(9) Stock-Based Compensation

Under our equity incentive plan, employees and directors may be granted stock options, restricted stock, restricted stock units and performance awards. Effective February 11, 2025, the shareholders of the Company approved the 2025 Equity Incentive Plan of Insteel Industries Inc. (the “2025 Plan”), which authorizes the issuance of up to 800,000 shares of our common stock, plus any shares remaining available for grant under the 2015 Equity Incentive Plan of Insteel Industries Inc. (as amended, the “2015 Plan”) as of the effective date of the 2025 Plan and any shares subject to an award granted under the 2015 Plan which are forfeited, cancelled, terminated, lapsed or expired without the issuance of shares. The 2025 Plan expires on February 10, 2035. As of October 3, 2026, there were 753,000 shares of our common stock available for future grants under the 2025 Plan, which is our only active equity incentive plan.

Stock option awards. Under our equity incentive plan, employees and directors may be granted options to purchase shares of common stock at the fair market value on the date of the grant. Options granted under the plan generally vest over three years and expire ten years from the date of the grant. Compensation expense associated with stock options was $1.4 million in each of the periods ended October, 3, 2026, September, 27, 2025, and September 28, 2024. As of October 3, 2026, there was $753,000 of unrecognized compensation cost related to unvested options which is expected to be recognized over a weighted average period of 2.20 years.

The fair value of each stock option award granted during 2026 was estimated on the date of grant using a binomial lattice model, while awards granted during 2025 and 2024 were valued using a Monte Carlo valuation model. Both valuation methodologies satisfy the fair value measurement objectives of ASC 718, utilize substantially similar assumptions and produce materially consistent fair value estimates. Accordingly, the change in valuation model did not have a material impact on the Company’s consolidated financial statements. The weighted-average estimated fair values of stock options granted during 2026, 2025 and 2024 were $14.54, $12.70 and $13.01 per share, respectively, based on the following weighted-average assumptions:

The assumptions utilized in the valuation model are evaluated and revised, as necessary, to reflect market conditions and actual historical experience. The expected term assumption was based on the term of the stock options, expected exercise behavior and post-vesting termination rates. The risk-free interest rate was derived from the U.S. Treasury yield curve in effect on the grant date for periods corresponding to the expected term of the award. Expected volatility was based on a combination of the historical volatility of the Company's common stock and the implied volatility of exchange-traded options on the Company's common stock. The dividend yield assumption was based on the annual dividend rate in effect on the grant date.

The following table summarizes stock option activity:

Stock option exercises include “net exercises” for which the optionee received shares of common stock equal to the intrinsic value of the options (fair market value of common stock on the date of exercise less exercise price) reduced by any applicable withholding taxes.                  

Restricted stock units. Restricted stock units (“RSUs”) granted under our equity incentive plan are valued based upon the fair market value on the date of the grant and provide for a dividend equivalent payment which is included in compensation expense. The vesting period for RSUs is generally one year from the date of the grant for RSUs granted to directors and three years from the date of the grant for RSUs granted to employees. RSUs do not have voting rights. RSU grants and compensation expense are as follows:

As of October 3, 2026, there was $1.2 million of unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average period of 1.71 years.

The following table summarizes RSU activity: