Stock incentive plans

12 Months Ended

Dec. 31, 2021

10. Stock incentive plans

Stock incentive plans. We currently have two stock incentive plans: the 2005 Equity Incentive Plan and the 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-year to five-year period, unless automatically accelerated for certain defined events. As of May 2014, no new awards may be made under the 2005 Equity Incentive Plan. Under our 2014 Equity Incentive Plan, as amended in May 2020, we are authorized to grant awards of up to 2,200,000 shares of TransAct common stock. At December 31, 2021, 611,652 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 2021 and 2020 was $5.41 and $3.19, respectively. We also issued restricted stock 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 stock units was $10.27 and $9.77 in 2021 and 2020, respectively.

The table below indicates the key assumptions used in the option valuation calculations for options granted in 2021 and 2020 and a discussion of our methodology for developing each of the assumptions used in the valuation model:

	December 31,
	2021			2020
Expected option term (in years)		6.9			7.0
Expected volatility		50.5	%		41.7	%
Risk-free interest rate		1.2	%		0.9	%
Dividend yield		0.0	%		0.0	%

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 2021 and 2020, we recorded $1.2 million and $0.9 million of share-based compensation expense, respectively, included primarily in general and administrative expense in our Consolidated Statements of Operations. We also recorded income tax benefits of $265 thousand and $193 thousand in 2021 and 2020, respectively, related to such share-based compensation. At December 31, 2021, these benefits are recorded as a deferred tax asset in the Consolidated Balance Sheets.

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

	Stock Options					Restricted Stock Units
	Number of Shares			Average Price*		Number of Units			Average Price**
Outstanding at December 31, 2020		1,287,605		$	8.98		110,550		$	10.30
Granted		153,000			10.55		95,200			10.27
Exercised		(97,000	)		8.47		(50,525	)		10.29
Forfeited		(45,750	)		8.87		–			–
Expired		(28,500	)		10.22		–			–
Outstanding at December 31, 2021		1,269,355		$	9.18		155,225		$	10.28

*	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, 2021:

	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		1,269,355	$	9.18	$	2,662		5.6		856,723	$	9.00	$	1,982		4.1
Restricted stock units		132,518		–		1,444		2.2		–		–		–		–

*	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, 2021, unrecognized compensation cost related to non-vested equity awards granted under our stock incentive plans is approximately $2.1 million, which is expected to be recognized over a weighted average period of 2.4 years.

The total fair value of awards vested was $1.7 million during both the years ended December 31, 2021 and 2020. 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, 2021 and 2020 was $268 thousand and $174 thousand, respectively, and cash received from option exercises was $436 thousand and $375 thousand in 2021 and 2020, respectively. 97,000 and 62,500 stock options were exercised during the year ended December 31, 2021 and 2020, respectively. We recorded a realized tax provision in 2021 and 2020 from equity-based awards of $35 thousand and $14 thousand, respectively, related to options exercised.