10. Stock incentive plans

Stock incentive plans. We currently have two primary stock incentive plans: the 2005 Equity Incentive Plan and 2014 Equity Incentive Plan, which provide for awards to executives, key employees, directors and consultants. The plans generally provide for awards in the form of: (i) incentive stock options, (ii) non-qualified stock options, (iii) restricted stock, (iv) restricted stock units (which may include performance-based vesting), (v) stock appreciation rights or (vi) limited stock appreciation rights. Awards granted under these plans have exercise prices equal to 100% of the fair market value of the common stock at the date of grant. Awards granted have a ten-year term and generally vest over a two- to five-year period, unless automatically accelerated for certain defined events. As of May 2014, no new awards were made under the 2005 Equity Incentive Plan. Under our 2014 Equity Incentive Plan, we may authorize awards for up to 1,400,000 shares of TransAct common stock. At December 31, 2018, 495,291 shares of common stock remained available for issuance under the 2014 Equity Incentive Plan.

Under the assumptions indicated below, the weighted-average per share fair value of stock option grants for 2018, 2017, and 2016 was $4.38, $1.95 and $1.70, respectively. In 2018 and 2017, we also issued restricted share units for certain executives and directors that vest over a specified period of time, and in some instances require achieving certain performance metrics. The weighted-average per share fair value of these restricted share units was $12.91, $7.53 and $7.31 in 2018, 2017 and 2016 respectively. No restricted share units were issued in 2016.

The table below indicates the key assumptions used in the option valuation calculations for options granted in 2018, 2017, and 2016 and a discussion of our methodology for developing each of the assumptions used in the valuation model:

	Year Ended December 31,
	2018		2017		2016
Expected option term (in years)	6.8		6.8		6.9
Expected volatility		38.0%		36.2%	38.8%
Risk-free interest rate		2.7%		2.1%	1.2%
Dividend yield		2.6%		4.3%	4.5%

Expected Option Term - This is the weighted average period of time over which the options granted are expected to remain outstanding giving consideration to our historical exercise patterns. Options granted have a maximum term of ten years and an increase in the expected term will increase compensation expense.

Expected Volatility – The stock volatility for each grant is measured using the weighted average of historical daily price changes of our common stock over the most recent period approximately equal to the expected option term of the grant. An increase in the expected volatility factor will increase compensation expense.

Risk-Free Interest Rate - This is the U.S. Treasury rate in effect at the time of grant having a term approximately equal to the expected term of the option. An increase in the risk-free interest rate will increase compensation expense.

Dividend Yield –The dividend yield is calculated by dividing the annual dividend declared per common share by the weighted average market value of our common stock on the date of grant. An increase in the dividend yield will decrease compensation expense.

For 2018, 2017, and 2016, we recorded $629 thousand, $609 thousand, and $611 thousand of share-based compensation expense, respectively, included primarily in general and administrative expense in our Consolidated Statements of Income. We also recorded income tax benefits of $138 thousand, $134 thousand, and $184 thousand in 2018, 2017, and 2016 respectively, related to such share-based compensation. At December 31, 2018, these benefits are recorded as a deferred tax asset in the Consolidated Balance Sheets.

Equity award activity in the 2005 Equity Incentive Plan and 2014 Equity Incentive Plan is summarized below:

	Stock Options						Restricted Share Units
	Number of Shares				Average Price*		Number of Units			Average Price**
Outstanding at December 31, 2017		919,639		$	$	8.13		101,275		$	8.21
Granted		147,300				13.65		37,400			13.69
Exercised		(58,146	)			7.16		(33,935	)		8.31
Forfeited		(2,000	)			7.63		(6,140	)		8.64
Expired		(2,500	)			5.24		–			–
Outstanding at December 31, 2018		1,004,293		$	$	9.00		98,600		$	9.82

*	weighted average exercise price per share

**	weighted-average grant stock price per share

The following summarizes information about equity awards outstanding that are vested and expect to vest and equity awards that are exercisable at December 31, 2018:

	Equity Awards Vested and Expected to Vest								Equity Awards That Are Exercisable
	Awards		Average Price*		Aggregate Intrinsic Value		Remaining Term**		Awards		Average Price*		Aggregate Intrinsic Value		Remaining Term**
Stock Options		1,004,293	$	9.00	$	1,051		6.1		562,252	$	8.38	$	656		4.7
Restricted stock units		82,692		–		743		1.9		–		–		–		–

*	weighted average exercise price per share

**	weighted-average contractual remaining term in years

Shares that are issued upon exercise of employee stock awards are newly issued shares and not issued from treasury stock. As of December 31, 2018, unrecognized compensation cost related to non-vested equity awards granted under our stock incentive plans is approximately $1.2 million, which is expected to be recognized over a weighted average period of 2.2 years.

The total fair value of awards vested during the years ended December 31, 2018, 2017, and 2016 was $1.1 million, $1.1 million, and $1.0 million, respectively. The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options exercised during the years ended December 31, 2018, 2017, and 2016 was $280 thousand, $958 thousand and $6 thousand, respectively. Cash received from option exercises was $416 thousand, $1.0 million and $23 thousand for 2018, 2017, and 2016, respectively. We recorded a realized tax benefit in 2018, 2017, and 2016 from equity-based awards of $17 thousand, $150 thousand and $1 thousand, respectively, related to options exercised. Upon adoption of ASU 2016-09 in 2017 tax benefits realized on stock options exercises are included in income tax expense and are no longer included as a component of cash flows.

Restricted stock:

We paid a portion of the 2015 incentive bonus for the chief executive officer and chief financial officer in the form of 28,231 deferred stock units, respectively, with a corresponding credit recorded to Additional Paid in Capital (net of share relinquishments) in the amount of $151 thousand in 2016. Such deferred stock units were granted in February 2016 and were fully vested at the time of grant. These units will be converted three years from the grant date to shares of the Company’s common stock on a one-for-one basis. The weighted average exercise price of the deferred stock units was $7.17. Starting with the 2016 incentive bonus program, all incentive bonus payments are made in cash with no portion of the award paid in deferred stock units.