Mereo BioPharma Group plc Stock Compensation Disclosure

15. Share-based compensation

The Company currently grants equity awards under the Mereo 2019 Equity Incentive Plan (the “2019 EIP”) and the 2019 Non-Employee Equity Incentive Plan (the “2019 NED EIP”). There are also still outstanding awards under two previous plans, the 2015 Plan and the Mereo Share Option Plan (together the "Previous Share Option Plans"), however no awards have been granted under these plans since 2016 and no further grants are envisaged.

The 2019 EIP and 2019 NED EIP were adopted on April 4, 2019, and subsequently amended on February 3, 2020 and January 15, 2021. The 2019 EIP and 2019 NED EIP authorize the grant of a variety of types of share awards over the Company’s ADSs to executives and employees, and non-executives, respectively. The total number of ADSs available for issue under the 2019 EIP and 2019 NED EIP was 9.0 million as of December 31, 2024.

As of December 31, 2024, the total unrecognized compensation cost related to outstanding share awards was $4.1 million, which the Company expects to recognize over a weighted-average period of 1.6 years.

The majority of awards that were exercised in the years ended December 31, 2024 and 2023 were net share settled such that the Company withheld shares with a value equivalent to the exercise price. Shares delivered on exercise with a value sufficient to cover the employees’ obligation for the applicable income and other employment taxes were sold and the proceeds remitted to the appropriate taxing authorities.

Shares delivered in the settlement of employee Option exercises, and RSU and PSU vestings were satisfied through the issuance of new shares. However, prior to March 2024, the remaining shares held in the Employee Benefit Trust ("EBT") were used to satisfy the exercise of Options and vesting of RSUs to employees. The EBT was subsequently terminated during the year ended December 31, 2024. Shares delivered in settlement of deferred RSUs to non-executive directors following separation of service were satisfied by issuing new shares.

2019 EIP

The Company has awarded the following instruments under the 2019 EIP:

Market Value Options (“Options”)

Options permit the recipient to purchase ADSs at an exercise price equal to the market price of the underlying ADSs on the date of grant. Options issued under the EIP have a contractual term of 10 years and vest over four years, with one-fourth of the award vesting on the first anniversary of the grant date and the remainder vesting in equal monthly installments over the three-year period thereafter. No performance conditions apply to such Options.

At January 1, 2024, 6,169,952 Options with a weighted average grant date fair value of $1.13 were unvested. The weighted average per share fair value of options vesting during the year ended December 31, 2024 was $1.20 (2023: $1.55).

The weighted average grant date fair value of options granted during the year ended December 31, 2024 was $2.61 (2023: $0.92).

At December 31, 2024, the weighted average contractual life of Options outstanding was 7.6 years (2023: 8.1 years) and for vested Options was 6.8 years (2023: 7.1 years).

Where presented, the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s ADSs for the Options that were in-the-money.

The expected volatility assumption is calculated by reference to the historical volatility of an appropriate peer group of companies for a period equal to the expected term of the Option. The grant date fair value is recognized over the requisite service period using the accelerated graded-vesting attribution method.

Restricted Stock Units (“RSUs”)

Each RSU entitles the holder a conditional right to receive an ADS at no cost upon the completion of the applicable vesting period. RSUs granted under the EIP vest over three years with one-third of the awards vesting on the first anniversary of the grant date and the remainder vesting in four equal six-monthly installments thereafter. Upon vesting of the RSUs, the Company issues the requisite ADSs, a portion of which are sold to satisfy the resulting tax obligations, and the remaining ADSs are delivered to the holder. RSUs have a maximum contractual life of 3.0 years.

At December 31, 2024, the weighted average remaining vesting period of RSUs outstanding was 2.2 years (2023: 2.1 years). The total fair value of shares vested during the year ended December 31, 2024 was $0.9 million (2023: $nil).

Where presented, the aggregate intrinsic value is calculated as the quoted market price of the Company’s ADSs. The fair value of each RSU is calculated by reference to the value of the shares awarded. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.

Performance Based Restricted Stock Units (“PSUs”)

Each PSU entitles the holder a conditional right to receive an ADS at no cost upon satisfaction of four escalating ADS price performance targets over a two year performance period following the date of grant. A summary of the Company’s PSU activity and related information under the 2019 EIP for 2024 and 2023 is as follows.

The grant date fair value was recognized over the expected life using the straight-line attribution method. The total fair value of shares vested during the year ended December 31, 2024 was $0.8 million (2023: $nil).

2019 NED EIP

The Company has awarded the following instruments under the 2019 NED EIP:

Options

Options permit the recipient to purchase ADSs at an exercise price equal to the market price of the underlying ADSs on the date of grant. Options issued under the 2019 NED EIP have a contractual term of 10 years and vest in equal monthly installments over one year. There are no performance conditions. A summary of the Company’s Option activity and related information under the 2019 NED EIP for 2024 and 2023 is as follows; all outstanding Options are expected to vest:

The weighted average grant date fair value of options granted during the year ended December 31, 2024 was $2.83 (2023: $0.84).

At December 31, 2024, the weighted average contractual life of Options outstanding was 7.5 years (2023: 8.0 years) and for vested Options was 7.4 years (2023: 7.9 years).

Where presented, the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s ADSs for the Options that were in-the-money.

The expected volatility assumption is calculated by reference to the historical volatility of an appropriate peer group of companies for a period equal to the expected term of the Option. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.

Deferred Restricted Stock Units (“DRSUs”)

Non-executive directors may voluntarily elect to convert their annual cash fees for services on the board of directors and DRSUs were granted to NEDs who made such elections. The number of DRSUs granted is determined by dividing the amount of the annual cash compensation by the average closing trading price of the Company's ADSs over the most recent 30 trading days as of the date of grant. Each DRSU entitles the holder to receive an ADS at no cost upon the completion of the vesting period. DRSUs granted under the 2019 NED EIP vest in substantially equal monthly installments over the plan year. Delivery of ADSs underlying DRSUs will generally be 180 days following separation of service but have no specified contractual term.

Where presented, the aggregate intrinsic value is calculated as the quoted market price of the Company’s ADSs. The fair value of each DRSU was calculated by reference to the value of the shares awarded. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.

Previous Share Option Plans

Mereo previously granted options to employees under two separate plans, the Mereo BioPharma Group Limited Share Option Plan (the “2015 Plan”) and the Mereo Share Option Plan (the “Share Option Plan”). No awards have been granted under either of these plans since 2017 and following the introduction of the 2019 EIP and the 2019 NED EIP, no further awards are envisaged.

At December 31, 2024, the weighted average contractual life of options outstanding and vested was 0.8 years (2023: 1.8 years).