STOCK-BASED COMPENSATION

Under our stock-based employee compensation plan, referred to as the Fuel Tech, Inc.

2014

Long-Term Incentive Plan (Incentive Plan), awards

may

be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units (“RSUs”), Performance Awards, Bonuses or other forms of share-based or non-share-based awards or combinations thereof. Participants in the Incentive Plan

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

5,600,676

shares that

may

be issued or reserved for awards to participants under the Incentive Plan which includes

1,200,000

additional shares as a result of an amendment to the Incentive Plan approved by our stockholders in

May 2018.

December 31, 2020

, we had

2,533,639

equity awards available for issuance under the Incentive Plan.

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, 2020

and

2019

were as follows:

	For the Year Ended December 31,
	2020		2019
Stock options	$	—	$	—
Restricted stock units		290		574
Total stock-based compensation expense		290		574
Tax benefit of stock-based compensation expense		—		—
After-tax effect of stock based compensation	$	290	$	574

As of

December 31, 2020

, there was

$100

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

1.2

years.

Stock Options

The stock options granted to employees under the Incentive Plan have a

-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. Forfeitures are recognized as they occur.

Fuel Tech uses the Black-Scholes option pricing model to estimate the grant date fair value of employee stock options. The principal variable assumptions utilized in valuing options and the methodology for estimating such model inputs include: (

) risk-free interest rate – an estimate based on the yield of zero–coupon treasury securities with a maturity equal to the expected life of the option; (

) expected volatility – an estimate based on the historical volatility of Fuel Tech's Common Stock for a period equal to the expected life of the option; and (

) expected life of the option – an estimate based on historical experience including the effect of employee terminations.

There were

stock options granted during the years ended

December 31, 2020

and

2019

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

December

31:

	2020					2019
	Number of Options			Weighted-Average Exercise Price		Number of Options			Weighted-Average Exercise Price
Outstanding at beginning of year		747,500		$	3.33		932,500		$	4.68
Exercised		(183,000	)		1.61		—			—
Expired or forfeited		(80,000	)		5.79		(185,000	)		10.14
Outstanding at end of year		484,500		$	3.57		747,500		$	3.33
Exercisable at end of year		484,500		$	3.57		747,500		$	3.33
Weighted-average fair value of options granted during the year				$	—				$	—
Weighted-Average Remaining Contractual Life (years)					3.70					4.73
Aggregate Intrinsic Value				$	—				$	—

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of

$3.88

as of

December 31, 2020

, 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, 2020

Options Outstanding and Exercisable
Range of Exercise Prices	Number of Options		Weighted-Average Remaining Contractual Life (years)		Weighted-Average Exercise Price
0.966 -1.2727		88,000		6.9	$	0.97
1.288 -3.0000		132,000		4.6		2.26
3.011 -4.5454		120,000		2.0		3.72
4.555 -8.1616		144,500		2.4		6.24
		484,500		3.7	$	3.57

As of and for the

12 months ended

December 31, 2020

, there was

non-vested stock option activity and

of total unrecognized compensation cost related to non-vested stock options granted under the Incentive Plan. Fuel Tech received proceeds of

$296

from the exercise of stock options in the years ended

December 31, 2020

, and

2019

, respectively. 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

and

four

years). Such time-vested RSUs are valued at the date of grant using the intrinsic value method 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.

During the years ended

December 31, 2020

and

2019

, there were

605,630

and

562,777

restricted stock units that vested with a grant date fair value of

$658

and

$554,

respectively.

A summary of restricted stock unit activity for the years ended

December 31, 2020

and

2019

is as follows:

	Shares			Weighted Average Grant Date Fair Value
Unvested restricted stock units at December 31, 2018		1,110,277			1.21
Granted		228,135			1.52
Vested		(562,777	)		0.98
Unvested restricted stock units at December 31, 2019		775,635			1.47
Forfeited		(70,000	)		1.03
Vested		(605,630	)		1.09
Unvested restricted stock units at December 31, 2020		100,005			4.08

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

2020

and

2019

, there was

stock-based compensation expense under the Deferred Plan.