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 29, 2018, 1.1 million shares were available for future grant under the 2003 Plan.

Restricted Stock Units: The Company generally grants performance-based restricted stock units as a primary component of executive compensation. In previous years, the units generally vested following the third fiscal year from the date of grant subject to certain cumulative diluted earnings per share growth targets over the eligible period. Beginning with the restricted stock units granted in May 2018, 50% of the units will vest subject to certain cumulative diluted earnings per share growth targets over the eligible period and 50% of the restricted units will be time vested over a three-year period. The restricted stock units granted in June 2017, April 2018 and October 2018 were time vested. 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 expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

The Company achieved 50% of the target level for the performance-based restricted stock units granted in the fiscal year ended March 26, 2016 and as a result, issued 32 shares of common stock to executive officers and certain key employees during the first quarter of fiscal year 2019. The following table summarizes the non-vested restricted stock units outstanding as of December 29, 2018:

		Total	Grant Date		Estimated
		Number	Fair		Level of
Date	Measurement	of Units	Value		Achievement at
Granted	Period	Outstanding	Per Unit		December 29, 2018
April 2016	April 2016 - March 2019	82	$	10.13	130% of target level
April 2017	April 2017 – March 2020	75	$	12.90	100% of target level
June 2017	July 2017 – June 2020	3	$	12.00	Time Vested
April 2018	April 2018 – March 2020	2	$	15.65	Time Vested
May 2018	April 2018 – March 2020	30	$	15.30	100% of target level
May 2018	April 2018 – March 2020	30	$	15.30	Time Vested
October 2018	October 2018 – September 2027	10	$	20.81	Time Vested

Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $0.8 million and $0.6 million, respectively in the first nine months of fiscal years 2019 and 2018. As of December 29, 2018, unearned compensation to be recognized over the grants’ respective service periods totaled $1.4 million.

Stock Options: Options vest either immediately or over a period of up to five years using a straight-line basis and expire either five years or 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 first nine months of fiscal year 2019:

			Weighted		Weighted
			Average		Average
	Number		Exercise		Remaining	Aggregate
	of		Price Per		Contractual	Intrinsic
	Shares		Share		Term (in years)	Value
Outstanding as of March 31, 2018	272		$	10.27
Granted	20			20.81
Exercised	-			-
Forfeited	(4	)		6.75
Redeemed	-			-
Outstanding as of December 29, 2018	288		$	11.06	5	$	2,093
Exercisable as of December 29, 2018	268		$	11.88	4	$	2,093

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 2019 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 29, 2018. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

Total expense related to stock options during the first nine months of fiscal year 2019 was less than $0.1 million. Total expense related to stock options for the first nine months of fiscal year 2018 was $0.4 million. Total unrecognized compensation cost related to non-vested stock options as of December 29, 2018 was $0.1 million, which is expected to be recognized over a weighted average period of nine years. There were no stock options exercised during the first nine months of fiscal year 2019. The aggregate intrinsic value of stock options exercised in the first nine months of fiscal year 2018 was $0.6 million. Cash received from the exercise of options in the first nine months of fiscal year 2018 was $0.6 million.