PROPOSAL 4:

TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE COMPANY’S 2014 EQUITY INCENTIVE PLAN

The Board of Directors has unanimously adopted and recommends that the stockholders consider and approve an amendment and restatement of the Company’s 2014 Equity Incentive Plan (the “Plan”) to increase the number of shares of common stock which may be subject to awards granted under the Plan by 800,000 shares from its current level of 1,400,000 to 2,200,000.  The amended and restated Plan also reflects other amendments summarized below.

The purpose of the Plan is to provide a way for the Company to attract and retain the best available talent and encourage the highest level of performance by employees and other persons who perform services for the Company.  By affording eligible persons the opportunity to acquire proprietary interests in the Company and by providing them incentives to put forth maximum efforts for the success of the Company, the Plan is expected to serve the best interests of the Company and its stockholders.

The Plan currently authorizes the issuance of up to 1,400,000 shares of common stock pursuant to awards granted under the Plan.  As of March 30, 2020, 897,418 stock options to purchase common stock have been granted and were outstanding, 119,350 restricted stock units have been issued and were outstanding, and 221,443 shares of common stock have been issued pursuant to the exercise of stock options or the vesting of other stock awards granted under the Plan (21,498 performance-based awards were also granted but were cancelled as the performance target was not attained).  Therefore, only 140,291 shares were available for future grant under the Plan as of March 30, 2020.

To assure that sufficient shares are available to provide incentives to those employees, directors, officers and consultants of the Company and any subsidiaries who will be responsible for the Company’s future growth and continued success, and to attract new employees, the Board of Directors has voted to adopt this amendment to the Plan, and is now presenting it for stockholder approval.  The amendment increases by 800,000 shares, to 2,200,000 shares, the number of shares of common stock which may be issued pursuant to awards granted under the Plan.  The maximum number of future shares that may be issued under the Plan, as amended, represents approximately 12.5% of the total number of shares of the Company’s common stock outstanding on March 30, 2020, excluding treasury shares.  The closing price of the Company’s common stock on March 30, 2020 was $3.35 per share.

OTHER AMENDMENTS TO THE PLAN

In addition to the increase in the share reserve, the Plan, as amended and restated, also reflects the following amendments:

•	Eliminates liberal share recycling – the Plan provides that (i) shares withheld in satisfaction of tax withholding obligations and the exercise price of an award will no longer be available for awards under the Plan and (ii) gross shares subject to an SAR will be counted against the share reserve

•	Implements a one-year minimum vesting requirement for all awards granted under the Plan subject to a carve-out equal to 5% of the total share reserve

•	Provides that dividends and dividend equivalents will not be paid with respect to unvested awards

•	Permits withholding of shares at a rate in excess of the statutory minimum if permitted by the Administrator

•

Reflects certain changes in light of the Tax Cuts and Jobs Act to eliminate language in the Plan that was included to allow us to qualify certain compensation as “performance-based compensation” under Section 162(m) of the Internal Revenue Code; however, performance measures and individual annual award limits have been maintained, with an increase in the limit on cash awards to $1,500,000 to account for the Company’s grant under the Plan of both annual cash incentive awards and, effective for 2019, long-term cash incentive awards

A discussion of the material features of the Plan follows, which discussion is subject to and qualified by the complete text of the Plan, as amended and restated, a copy of which is attached to this Proxy Statement as Exhibit I.

DESCRIPTION OF THE PLAN

The purpose of the Plan is to advance the interests of the Company by providing for the grant to participants of stock-based and other incentive awards, all as more fully described below.  If the amendment is approved, the Plan will increase by 800,000 shares to a maximum of 2,200,000 shares of common stock that may be delivered in satisfaction of awards made under the Plan.  In 2018 and 2019, the Company made equity awards under the Plan totaling 184,700 shares and 231,300 shares, respectively.  The Company estimates that the additional 800,000 shares under the Plan amendment will provide a sufficient number of shares to enable the Company to continue to make awards at historical average annual rates for approximately three years, which the Board determined to be sufficient to provide flexibility to attract and retain directors, executives and other employees with equity incentives.

