9. Stock-Based Compensation

Equity Incentive Plans

2020 Stock Incentive Plan

Under the 2020 Stock Incentive Plan (as amended, the “2020 Plan”), the Company was authorized to issue shares of common stock to the Company’s employees, officers, directors, consultants and advisors in the form of options, restricted stock awards or other stock-based awards.

2021 Stock Incentive Plan

In September 2021, the Company’s board of directors and stockholders adopted the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective immediately prior to the Company’s initial public offering of common stock (“IPO”) in October 2021. Upon effectiveness of the 2021 Plan, the Company ceased granting awards under the 2020 Plan. The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. The Company initially reserved 469,929 shares of common stock under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will be cumulatively increased on January 1 of each calendar year by 5% of the number of shares of common stock outstanding on such date or such lesser amount determined by the Company’s board of directors. On January 1, 2026, the number of shares reserved for issuance under the 2021 Plan automatically increased by 226,931 shares. As of March 31, 2026, there were 356,869 shares of common stock available for future issuance under the 2021 Plan.

2025 Stock Incentive Plan

In November 2025, the Company’s stockholders adopted the 2025 Stock Incentive Plan (the “2025 Plan”), which had previously been adopted by the Company’s board of directors subject to stockholder approval. The 2025 Plan provides for the grant of stock options to employees for 2,285,592 shares of common stock, divided into four equal tranches of 571,398 total shares per tranche, with the vesting of each tranche of stock options tied to a tranche of the June 2025 warrants, which are further described in Note 8.

The stock options granted under the 2025 Plan vest as follows:

•

The first tranche of stock options vests in equal monthly installments over a period of three years, subject to the employee continuing to provide services to the Company on each vesting date.

•

The second tranche of stock options ("Tranche 2 Stock Options") will become eligible to vest based on the portion of such stock options that equals the percentage of the Series A warrants that are exercised by December 31 of each of 2025, 2026, 2027, 2028, and 2029 and on June 30, 2030 (each, a “measurement date”). Any Tranche 2 Stock Options will vest in three equal installments with one-third vesting on the applicable measurement date and the remaining two-thirds vesting in equal annual installments on each of the subsequent two anniversaries thereafter.

•

The third tranche of stock options ("Tranche 3 Stock Options") became eligible to vest based on the portion of such stock options that equaled the percentage of Series B warrants that were exercised by December 31, 2025. The Tranche 3 Stock Options vest in three equal installments with one-third vesting on December 31, 2025 and the remaining two-thirds vesting in equal annual installments on each of the subsequent two anniversaries thereafter.

•

The fourth tranche of stock options ("Tranche 4 Stock Options") will become eligible to vest based on the portion of such stock options that equal the percentage of the Series C warrants that are exercised or are cancelled due to the Company’s receipt of non-dilutive capital by December 31, 2026. Any Tranche 4 Stock Options that become eligible for vesting will vest in three equal installments with one-third vesting on December 31, 2026 and the remaining two-thirds vesting in equal annual installments on each of the subsequent two anniversaries thereafter.

As of March 31, 2026, there were 21,805 shares of common stock available for future issuance under the 2025 Plan.

2022 Inducement Plan

In 2022, the Company’s board of directors adopted the 2022 Inducement Stock Incentive Plan pursuant to Nasdaq Rule 5635(c)(4) (the “2022 Inducement Plan”). In accordance with Nasdaq Rule 5635(c)(4), stock-based incentive awards under the 2022 Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company’s board of directors, or an employee who is being rehired following a bona fide period of non-employment by the Company as a material inducement to the employee’s entering into employment with the Company. The Company initially reserved 19,642 shares of the Company’s common stock for issuance under the 2022 Inducement Plan. The number of shares reserved for issuance under the 2022 Inducement Plan was increased by 35,714 in both November 2024 and March 2025. In January 2026, the number of shares reserved for issuance under the 2022 Inducement Plan increased by an additional 32,485 shares. As of March 31, 2026, there were 52,812 shares of common stock available for future issuance under the 2022 Inducement Plan.

2021 Employee Stock Purchase Plan

In 2021, the Company’s board of directors and stockholders adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective immediately prior to the IPO in October 2021. The Company initially reserved 20,859 shares of common stock for issuance under the 2021 ESPP. The 2021 ESPP provides that the number of shares of common stock reserved for issuance under the 2021 ESPP will be cumulatively increased on January 1 of each calendar year by 1% of the number of shares of the Company’s common stock outstanding on such date or such lesser amount determined by the Company’s board of directors (up to a maximum increase of 41,718 shares of common stock per year). On January 1, 2026, the number of shares reserved for issuance under the 2021 ESPP was increased by 41,718 shares. During each of the three months ended March 31, 2026 and 2025, the Company did not issue any shares of common stock under the 2021 ESPP. As of March 31, 2026, there were 131,321 shares available for future issuance under the 2021 ESPP.

