Note 8. Stock-based compensation

General

Stock options expire seven to 10 years from the date of grant. Generally, the exercise price of all stock options will be equal to the closing market price on The Nasdaq Global Market of one share of the Company’s common stock on the date of grant, or if no closing price is reported for such date, the closing price on the next immediately preceding date for which a closing price is reported. The stock options generally vest 25% upon the one-year anniversary of the service inception date and then ratably each month over the remaining 36 months. Upon termination of service, any unvested stock options are automatically returned to Company. Vested stock options that are not exercised within the specified period, according to the terms and conditions of the option plan, following the termination as an employee, consultant, or service provider to the Company are surrendered back to the Company. Those stock options are added back to the pool and made available for future grants.

2019 Stock Option and Grant Plan

The Company’s 2019 Stock Option and Grant Plan (the "2019 Plan") provided for the Company to grant stock options and other stock-based awards to employees and non-employees to purchase the Company’s common stock. Total authorized options under the 2019 Stock Option and Grant Plan is 3,464,316. The 2020 Plan (as defined below) replaced the 2019 Plan and no further issuances will be made under the 2019 Plan. However, the 2019 Plan continues to govern outstanding equity awards granted thereunder.

On July 15, 2020, the Company’s Board of Directors approved an amendment to stock options outstanding under the 2019 Stock Option and Grant Plan to provide for immediate 100% vesting for all outstanding options under the plan upon the consummation of a Sale Event, as defined by the amendment.

2020 Stock Option and Incentive Plan

The 2020 Stock Option and Incentive Plan (the "2020 Plan") was approved by the Company's Board of Directors on July 15, 2020, and the Company’s stockholders on July 20, 2020 and became effective on July 22, 2020. On April 21, 2022, the Board of Directors adopted an amendment to the 2020 Plan, the amended and restated 2020 Stock Option and Incentive Plan (the "Amended 2020 Plan") to increase the limit on total annual compensation (equity and cash) to non-employee directors. The Amended 2020 Plan was approved by the Company's stockholders and became effective on June 9, 2022. The Amended 2020 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, directors and consultants. The number of shares of common stock reserved for issuance as of December 31, 2024 under the Amended 2020 Plan was 10,824,342 and will be increased each January 1 by 5% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the compensation committee of the Board of Directors. Accordingly, on January 1, 2025, the number of shares of common stock reserved and available for issuance under the Amended 2020 Plan increased by 1,828,402. The number of shares of common stock reserved for issuance as of June 30, 2025 under the Amended 2020 Plan was 12,368,683, which includes the impact of exercises of stock options to purchase shares of common stock and releases of restricted stock awards into shares of common stock reducing this reserve to date.

Both the 2019 Plan and the 2020 Plan will terminate upon the consummation of the Merger.

Employee Stock Purchase Plan

The 2020 Employee Stock Purchase Plan (the "2020 ESPP") was approved by the Board of Directors on July 15, 2020, and the Company’s stockholders on July 20, 2020, and became effective on July 22, 2020. The number of shares of common stock reserved for issuance as of June 30, 2025 under the 2020 ESPP was 506,565. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1 thereafter by the lesser of 634,969 shares of common stock, 1% of the outstanding number of shares of common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee. There was no increase to the number of shares of common stock reserved and available for issuance under the 2020 ESPP on January 1, 2024. There were 40,378 issued under the 2020 ESPP during the three and six months ended June 30, 2025. The purchase price of the stock is equal to 85% of the lesser of the market value of such shares at either first date of the offering period or the last date of the offering period. The estimated fair value of the purchase options for the offering period that was open as of the end of the three and six months ended June 30, 2025 was $3.37 per share. The assumptions utilized to estimate the fair value are included in the assumption table included later in this footnote.

On July 18, 2025, in connection with the execution of the Merger Agreement (as defined below), the Company terminated the 2020 ESPP, and as a result, the Company will refund all amounts in the accounts of 2020 ESPP participants in accordance with the terms of the 2020 ESPP.

Stock-Based Compensation Expense

Of the $5.8 million and $12.5 million of stock-based compensation expense recognized during the three and six months ended June 30, 2025, respectively, $4.9 million and $10.5 million related to stock options, respectively, $0.9 million and $1.9 million related to restricted stock units, respectively, and $0.1 million related to ESPP awards in both periods. Of the $8.1 million and $15.3 million of stock-based compensation expense recognized during the three and six months ended June 30, 2024, respectively, $7.2 million and $13.6 million related to stock options, $0.8 million and $1.6 million related to restricted stock units, and $0.1 million related to ESPP awards in both periods.

Stock Options

The weighted-average grant-date fair value of options awarded during the six months ended June 30, 2025 and 2024 was $5.16 per share and $8.70 per share, respectively. As of June 30, 2025, there was a total of $34.7 million of unrecognized employee compensation costs related to non-vested stock option awards expected to be recognized over a weighted average period of 2.4 years. Refer to Footnote 14 - Subsequent events, for a detailed description of conditions which would change the expected vesting for certain stock options outstanding under the terms of the Merger Agreement. The vesting of options for a certain level of employees will accelerate immediately prior to the closing of the Merger Agreement.

The Company estimates the fair value of stock-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables, such as expected term, volatility, risk-free interest rate, and expected dividends. Each of these inputs is subjective and generally requires significant judgment to determine.

Restricted Stock Units

The Company issued restricted stock units during the six months ended June 30, 2025, which vest over a four-year period. The following table summarizes the Company’s restricted stock unit activity:

As of June 30, 2025, there was $7.1 million of unrecognized stock-based compensation expense related to restricted stock units that are expected to vest. These costs are expected to be recognized over a weighted-average period of 2.8 years. Refer to Footnote 14 - Subsequent events, for a detailed description of conditions which would change the expected vesting for certain restricted stock units outstanding under the terms of the Merger Agreement.The vesting of restricted stock units for a certain level of employees will accelerate immediately prior to the closing of the Merger Agreement.