The maximum number of shares of common stock for which stock options may be granted to any person in any calendar year and the maximum number of shares of common stock subject to stock appreciation rights, or “SARs”, granted to any person in any calendar year will each be 500,000.  The maximum number of shares subject to other awards granted to any person in any calendar year will be 500,000 shares.  The maximum amount payable to any person in any year in the case of an award denominated in cash will be $750,000.  In the event of a stock dividend, stock split or other change in our Company’s capital structure that constitutes an equity restructuring within the meaning of FASB ASC Topic 718, the Administrator (as defined below) will make appropriate adjustments to the limits described above and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to awards, any exercise prices relating to awards and any other provisions of awards affected by the change.  The Administrator may also make similar adjustments to take into account other distributions to stockholders or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of awards.

Administration.  The Compensation and Corporate Governance Committee will administer the Plan.  The term “Administrator” is used in this Proxy Statement to refer to the person (the Committee and its delegates) charged with administering the Plan.  The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan, determine eligibility for awards; grant awards, determine, modify or waive the terms and conditions of any award; prescribe forms, rules and procedures, and otherwise do all things necessary to carry out the purposes of the Plan.  Determinations of the Administrator made under the Plan are conclusive and bind all parties.  Awards may be in the form of options, SARs, restricted or unrestricted stock, stock units (including restricted stock units), performance awards and cash awards.

Eligibility.  Participation is limited to those key employees and directors, as well as consultants and advisors, who are selected by the Administrator to receive an award.  As of March 30, 2020, there were five directors, six executive officers and 120 employees eligible to participate in the Plan.

Stock Options.  The Administrator may from time to time award options to any participant subject to the limitations described above.  Stock options give the holder the right to purchase shares of common stock of the Company within a specified period of time at a specified price.  Two types of stock options may be granted under the Plan: incentive stock options, or “ISOs”, which are subject to special tax treatment as described below, and nonstatutory options, or “NSOs”.  Eligibility for ISOs is limited to employees of the Company and its subsidiaries.  The exercise price of a stock option cannot be less than the fair market value of the common stock subject to the stock option at the time of grant.  The Administrator determines all other terms and conditions related to the exercise of an option, including the consideration to be paid, if any, for the grant of the option, the time at which options may be exercised and conditions related to the exercise of options.  The maximum term of stock options and SARs granted under the Plan cannot exceed ten years.

Stock Appreciation Rights.  The Administrator may grant SARs under the Plan.  An SAR entitles the holder upon exercise to receive an amount, payable in shares of common stock, equal to the excess of the fair market value of the shares of common stock subject to the SAR over the fair market value of such shares at the date of grant.

Stock Awards; Stock Units.  The Plan provides for awards of nontransferable shares of restricted common stock, as well as unrestricted shares of common stock.  Generally, awards of restricted stock are subject to the requirement that the shares be forfeited or resold to the Company unless specified conditions are met.  Subject to these restrictions, conditions and forfeiture provisions, any recipient of an award of restricted stock will have the right to vote the shares and, if provided for by the Administrator, to receive dividends to the extent the restricted stock vests.  Other awards under the Plan may also be settled with restricted stock.  The Plan also provides for awards of stock units, which are unfunded and unsecured promises to deliver common stock or cash (measured by the value of common stock) in the future.  Stock units may be restricted, meaning that the delivery of common stock or cash with respect to the stock unit is subject to the satisfaction of specified performance or other vesting conditions.

Performance Awards.  The Administrator may also make awards subject to the satisfaction of specified performance criteria.  The performance criteria used in connection with a particular performance award will be determined by the Administrator.  Unless otherwise determined by the Administrator, the Administrator will use objectively determinable measures of performance that are based on any or any combination of the following (measured either absolutely or by reference to an index or indices and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings; or any financial, strategic or other criteria as may be determined by the Administrator.  The Administrator will determine whether the performance targets or goals that have been chosen for a particular Performance Award have been met.

