to 0.641
0.641 to 0.684
Risk-free interest rate range
1.53% to 1.76%
0.45% to 0.89%
0.28% to 0.45%
Expected term range
6 - 12 mos
6 - 12 mos
6 - 12 mos Dividend yield is based on historical cash dividend payments and Geron has paid no cash dividends to date. The expected volatility range is based on historical volatilities of our stock since traded options on Geron common stock do not correspond to option terms and the trading volume of options is limited. The risk‑free interest rate range is based on the U.S. Zero Coupon Treasury Strip Yields for the expected term in effect on the date of grant for an award. The expected term of options is derived from actual historical exercise and post‑vesting cancellation data and represents the period of time that options granted are expected to be outstanding. The expected term of employees’ purchase rights is equal to the purchase period. Based on the Black Scholes option‑pricing model, the weighted average estimated fair value of stock options granted during the years ended December 31, 2018, 2017 and 2016 was $1.52, $1.58 and $1.83 per share, respectively. The weighted average estimated fair value of employees’ purchase rights for the years ended December 31, 2018, 2017 and 2016 was $0.56, $0.75 and $1.01 per share, respectively. As of December 31, 2018, total compensation cost related to unvested share‑based payment awards not yet recognized, net of estimated forfeitures and assuming no probability of achievement for outstanding performance-based stock options, was $8,814,000, which is expected to be recognized over the next 27 months on a weighted‑average basis. 401(k) Plan Matching Contributions We sponsor a defined‑contribution savings plan under Section 401(k) of the Internal Revenue Code covering all full‑time U.S. employees, or the Geron 401K Plan. Participating employees may contribute up to the annual Internal Revenue Service contribution limit. The Geron 401K Plan also permits us to provide discretionary matching and profit sharing contributions. Prior to 2014, our board of directors approved matching contributions for the Geron 401K Plan in our common stock, which vested ratably over four years for each year of service completed by our employees, commencing from the date of hire. Stock‑Based Compensation to Service Providers We grant stock options and restricted stock awards to consultants from time to time in exchange for services performed for us. In general, the stock options and restricted stock awards vest over the contractual period of the consulting arrangement. The fair value of stock options and restricted stock awards held by consultants is recorded as operating expenses over the vesting term of the respective equity awards. In addition, we will record any increase in the fair value of the stock options and restricted stock awards as the respective equity award vests. We recorded stock‑based compensation expense of $50,000, $41,000 and $104,000 for the vested portion of the fair value of stock options and restricted stock awards held by consultants in 2018, 2017 and 2016, respectively. We have also issued common stock to non‑employee directors and consultants. For stock issuances where services are to be performed for us, we record a prepaid asset equal to the fair market value of the shares on the date of issuance and amortize the fair value of the shares to our operating expenses on a pro‑rata basis as services are performed. For stock issuances where services have been performed for us, we record the fair market value of the shares on the date of issuance to offset the amounts owed. In 2018, 2017 and 2016, we issued 73,980, 72,066 and 21,541 shares of common stock, respectively, in exchange for services provided. In 2018, 2017 and 2016, we recognized approximately $141,000, $159,000 and $52,000, respectively, of expense in connection with stock grants to non‑employee directors and consultants. Common Stock Reserved for Future Issuance Common stock reserved for future issuance as of December 31, 2018 is as follows:
Outstanding stock options
27,285,952
Options and awards available for grant
11,964,399
Employee stock purchase plan
876,908
Warrant outstanding
537,893
Total
40,665,152 |
