Note 2. Stock Based Compensation

Stock-Based Compensation: The Company’s stock-based compensation plans are administered by the Compensation Committee of the board of directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award.

On February 23, 2023, the Company’s shareholders approved the Clearfield, Inc. 2022 Stock Compensation Plan (the “2022 Plan”). The 2022 Plan became effective on the date of shareholder approval, and no further awards may be made under the Clearfield, Inc. Amended and Restated 2007 Stock Compensation Plan (the “Prior Plan”) following the effective date of the 2022 Plan. The total number of shares of stock reserved and available for distribution under the 2022 Plan upon approval was 1,461,461 shares, which includes the number of shares remaining for grant and delivery under the Prior Plan, plus any shares subject to outstanding awards under the Prior Plan as of the effective date of the 2022 Plan that were forfeited, cancelled, or settled for cash.

The Company recorded related compensation expense for the years ended September 30, 2025, 2024, and 2023 of $4,597,000, $4,375,000, and $3,578,000, respectively. For the year ended September 30, 2025, $4,434,000 of this expense was included in selling, general and administrative expense and $163,000 was included in cost of sales. For the year ended September 30, 2024, $4,191,000 of this expense was included in selling, general and administrative expense and $184,000 was included in cost of sales. For the year ended September 30, 2023, $3,412,000 of this expense was included in selling, general and administrative expense and $166,000 was included in cost of sales. As of September 30, 2025, $5,707,000 of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a period of approximately 2.1 years.

Stock Options: The Company uses the Black-Scholes option pricing model to determine the fair value of options granted. During the fiscal year ended September 30, 2025, the Company granted employees non-qualified stock options to purchase an aggregate of 38,198 shares of common stock with a weighted average contractual term of five years, a weighted average three-year vesting term, and a weighted average exercise price of $30.90. During the fiscal year ended September 30, 2024, the Company granted employees non-qualified stock options to purchase an aggregate of 118,706 shares of common stock with a weighted average contractual term of five years, a weighted average three-year vesting term, and a weighted average exercise price of $26.84. During the fiscal year ended September 30, 2023, the Company granted employees non-qualified stock options to purchase an aggregate of 40,266 shares of common stock with a weighted average contractual term of five years, a weighted average three-year vesting term, and a weighted average exercise price of $64.38.

The fair value of stock option awards during the year ended September 30, 2025, 2024, and 2023 was estimated as of the respective grant dates using the assumptions listed below:

The expected stock price volatility is based on the historical volatility of the Company’s stock for a period approximating the expected life. The expected life represents the period of time that options are expected to be outstanding after their grant date. The risk-free interest rate reflects the interest rate at grant date on zero-coupon U.S. governmental bonds having a remaining life similar to the expected option term.

Options are generally granted at fair market values determined on the date of grant and vesting normally occurs over a three to five-year period. The maximum contractual term is normally six years. Shares issued upon exercise of a stock option are issued from the Company’s authorized but unissued shares. There were 94,426 options vested during the year ended September 30, 2025, 90,245 options vested during the year ended September 30, 2024, and 79,911 options vested during the year ended September 30, 2023. For the year ended September 30, 2025, there were 138,562 stock options that were exercised using a cashless method of exercise. For the year ended September 30, 2024, there were 1,501 stock options that were exercised using a cashless method of exercise. For the year ended September 30, 2023, there were 21,630 stock options that were exercised using a cashless method of exercise. The intrinsic value of options exercised during the years ended September 30, 2025, 2024, and 2023 was $2,220,000, $25,000, and $1,603,000, respectively.

Option transactions under the 2022 Plan during the years ended September 30, 2025, and 2024 and under the Prior Plan for the year ended September 30, 2023, are summarized as follows:

The following table summarizes information concerning options exercisable under the 2022 Plan and the Prior Plan as of the year ended September 30, 2025:

The following table summarizes information concerning options currently outstanding at:

Restricted Stock: The 2022 Plan permits, and the Prior Plan permitted, the Compensation Committee of the board of directors to grant stock-based awards, including stock options and restricted stock, to key employees and non-employee directors. The Company has made restricted stock grants that vest over one to ten years.

Restricted stock transactions during the years ended September 30, 2025, 2024, and 2023 are summarized as follows:

The fair value of restricted shares vested during the year end September 30, 2025, 2024, and 2023 was $2,089,000, $1,796,000, and $3,141,000 respectively. The Company repurchased a total of 17,497 shares of our common stock at an average price of $28.27 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees for the year ended September 30, 2025. The Company repurchased a total of 15,879 shares of our common stock at an average price of $31.05 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees for the year ended September 30, 2024. The Company repurchased a total of 12,862 shares of our common stock at an average price of $62.20 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees for the year ended September 30, 2023.

Performance Stock Units: During the fiscal year ended September 30, 2025, the Company granted 50,747 performance stock units which entitle the participant to receive one share of the Company’s common stock for each performance stock unit awarded, subject to the achievement of fiscal year 2025 performance goals. Achievement of the goals can result in 50%, 100%, or 150% of the shares being awarded, with two-thirds of the shares earned being issued as stock subject to restrictions on transfer that will lapse on the first two anniversaries of the settlement date. The Company has determined the fair value per underlying share of the performance stock unit awards to be $30.90, which is the closing market price of our common stock on the grant date.

Compensation expense for the performance stock units is measured using the fair value of our common stock at the grant date. As of September 30, 2025, the Company has achieved performance goals which result in 100% of these performance stock unit awards vesting and has recognized compensation cost accordingly.

During the fiscal year ended September 30, 2024, the Company granted 47,745 performance stock units which entitled the participant to receive one share of the Company’s common stock for each performance stock unit awarded, subject to achievement of a fiscal year 2024 performance goal. The Company determined the fair value per underlying share of the performance stock unit awards was $26.18 as of the grant date. The fiscal year 2024 performance goal was not achieved, and the performance share units were not earned. Accordingly, no stock-based compensation expense was recognized related to these awards for the year ended September 30, 2024.

Bonus Stock: During the fiscal year ended September 30, 2023, the Company granted employees an aggregate of 9,144 shares of common stock as a discretionary bonus for fiscal 2022 performance. The bonus stock consisted of common stock with no vesting period or restrictions. The fair value on the date of issuance was $104.36 per share. No bonus stock was granted in the fiscal years ended September 30, 2025, and 2024.

Employee Stock Purchase Plan: The Clearfield, Inc. 2010 Employee Stock Purchase Plan (“ESPP”) allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees subject to certain eligibility requirements. Terms of the ESPP provide that participating employees may purchase the Company’s common stock on a voluntary after-tax basis. Employees may purchase the Company’s common stock at a price that is no less than the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period or phase. The ESPP is carried out in six-month phases, with phases beginning on January 1 and July 1 of each calendar year. For the phase that ended on December 31, 2024, employees purchased 11,415 shares at a price of $26.35 per share.

For the phase that ended on June 30, 2025, employees purchased 11,180shares at a price of $26.35 per share. After the employee purchase on June 30, 2025, 121,953 shares of common stock were available for future purchase under the ESPP.