8.     STOCK-BASED COMPENSATION

Our stock-based employee compensation plan, referred to as the Fuel Tech, Inc. 2024 Long-Term Incentive Plan (2024 Plan), was adopted in June 2024 and replaced our prior incentive plan which was approved by our stockholders in 2014 (LTIP). No further grants will be made from the LTIP. The 2024 Plan and LTIP are referred to collectively as the Incentive Plans.

Under the Incentive Plans, awards may be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, RSUs, Performance Awards, Bonuses or other forms of share-based or non-share-based awards or combinations thereof. Participants in the Incentive Plans may be our directors, officers, employees, consultants or advisors (except consultants or advisors in capital-raising transactions) as the directors determine are key to the success of our business. There are a maximum of 2,883,057 shares that may be issued or reserved for awards to participants under the Incentive Plans. At December 31, 2025, we had 2,668,885 equity awards available for issuance under the Incentive Plans.

We did not record any excess tax benefits within income tax expense for the years ended December 31, 2025 and 2024. Given the Company has a full valuation allowance on its deferred tax assets, there were no excess tax benefits to record. In addition, we account for forfeitures of awards based on an estimate of the number of awards expected to be forfeited and we adjust the estimate when it is no longer probable that the employee will fulfill the service condition.

Stock-based compensation is included in selling, general and administrative costs in our consolidated statements of operations. The components of stock-based compensation from continuing operations for the years ended December 31, 2025 and 2024 were as follows:

Stock Options

The stock options granted to employees under the Incentive Plan have a 10-year life and they vest as follows: 50% after the second anniversary of the award date, 25% after the third anniversary, and the final 25% after the fourth anniversary of the award date. Fuel Tech calculates stock compensation expense for employee option awards based on the grant date fair value of the award, less expected annual forfeitures, and recognizes expense on a straight-line basis over the four-year service period of the award. Stock options granted to members of our Board of Directors vest immediately. Stock compensation for these awards is based on the grant date fair value of the award and is recognized in expense immediately. 

There were no stock options granted during the years ended December 31, 2025 and 2024.

The following table presents a summary of our stock option activity and related information for the years ended December 31:

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $1.56 as of December 31, 2025, which would have been received by the option holders had those options holders exercised their stock options as of that date. 

The following table summarizes information about stock options outstanding at December 31, 2025:

As of and for the 12 months ended December 31, 2025, there was no non-vested stock option activity and no total unrecognized compensation cost related to non-vested stock options granted under the Incentive Plan. There were no options exercised during the years ended December 31, 2025 and 2024. It is our policy to issue new shares upon option exercises, loan conversions, and vesting of restricted stock units. We have not used cash and do not anticipate any future use of cash to settle equity instruments granted under share-based payment arrangements. Shares received for exercise of stock options come from newly issued shares. 

Restricted Stock Units

Restricted Stock Units (RSUs) granted to employees vest over time based on continued service (typically vesting over a period between two to four years), and RSUs granted to directors vest after a one year vesting period based on continued service. Such time-vested RSUs are valued at the date of grant based on the closing price of the Common Shares on the grant date. Compensation cost, adjusted for estimated forfeitures, is amortized on a straight-line basis over the requisite service period. 

In addition to the time vested RSUs, in 2023 the Company entered into an Executive Performance RSU Award Agreement (the “Agreement”) with certain officers, including its President and Chief Executive Officer, Chief Financial Officer and Senior Vice President, Sales (each a “Participating Executive”) pursuant to which each Participating Executive had the opportunity to earn a specified amount of RSUs based on Fuel Tech’s performance in 2023 and 2024. There were 106,000 RSU awards granted to Participating Executives in 2024 based on the Company's performance during the year ended December 31, 2023 and 70,850 RSU awards granted to Participating Executives in 2025 based on the Company's performance during the year ended December 31, 2024.

The Company entered into a new Executive Performance RSU Award Agreement (the "Agreement") in 2025 pursuant to which the Participating Executives under the 2023 Agreement again have the opportunity to earn a specified amount of RSUs based on Fuel Tech's performance in 2025 and 2026.  The target amount of RSUs for each of four possible RSU award components is set for each Participating Executive for 2025 and 2026.

The Agreement provides for four possible RSU awards: “Look-Back RSUs,” “Total Revenue RSUs,” “New Business Growth RSUs,” and “Operating Income Growth” RSUs. If the Look-Back RSU’s are awarded, these RSUs will follow a vesting schedule that provides for vesting of one-third of the granted Look-Back RSUs after the first anniversary of the grant determination date, one-third after the second anniversary date and one-third after the third anniversary date. If the Total Revenue RSUs, New Business Growth RSUs, or Operating Income Growth RSUs targets are achieved, these RSU’s will follow a vesting schedule whereby 100% of the granted RSUs will vest one year following the grant determination date. All RSUs are valued at the date of grant based on the closing price of the Company’s common stock on the grant date.

The amount, if any, of actual RSU awards to be issued for the years ended December 31, 2025 and 2026 is contingent on performance by the Participating Executive and the Company in the performance areas and for the measurement periods set forth in the Agreement as determined by the Company.

During the years ended December 31, 2025 and 2024, there were 513,850 and 406,026 restricted stock units that vested with a grant date fair value of $654 and $536, respectively. As of December 31, 2025, there was $1,008 of total unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Incentive Plan. That cost is expected to be recognized over the remaining requisite service period of 1.7 years.

A summary of restricted stock unit activity for the years ended December 31, 2025 and 2024 is as follows:

Deferred Directors Fees

In addition to the Incentive Plan, Fuel Tech has a Deferred Compensation Plan for Directors (Deferred Plan). Under the terms of the Deferred Plan, Directors can elect to defer Directors’ fees for shares of Fuel Tech common stock that are issuable at a future date as defined in the agreement. In accordance with ASC 718, Fuel Tech accounts for these awards as equity awards as opposed to liability awards. In 2025 and 2024, there was no stock-based compensation expense under the Deferred Plan.