10. Stock-based Compensation and Other Employee Matters

2018 Equity Incentive Plan

Legacy Tvardi’s 2018 Stock Incentive Plan (the 2018 Plan) provided employees, consultants and advisors and non-employee members of the Board of Directors and its affiliates with the opportunity to receive grants of stock options, stock awards and equity awards. Since inception, Legacy Tvardi only issued stock options. The Company assumed, effective as of the closing of the Merger, the 2018 Plan, as well as the outstanding awards granted thereunder and the award agreements evidencing the grants of such awards, including any awards granted to Tvardi’s named executive officers, in each case subject to applicable adjustments in the manner set forth in the Merger Agreement to such awards. No additional awards can be granted under the 2018 Plan following the Merger.

2025 Equity Incentive Plan

The Company’s 2025 Plan became effective at the closing of the Merger. As of the effective time of the Merger, there were 935,554 shares of the Company’s common stock available for grant under the 2025 Plan. In addition, the number of shares initially reserved and available for issuance under the 2025 Plan may be increased at the discretion of the Company’s Board of Directors (and without any further action by the Company’s stockholders) on January 1 of each year for a period of five years, commencing on January 1, 2026 and ending on January 1, 2030, in an amount not to exceed 5% of the total number of shares of the Fully Diluted Common Stock (as defined in the 2025 Plan) determined on December 31 of the preceding year, if the Company’s Board of Directors acts prior to January 1 of a given year to provide that the increase for such year will occur and to determine the applicable number of additional shares of the Company’s common stock. In the absence of action by the Company’s Board of Directors, no such increase will automatically occur. On January 1, 2026, the aggregate number of shares of common stock that may be issued pursuant to the 2025 Plan increased from 935,554 to 1,465,233, as approved by the Board of Directors.

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Shares of unused common stock underlying any Awards that are forfeited, canceled or reacquired by the Company prior to vesting will again be available for the grant of Awards under the 2025 Plan. Shares underlying any Awards that are forfeited, canceled, or reacquired by the Company prior to vesting, satisfied without the issuance of stock or otherwise terminated and shares that are withheld upon exercise of an option of settlement of an award to cover the exercise price or tax withholding shall be added back to the shares available for issuance under the 2025 Plan. As of December 31, 2025, the Company had 445,721 shares remaining available for grant under the 2025 Plan.

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2025 Employee Stock Purchase Plan

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The Company’s 2025 ESPP became effective at the closing of the Merger. As of the effective time of the Merger, there were 93,555 shares of the Company’s common stock reserved for issuance under the 2025 ESPP (the Initial Share Reserve). Additionally, the number of shares of common stock reserved for issuance under the 2025 ESPP will automatically increase on January 1 of each year for a period of up to ten years, beginning on January 1, 2026 and continuing through and including January 1, 2035, by an amount equal to the lesser of (i) 1% of the total number of shares of the Fully Diluted Common Stock (as defined in the 2025 ESPP) determined on December 31 of the preceding year, and (ii) a number of shares equal to three times the Initial Share Reserve. Notwithstanding the foregoing, the Company’s Board of Directors may act prior to January 1st of a given year to provide that the increase for such year will be a lesser number of shares. No offering periods under the 2025 ESPP had been initiated as of December 31, 2025.

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2025 Severance and Change in Control Plan

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On December 16, 2025, the Company’s Board of Directors approved the Company’s Severance and Change in Control Plan (the Severance Plan), which provides severance benefits and equity vesting acceleration to certain eligible employees, including the Company’s named executive officers, upon a qualifying termination of employment (Covered Termination) occurring either in connection with, or outside of, a Change in Control (as defined in the Severance Plan) of the Company. Participation is conditioned on execution of a participation agreement and a general waiver and release of claims.

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If a Covered Termination occurs during a Change in Control protection period (beginning three months prior to and ending 12 months following the closing of a Change in Control), the Severance Plan provides for full acceleration of any then-outstanding, unvested time-vesting equity awards held by the applicable participant, subject to the terms and conditions of the Severance Plan.

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If a Covered Termination occurs outside the Change in Control protection period, the Severance Plan provides for partial acceleration of outstanding, unvested time-vesting equity awards for certain executive officers to the extent such awards were scheduled to vest during a specified period following termination.

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In addition, in connection with a Change in Control, if the acquiror does not assume, continue, or substitute an eligible employee’s outstanding unvested equity awards, and the eligible employee remains employed immediately prior to the Change in Control, the Severance Plan provides for full acceleration of such awards effective immediately prior to, and subject to the consummation of, the Change in Control (with performance-vesting awards generally accelerating at 100% of target, unless otherwise specified in the applicable award documentation). Equity awards remain subject to the terms of the applicable equity plans and award agreements.

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Fair Value Inputs

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The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company historically has been a private company prior to the Merger and lacked company-specific historical and implied volatility information. Therefore, it estimated its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so after the Merger until such time as it has adequate historical data regarding the volatility of its own publicly traded stock price. The expected option term is calculated based on the simplified method for awards with service-based conditions, which uses the midpoint between the vesting date and the contractual term, as the Company does not have sufficient historical data to develop an estimate based on participant behavior. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

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The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted. For options granted after the Merger in April 2025, the Company’s closing stock price on the grant date was used.

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Stock Options

The Company granted 505,440 stock options during the year ended December 31, 2025. The Company granted 3,352 stock options during the year ended December 31, 2024.

The weighted-average grant date fair value per share of options granted to employees, non-employee members of the Company’s Board of Directors and consultants during the year ended December 31, 2025 was $9.45. The weighted-average grant date fair value

per share of options granted to one employee during the year ended December 31, 2024 was $4.62. Forfeitures of stock options are recorded as incurred.

Both the stock option grant detail above and the option activity below reflect the retroactive application of the Exchange Ratio as discussed in Note 3, Merger Agreement.

The following table summarizes option activity during the year ended December 31, 2025:

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The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2025 was $0.2 million. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2024 was less than $0.1 million.

The following table illustrates the classification of stock-based compensation in the consolidated statements of operations and comprehensive loss (in thousands):

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As of December 31, 2025, there was $3.8 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.91 years.