NOTE 3 – STOCK-BASED COMPENSATION

The Transcat, Inc. 2003 Incentive Plan, as Amended and Restated (the “2003 Plan”), provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At December 26, 2015, 1.3 million shares were available for future grant under the 2003 Plan.

Restricted Stock: The Company grants performance-based restricted stock units as a primary component of executive compensation. The units generally vest following the third fiscal year from the date of grant subject to certain cumulative diluted earnings per share growth targets over the eligible period. Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions.

The Company achieved 75% of the target level for the performance-based restricted stock units granted in the fiscal year ended March 30, 2013 and as a result, issued eighteen thousand shares of common stock to executive officers and certain key employees during the first quarter of fiscal year 2016. The following table summarizes the non-vested performance-based restricted stock units outstanding as of December 26, 2015:

Total

Grant Date

Estimated

Number

Fair

Level of

Date

Measurement

of Units

Value

Achievement at

Granted

Period

Granted

Per Unit

December 26, 2015

April 2013

April 2013 - March 2016

6.17

50% of target level

April 2014

April 2014 - March 2017

9.28

50% of target level

April 2015

April 2015 – March 2018

9.59

100% of target level

Total expense relating to performance-based restricted stock units, based on grant date fair value and the achievement criteria, in the first nine months of fiscal years 2016 and 2015 was $0.2 million and $0.3 million, respectively. As of December 26, 2015, unearned compensation, to be recognized over the grants' respective service periods, totaled $0.7 million.

During the first quarter of fiscal year 2015, the Company's Board of Directors granted its Executive Chairman a stock award of ten thousand shares of common stock under the 2003 Plan. The award vested 50% on July 1, 2014, and the remaining 50% vested on July 1, 2015. During the second quarter of fiscal year 2016, the Company's Board of Directors granted a stock award of two thousand shares of common stock under the 2003 Plan to a retiring board member. The award vested in the second quarter of fiscal year 2016. Total expense relating to these stock awards, based on grant date fair value, was less than $0.1 million in the first nine months of fiscal year 2016.

Stock Options: Options generally vest over a period of up to four years, using either a graded schedule or on a straight-line basis, and expire ten years from the date of grant. The expense relating to options is recognized on a straight-line basis over the requisite service period for the entire award.

The following table summarizes the Company's options as of and for the nine months ended December 26, 2015:

				Weighted		Weighted
				Average		Average
	Number			Exercise		Remaining		Aggregate
	of			Price Per		Contractual		Intrinsic
	Shares			Share		Term (in years)		Value
Outstanding as of March 28, 2015		561		$	6.83
Exercised		(36	)		4.74
Forfeited		(1	)		4.26
Outstanding as of December 26, 2015		524			6.98		3	$	963
Exercisable as of December 26, 2015		444			6.87		2	$	865

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of the third quarter of fiscal year 2016 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on December 26, 2015. The amount of aggregate intrinsic value will change based on the fair market value of the Company's stock.

Total expense related to stock options was less than $0.1 million during the first nine months of fiscal years 2016 and 2015. Total unrecognized compensation cost related to non-vested stock options as of December 26, 2015 was $0.2 million, which is expected to be recognized over a weighted average period of two years. The aggregate intrinsic value of stock options exercised in the first nine months of fiscal year 2016 was $0.1 million. Cash received from the exercise of options in the first nine months of fiscal year 2016 was $0.2 million.