Upcoming Stock Option Expirations

[Hoosier Investor]

The following stock options are subject to expiry in the next couple of weeks:

J. Scarlett......1,340,000 @ $1.50 (2/13/23 Expiration date)
O. Bloom..........400,000 @ $1.51 (2/12/23 Expiration date)
A. Grethlein......300,000 @ $1.51 (2/12/23 Expiration date)
M. Behrs...........300,000 @ $1.51 (2/12/23 Expiration date)

Each of the executives will be faced with a decision to either "convert/buy/retain" or to "convert/sell/profit". For example, Dr. Scarlett would have to pay (1,340,000)*($1.50) = $2,010,000 in order to convert & retain (i.e. direct ownership of common shares) all of the shares associated with his 1,340,000 stock options. Conversely, assuming a stock price of $3.34, Dr. Scarlett could elect to accept a pre-tax profit equal to (1,340,000)*($3.34 - $1.50) = $2,465,600.

It should be noted that Scarlett, Bloom, and Behrs each had a significant number of stock options expire worthless in May 2022. The options weren't exercised as the stock price was basically the same as the option's exercise price. Thus, it appears each executive chose to allow the options to expire worthless. Andrew Grethlein converted & retained the majority of his award in Sep'22. He retained 234,000 out of a possible 300,000 shares which may indicate a portion of them were exercised & sold as a means of covering an associated tax liability.

It will be interesting (and potentially telling) to see how the decisions play out. Thoughts and/or corrections?

NOTE: The above information was provided in Geron's Proxy Statement (p. 72 & 73) that was filed on 3/22/2022.

FYI.....The 2014 stock option awards expiring next year (2024) have an exercise price = $5.10. Thus, next year's stock options will expire worthless unless our stock price is greater than $5.10 on (or by) February 10, 2024.

[rccola335]

can't they sell the shares and use the profits (minus tax implications) to buy more shares

[Hoosier Investor]

Some additional information & thoughts on this topic.....

Exercising a stock option when the option is in the money (i.e. share price is greater than the option price) DOES create a tax liability. For example, if the upcoming options are exercised at a time when Geron's share price is $3.30/share, the pre-tax profit would be $3.30 - $1.50 = $1.80 per share. Assuming the gains will be taxed at 20% long-term capital gains rate, there would be a tax liability = (20%)*$1.80 = $0.36 for each exercised option.

Dr. Scarlett is likely to exercise each of his 1,340,000 stock options prior to the 2/13 expiration date. Assuming the same 20% tax rate, he will generate a tax liability of $482,400 based on a profit of 1,340,000*($3.30 - $1.50) = $2,412,200. In this scenario, it will be possible for him to realize a net profit = $2,412,200 - $482,400 = $1,929,600.

It's also possible to exercise ALL (100%) of the options, and then A) sell a portion, AND B) retain a portion. This is a common approach when a person wants to retain some of the shares for long-term value without having to fund the purchase of the shares ($1.50/ea) and/or the taxes out of their own pocket.

In this scenario, Dr. Scarlett could retain 584,727 common shares without using any of his own money. The math works out as follows.....755,273 options could be exercised and sold resulting in a profit of (755,273)*($3.30-$1.50) = $1,359,491. Subtracting the $482,400 to cover the tax liability would leave an after-tax profit of $877,091. This after-tax profit of $877,091 is sufficient to fund 584,727 shares at the exercise price of $1.50 per share.

We may see one (or more) of the executives adopt this approach of retaining as many "free" common shares as possible...in a manner that avoids them having to pay for the taxes and/or shares out of their own pockets. This is a common approach and shouldn't be viewed as a negative as the executive will have decided to hold company shares in lieu of a short-term profit.

This is likely the scenario that @rccola was referring to in his comment (above).

[Hoosier Investor]

As we prepare for this week's Executive stock option activity, a quick history lesson might aid our interpretations.

First, both Melissa Behrs and Olivia Bloom have a history of exercising & selling their stock options. Therefore, the proper expectation for their upcoming decisions is for them to again exercise & sell....which would align with their past practices. Stated differently, I don't believe we should automatically assign a negative interpretation to actions from either of the two executives. Conversely, I think it would be fair to view either of them retaining a portion of their shares as a positive event.

Second, as outlined above, Andrew Grethlein elected to retain a significant portion of his stock option shares in 2022. Thus, the fair/proper expectation would be for him to retain a portion of his shares this time as well.

Third, I'm not aware of any past stock option exercise actions/decisions from Dr. Scarlett. Thus, I don't have a precedent to use as an expectation. However, given his recent comments on the company's outlook, he's likely to retain a percentage of the shares associated with his stock options.

It will be an exciting week in this respect. I'll be watching for the SEC filing notices after the bell. The actions could come any day of the week, but they're most likely to occur on Thursday or Friday. Dr. Scarlett has an extra day (unknown reason), so we might not learn of his decision until early the following week.

[Gwikley]

I see this same concern/interest on the YMB. I'm puzzled. I fail to see the significance. Converting the options to shares and then selling them, even if all listed in the previous post here were to do so, would. IMO, have no real affect on the share price. I suppose there is some weight to the argument that doing so, (not holding on to the shares), reflects on the "loyalty" and "faith" in the company of those individuals To me it doesn't have to go that far. The opportunity to have a huge payday is before them all. Why not take it. But that is just me. .

[Hoosier Investor]

Fair point. I'm probably too quick to assume my values & interpretations are shared by other investors....including the company executives.

There's an old saying....."There are lots of valid reasons for insiders to sell stock in their company, but only one reason for them to buy & hold". Thus, to your point, we shouldn't be too quick to assess if/when/why shares might be sold. However, any decisions to buy & hold are most likely because the executive(s) has an optimistic outlook for the company's future.

For me personally, I believe there are a handful of upcoming milestones that could result in the company's stock price increasing by 2X - 3X over the next 12-18 months. The above referenced insiders will have full knowledge of these forthcoming events, and I will view their option exercise decisions as an indicator of their confidence in said forthcoming events. My justification is based on a belief that very few people would knowingly sell a security for "X" today while being aware & confident the security could be worth 2X-3X within 12-18 months.

[rccola335]

starting on wednesday they executed their options and sold - I was wondering if this is why the price starting going down - Grethlein not only executed and sold options but sold his shares that he acquired last year when he kept his options

[biopearl123]

HI, this discussion/analysis has been very helpful to me as a non business type. Now that we know how the execs handled their options do you have any further observations? Clearly they had to do something with their “in the money” options, either sell the options, take the money or sell the options, buy the stock. Since their other options have a long time line before expiration, and some execs presumably also hold the stock, can you give us a look as to whether they might have just thought it was a good time to take profits knowing that future rewards would still be substantial for them? After all the “recognition” for NDA and approval will be substantial. I imagine they have a pretty high standard of living and you don’t go broke by taking a profit. The stock is clearly taking a short term dip until some further catalyst is revealed (probably soon). Thanks, bp

[biopearl123]

Maybe taking a close look at remaining outstanding options and current stocks holdings would give us some insight?

[biopearl123]

Might be worth a discussion of 10b 5-1 rules.