General Provisions Applicable to All Awards.  Neither ISOs nor, except as the Administrator otherwise expressly provides, other awards may be transferred other than by will or by the laws of descent and distribution.  During a recipient’s lifetime an ISO and, except as the Administrator may provide, other non-transferable awards requiring exercise may be exercised only by the recipient.  Shares delivered under the Plan may consist of either authorized but unissued shares or treasury shares.  The number of shares delivered upon exercise of a stock option is determined net of any shares transferred by the optionee to the Company (including through the holding back of shares that would otherwise have been deliverable upon exercise) in payment of the exercise price or tax withholding.

Change in Control. In the event of a change in control of the Company, each award requiring exercise will become fully exercisable, the restrictions (including service-based and performance-based restrictions) on each outstanding share of stock and each outstanding stock unit will lapse, and the delivery of shares of stock deliverable under each outstanding award of stock units will, to the extent consistent with the deferred compensation rules under Section 409A of the Internal Revenue Code, be accelerated and such shares will be delivered, prior to the transaction, in each case on a basis that gives the holder of the award a reasonable opportunity, as determined by the Administrator, following exercise of the award or the delivery of the shares, as the case may be, to participate as a stockholder in the transaction.

For purposes of the foregoing, a “change in control” of the Company will be deemed to occur upon  any of (i) a reorganization, merger, consolidation or similar transaction in which the surviving corporation is not, and is not a subsidiary of, a publicly owned corporation in which the stockholders of the Company immediately prior to the transaction continue to own beneficially securities representing more than 50% of the voting power of all outstanding voting securities of the Company, (ii) a sale, exchange or other disposition of all or substantially all the Company’s assets, or (iii) any acquisition of voting securities of the Company by any person or group (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), but excluding (a) the Company or any of its subsidiaries, (b) any person who was an officer or director of the Company on the day prior to the Effective Date, or (c) any savings, pension or other benefits plan for the benefit of employees of the Company or any of its subsidiaries, which theretofore did not beneficially own voting securities representing more than 50% of the voting power of all outstanding voting securities of the Company, if such acquisition results in such entity, person or group owning beneficially securities representing more than 50% of the voting power of all outstanding voting securities of the Company. As used herein, "voting power” means ordinary voting power for the election of directors of the Company.

After the foregoing change in control vesting and acceleration provisions, if applicable, have been given effect, awards that are not assumed and that involve restricted stock or the future delivery of stock will terminate upon a change in control (or other corporate transaction or series of transactions) in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then outstanding stock, or a sale or transfer of all or substantially all of the Company’s assets, or a dissolution or liquidation of the Company.  The Administrator may, but need not, provide for a substitution or assumption of awards or a cash-out of awards in connection with any such transaction, or for acceleration even where acceleration is not otherwise required, on terms specified in the Plan.

Amendment.  The Administrator may at any time or times amend the Plan or any outstanding award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of awards.  The Administrator may not, however, alter the terms of an award so as to affect adversely the participant’s rights under the award without the participant's consent, unless the Administrator expressly reserved the right to do so at the time of the award.  Any amendments to the Plan shall be conditioned upon stockholder approval only to the extent, if any, such approval is required by law (including the Internal Revenue Code and applicable stock exchange requirements), as determined by the Administrator.

NEW PLAN BENEFITS

The future benefits or amounts that would be received under the Plan by executive officers, non-executive directors and non-executive officer employees and other eligible participants are discretionary and are therefore not determinable at this time.   In February 2019, the Compensation Committee awarded grants to Mr. Shuldman, Mr. DeMartino, Mr. Brooks, Mr. Hoffman and Mrs. Chernay of stock awards to purchase or convert on a one-to-one basis 130,300, 46,000, 5,000, 5,000 and 5,000 shares, respectively.  The vesting terms of the grant of stock options are outlined in the table entitled “Grants of Plan-Based Awards in 2019.”  For further details on the compensation plan implemented see the “Executive Compensation” section below.

