ELECTRO SENSORS INC Stock Compensation Disclosure

Note 8. Stock-Based Compensation

The 2013 Equity Incentive Plan (the “2013 Plan”) authorizes the issuance of nonqualified stock options and restricted stock units. Payment for the shares may be made in cash, shares of the Company’s common stock or a combination thereof. Under the terms of the 2013 Plan, incentive stock options and non-qualified stock options are granted at a minimum of 100% of fair market value on the date of grant and may be exercised after vesting at various times depending upon the terms of the option. All existing options expire 10 years from the date of grant or one year from the date of death. The terms of the grants require an acceleration of vesting upon a change in control of the Company.

Under the 2013 Plan, the Company is authorized to issue up to 600,000 shares through stock options and awards such as restricted stock or restricted stock units. As of December 31, 2025, under the 2013 Plan, 79,402 shares had been issued, options to purchase an aggregate of 160,000 shares were outstanding, of which options to purchase 109,000 shares were exercisable. As of December 31, 2025, the Company also had 52,500 restricted stock units outstanding. There are 308,098 additional shares available for issuance pursuant to awards that may be granted under the 2013 Plan in the future.

Stock Options

In 2024, the Company granted 25,000 non-qualified stock options to one of its non-employee board members and 10,000 non-qualified stock options to an employee. The options vest 20% on the grant date, with an additional 20% vesting annually thereafter.  There were no options granted in the year end December 31, 2025.

The weighted average assumptions made in estimating the fair value of the options on the grant date based upon the BSM option-pricing model for the year ended December 31, 2024 are as follows: 

The Company calculates expected volatility for stock options and other awards using the Company's historical volatility as the Company believes the expected volatility will approximate historical volatility.

In August 2025, Michael Zipoy, a non-employee director, retired from the Board.  In recognition of his valuable service to the Board, the vesting of his outstanding options was accelerated. Mr. Zipoy used a cashless exercise (or net share exercise) to exercise his non-qualified stock options.  The Company reduced the number of shares issued to the director by withholding shares with a fair market value equal to the aggregate exercise price.  The withheld shares were returned to the plan reserve.  For the year ended December 31, 2025, the director net-settled 25,000 shares, resulting in an issuance of 1,902 shares and the withholding of 23,098 shares to cover $106 in aggregate exercise price.

There were no options exercised during the year ended December 31, 2024.  The Company had 25,000 options expire during the year ended December 31, 2024. 

The following table summarizes the activity for outstanding incentive stock options under the 2013 Plan: 

As of December 31, 2025, the unrecognized compensation expense related to outstanding stock options was $62, which the Company expects to recognize through October 2028. To the extent the forfeiture rate is different than we have anticipated, stock-based compensation related to the awards will be different from expectations. The Company recognized compensation expense in connection with the vesting of options of $53 and $46 during the years ended December 31, 2025 and 2024, respectively. 

Restricted stock units

The 2013 Plan authorizes the issuance of restricted stock units. Stock-based compensation expense is determined on the grant date based on the closing market value of our common stock. The amount of expense is calculated based on an estimate of the number of awards expected to vest at the end of each vesting period and is expensed evenly over the vesting period. In connection with the time of vesting and issuance of shares, an eligible recipient of common stock may elect to have some shares withheld by the Company to satisfy any requirement for withholding taxes.

In August 2025, Michael Zipoy, a non-employee director, retired from the Board.  In recognition of his valuable service to the Board, the vesting of his unvested restricted stock units was accelerated.  In December 2025, the Company issued the shares associated with the restricted stock units.

There were no restricted stock units granted in the years ended December 31, 2025 and 2024.

The following table summarizes restricted stock unit activity for the year ended December 31, 2025:

As of December 31, 2025, the unrecognized compensation expense related to outstanding restricted stock units was $192, which the Company expects to recognize through August 2028. The Company recognized compensation expense in connection with the vesting of restricted stock units of $125 and $86 for years ended December 31, 2025 and 2024, respectively.