Stock-Based Compensation Expense

During the three months ended March 31, 2026 and 2025, the Company recorded compensation expense related to stock options, restricted stock units and restricted common stock for employees and non-employees and share purchases under the 2021 ESPP for employees, which was allocated as follows in the condensed consolidated statements of operations and comprehensive loss:


	Three Months Ended March 31,
	2026		2025
Research and development expense	$	792	$	389
General and administrative expense		1,419		1,146
Total stock-based compensation expense	$	2,211	$	1,535

Stock Options

A summary of stock option activity under the Company’s 2020 Plan, 2021 Plan, 2025 Plan and 2022 Inducement Plan is as follows:


						Weighted
						Average
						Remaining		Aggregate
				Weighted		Contractual		Intrinsic
	Number of			Average		Term		Value (1)
	Stock Options			Exercise Price		(In years)		(In thousands)
Outstanding as of December 31, 2025		2,785,102		$	14.40		9.1	$	27
Granted		9,280		$	8.36
Exercised		(109	)	$	7.70
Forfeited		(26,988	)	$	11.40
Outstanding as of March 31, 2026 (2)		2,767,285		$	14.41		8.9	$	19
Exercisable as of March 31, 2026 (2)		726,042		$	21.28		7.4	$	8

(1)

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock as of the end of the period.

(2)

The weighted-average exercise price per share of the options outstanding and exercisable as of March 31, 2026 includes the impact of the stock option repricing described below.

As of March 31, 2026, the Company had unrecognized stock-based compensation expense of $16.7 million related to stock options issued to employees and directors, including $9.8 million of unrecognized stock-based compensation expense related to awards with performance conditions for which the likelihood of satisfying such performance conditions are considered probable, which is expected to be recognized over a weighted-average period of 3.0 years.

Using the Black-Scholes option pricing model, the weighted average fair value of options granted to employees and directors during the three months ended March 31, 2026 and 2025 was $6.82 per share and $10.36 per share, respectively. The following assumptions were used in determining the fair value of options granted during the three months ended March 31, 2026 and 2025:


	Three Months Ended March 31,
	2026			2025
Risk-free interest rate	3.6 - 3.8		%			4.4	%
Expected dividend yield		0	%			0	%
Expected term (in years)	6.0 - 6.1				6.0 - 6.1
Expected volatility	102.3 - 103.3		%		94.5 - 95.6		%

Stock Option Repricing

In October 2025, the Company's board of directors approved a stock option repricing (the “Option Repricing”), which was effective upon stockholder approval on November 21, 2025 (the “Repricing Date”). The Option Repricing applied to all outstanding options to purchase shares of common stock of the Company granted to employees under the Company’s 2020 Plan, 2021 Plan and 2022 Inducement Plan with an exercise price greater than $21.00 for members of the Company's executive team and $14.00 for all other employees (the “underwater options”) with grant dates prior to January 1, 2025 (the “Eligible Options”). The total number of shares of common stock underlying all Eligible Options was 354,200. Non-employee members of the Company’s board of directors were not eligible to participate in the Option Repricing. If such Eligible Options are exercised prior to the one-year anniversary of the Repricing Date (the "Retention Period"), the original exercise price must be paid.

The repricing of the Eligible Options was accounted for as a modification under ASC 718. Accordingly, the Company calculated incremental compensation cost on the modification date in an amount equal to the difference between the fair value of the awards before and after modification. The total amount of the incremental compensation expense to be recognized was determined to be $0.6 million, which is being recognized over the Retention Period.

Stock Options with Performance Conditions

The Company determined that the Tranche 2, Tranche 3 and Tranche 4 Stock Options contain performance conditions for which the likelihood of satisfying each of the performance conditions is considered probable as of March 31, 2026.

As of March 31, 2026 and December 31, 2025, no Tranche 2 Stock Options were eligible to vest as there have been no exercises of Series A warrants to date. Based on the Series B warrants exercised during the year ended December 31, 2025, 412,043 Tranche 3 Stock Options became eligible to vest and will vest in three equal annual installments beginning on December 31, 2025. On December 31, 2025, 157,875 Tranche 3 Stock Options were cancelled in proportion to the respective amount of unexercised Series B warrants. The Series C warrants are cancellable to the extent Series B warrants are not exercised or cancelled due to the Company’s receipt of non-dilutive capital. Therefore, on December 31, 2025, 157,875 Tranche 4 Stock Options were cancelled in proportion to the respective amount of unexercised Series B warrants.

Restricted Stock Units

In January 2024, the Company awarded 34,389 restricted stock units to certain employees of the Company. The restricted stock units vest in four equal annual installments beginning on the first anniversary of the grant date. The restricted stock units are generally forfeited if the individual’s service relationship with the Company or any subsidiary terminates prior to vesting.

A summary of the Company’s restricted stock unit activity and related information is as follows:


	Number			Weighted
	of Shares			Average
	of Restricted			Grant Date
	Stock Units			Fair Value
Unvested as of December 31, 2025		23,866		$	7.70
Granted		—		$	—
Vested		(7,952	)	$	7.70
Forfeited		—		$	—
Unvested as of March 31, 2026		15,914		$	7.70

For each of the three months ended March 31, 2026 and 2025, the Company recognized less than $0.1 million of stock-based compensation expense related to these awards. As of March 31, 2026, the Company had unrecognized stock-based compensation expense of $0.1 million related to these restricted stock units, which is expected to be recognized over 1.7 years.

Xilio Therapeutics, Inc. 10-Q