FEDERAL INCOME TAX CONSEQUENCES OF CERTAIN AWARDS

The following is intended only as a brief summary of the federal income tax rules relevant to the primary types of awards available for issuance under the Plan and is based on the Internal Revenue Code as currently in effect. The applicable statutory provisions are highly technical and subject to change in the future (possibly with retroactive effect), as are their interpretations and applications. Because federal income tax consequences may vary as a result of individual circumstances, participants are encouraged to consult their personal tax advisors with respect to their tax consequences. The following summary is limited only to United States federal income tax treatment. It does not address state, local, gift, estate, social security, employment or foreign tax consequences, which may be substantially different.

Awards of Shares; Restricted Stock Awards. A participant generally will recognize taxable ordinary income upon the receipt of shares as a stock award or restricted stock award if the shares are not subject to a substantial risk of forfeiture. The income recognized will be equal to the fair market value of the shares at the time of receipt less any purchase price paid for the shares. If the shares are subject to a substantial risk of forfeiture, the participant generally will recognize taxable ordinary income when the substantial risk of forfeiture lapses. If the substantial risk of forfeiture lapses in increments over several years, the participant will recognize income in each year in which the substantial risk of forfeiture lapses as to an increment. The income recognized upon lapse of a substantial risk of forfeiture will be equal to the fair market value of the shares determined as of the time that the substantial risk of forfeiture lapses less any purchase price paid for the shares. The Company generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant.

Alternatively, if the shares are subject to a substantial risk of forfeiture, the participant may make a timely election under Section 83(b) of the Internal Revenue Code (“Section 83(b)”) to recognize ordinary income for the taxable year in which the participant received the shares in an amount equal to the fair market value of the shares at that time. That income will be taxable at ordinary income tax rates. If a participant makes a timely Section 83(b) election, the participant will not recognize income at the time the substantial risk of forfeiture lapses with respect to the shares. At the time of disposition of the shares, a participant who has made a timely Section 83(b) election will recognize gain in an amount equal to the difference between the amount received on the disposition of the shares, and the amount taken into income as a result of the Section 83(b) election plus the purchase price, if any. The gain will be taxable at the applicable capital gains rate. If the participant forfeits the shares after making a Section 83(b) election, the participant is not entitled to a deduction with respect to the income recognized as a result of the election. To be timely, the Section 83(b) election must be made within 30 days after the participant receives the shares. The Company will generally be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant at the time of the election.

Restricted Stock Units. A participant generally is not taxed upon the grant of a restricted stock unit. Generally, if a restricted stock unit is designed to be paid on or shortly after the restricted stock unit is no longer subject to a substantial risk of forfeiture, then the participant will recognize ordinary income equal to the amount of cash and/or the fair market value of the shares received by the participant, and the Company will be entitled to an income tax deduction for the same amount.

Performance Share/Unit Awards; Stock Appreciation Rights (“SARs”). A participant generally is not taxed upon the grant of a performance share/unit or SAR. The participant will recognize taxable income at the time of settlement of the performance share/unit or at the time of exercise of the SAR in an amount equal to the amount of cash and/or the fair market value of the shares received upon settlement or exercise. The income recognized will be taxable at ordinary income tax rates. The Company generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant. Any gain or loss recognized upon the disposition of the shares acquired pursuant to settlement of a performance share/unit or exercise of an SAR will qualify as long-term capital gain or loss if the shares have been held for more than one year after settlement or exercise.

Nonstatutory Stock Options (“NSOs”). A participant generally is not taxed upon the grant of an NSO, unless the NSO has a readily ascertainable fair market value. However, the participant must recognize ordinary income upon exercise of the NSO in an amount equal to the difference between the NSO exercise price and the fair market value of the shares acquired on the date of exercise. The Company generally will have a deduction in an amount equal to the amount of ordinary income recognized by the participant in the Company’s tax year during which the participant recognizes ordinary income.

Upon the sale of shares acquired pursuant to the exercise of an NSO, the participant will recognize capital gain or loss to the extent that the amount realized from the sale is greater than the fair market value of the shares on the date of exercise. This gain or loss will be long-term capital gain or loss if the shares have been held for more than one year after exercise.

