Terrestrial Energy Inc. /DE/ Stock Compensation Disclosure
15. Stock-Based Compensation
In 2014, the Company adopted the amended and restated Terrestrial Energy Inc. 2014 Stock Options Plan A (the “2014 Plan”). In connection with the Company’s redomestication to Delaware, outstanding awards under the 2014 Plan were assumed by the Terrestrial Energy Delaware Inc. 2024 Stock Option Plan, which was most recently amended and restated in October 2024, as the Terrestrial Energy Inc. Second Amended and Restated 2024 Stock Option Plan. In October 2025, the Company adopted the 2025 Equity Incentive Plan, effective immediately prior to the closing of the Business Combination (the “Current Plan”). As of December 31, 2025, the Current Plan authorizes the Company to award equity awards resulting in the issuance of up to 38,741,269 shares of common stock. The Current Plan provides for grants of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights and other awards to employees, non-employee directors, consultants and advisors of the Company. The Current Plan is designed to promote the interests of the Company using equity investment interests to attract, motivate, and retain individuals. The Current Plan is administered by the Board of Directors. The Board determines the type, number, vesting requirements and other features and conditions of such awards. Generally, stock options granted from the Current Plan have a contractual term of twenty years from the date of the grant and vest over to three years.
Stock option transactions and the number of stock options outstanding are summarized as follows:
December 31, 2025 | December 31, 2024 | |||||||||
Weighted | Weighted | |||||||||
Average | Average | |||||||||
| Number | | Exercise Price | | Number | | Exercise Price | |||
Outstanding, beginning of year |
| 19,018,593 | $ | 1.01 |
| 18,249,971 | $ | 1.00 | ||
Granted |
| 1,167,819 |
| 4.83 |
| 768,622 |
| 2.24 | ||
Exercised |
| (67,054) |
| 0.09 |
| — |
| — | ||
Forfeited |
| (2,428,174) |
| 1.47 |
| — |
| — | ||
Outstanding, end of year |
| 17,691,184 |
| 1.34 |
| 19,018,593 |
| 1.01 | ||
Less: Options not vested |
| (2,339,259) |
| 4.18 |
| (2,154,905) |
| 2.17 | ||
Exercisable at year end |
| 15,351,925 | $ | 0.89 |
| 16,863,688 | $ | 0.49 | ||
The Company recorded stock-based compensation expense for options of $1,323,108 and $670,243 for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, total compensation expense related to awards not yet recognized (except those with performance conditions that are not yet probable) was $2.0 million which is expected to be recognized over a weighted average period of 1.7 years.
The Company used the Black-Scholes option-pricing model to estimate the fair value of the options granted at the grant date using the following data and assumptions:
| 2025 | | 2024 |
| |||
Risk-free interest rate |
| 4.56 | % | 3.87 | % | ||
Exercise price | $ | 4.83 | $ | 2.24 | |||
Share price | $ | 3.99 | $ | 1.16 | |||
Expected life of options |
| 3 Years |
| 3 Years | |||
Annualized volatility |
| 86.0 | % |
| 63.0 | % | |
As there is insufficient historical share price data of the Company from which to estimate future share price volatility, the Company has estimated expected share price volatility based on the historical share price volatility of comparable entities. The expected life of the share options is based on the expectation that investors will exercise their rights as certain Company milestones are met as well as review of comparable companies. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying cash dividends on shares of common stock; therefore, the expected dividend yield is assumed to be zero.
Restricted stock unit transactions and the number of RSUs outstanding are summarized as follows:
December 31, 2025 | |||||
Weighted | |||||
Average | |||||
| Number | | Grant-Date Fair Value | ||
Outstanding, beginning of year |
| — | $ | — | |
Granted |
| 1,232,794 |
| 10.56 | |
Vested |
| — |
| — | |
Forfeited/Expired |
| — |
| — | |
Outstanding, end of year |
| 1,232,794 | $ | 10.56 | |
The Company recorded stock-based compensation expense for RSU awards of $1,780,594 and $0 for the years ended December 31, 2025 and 2024, respectively
The total unrecognized RSU expense as of December 31, 2025 was $11,258,886 with a weighted-average period over which it is to be recognized of 1.4 years.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.