Incentive Stock Options (“ISOs”). A participant is not taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market value of the shares covered by the ISO on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If a participant holds the shares acquired upon exercise of an ISO for at least two years following the ISO grant date and at least one year following ISO exercise, the participant’s gain, if any, upon a subsequent disposition of the shares is long-term capital gain. The amount of the gain is the difference between the proceeds received on disposition and the participant’s basis in the shares (which generally equals the ISO exercise price). If a participant disposes of shares acquired pursuant to exercise of an ISO before satisfying these holding periods, the participant may recognize both ordinary income and capital gain in the year of disposition. The Company is not entitled to a federal income tax deduction on the grant or exercise of an ISO or on the participant’s disposition of the shares after satisfying the holding period requirement described above. If the holding periods are not satisfied, the Company will be entitled to a deduction in the year the participant disposes of the shares in an amount equal to the ordinary income recognized by the participant.

In order for an option to qualify as an ISO for federal income tax purposes, the grant of the option must satisfy various other conditions specified in the Internal Revenue Code. In the event an option intended to be an ISO fails to qualify as an ISO, it will be taxed as an NQSO as described above.

Golden Parachute Payments. The terms of the agreement evidencing an award under the Plan may provide for accelerated vesting or accelerated payout of the award in connection with a change in ownership or control of the Company. In such event, certain amounts with respect to the award may be characterized as “parachute payments” under the golden parachute provisions in Section 280G of the Internal Revenue Code (“Section 280G”). Under Section 280G, no federal income tax deduction is allowed to the Company for “excess parachute payments” made to “disqualified individuals,” and receipt of such payments subjects the recipient to a 20% excise tax under Section 4999 of the Code. For this purpose, “disqualified individuals” are generally officers, stockholders or highly compensated individuals performing services for the Company, and the term “excess parachute payments” includes payments in the nature of compensation which are contingent on a change in ownership or effective control of the Company, to the extent that such payments (in present value) exceed three times the recipient’s average annual taxable compensation from the Company for the previous five years. Certain payments for reasonable compensation for services rendered after a change of control and payments from tax-qualified plans are generally not included in determining “excess parachute payments.” If payments or accelerations occur with respect to awards granted under the Plan, certain amounts in connection with such awards may possibly constitute “parachute payments” and be subject to these “golden parachute” tax provisions, although the amount of such parachute payments may be cut back in order to avoid making excess parachute payments.

Withholding. A participant may pay all or a portion of the tax withholding obligation at the minimum statutory withholding rates (or at any greater as a participant may elect, as permitted by the Administrator, or as the Administrator may direct) arising in connection with the receipt or vesting of shares or the exercise of a stock option or SAR by electing to have the Company withhold shares of common stock having a fair market value equal to such amount.

Potential Limitation on Company Deductions. Under Section 162(m), certain remuneration in excess of $1 million may be nondeductible if paid to any "covered employee" of a publicly held corporation (generally the corporation’s chief executive officer, chief financial officer, its other named executive officers, and certain former named executive officers in the year that the compensation is paid).

VOTE REQUIRED

Approval of the amendment and restatement of the 2014 Equity Incentive Plan requires the affirmative vote of a majority of the common stock present in person or represented by proxy and entitled to vote at the Annual Meeting.  Abstentions by holders of such shares with respect to voting on this matter will have the effect of a negative vote.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY’S 2014 EQUITY INCENTIVE PLAN.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This Compensation Discussion and Analysis describes the philosophy, approach, and elements used by us and the Compensation Committee of our Board, which is composed entirely of independent directors of the Company, to define, manage, and review the compensation paid to our executives.  Our philosophy and approach to executive compensation apply to all executive officers of the Company, including those executives designated as named executive officers (“NEOs”).  The Company’s NEOs are the CEO, CFO and each of the other three most highly compensated officers.

Impact of COVID-19

While we are pleased with our performance and accomplishments in 2019, we have been and expect to continue to be  impacted by the unprecedented circumstances created by the COVID-19 outbreak. The industries in which we operate—namely, food service technology and casino and gaming—have been disrupted by the COVID-19 pandemic, which management believes has contributed to the recent volatility in the global financial markets. In just the first quarter of 2020, TransAct’s common stock traded as high as $11.25 per share, and as low as $3.11 per share.

As previously reported, we have taken steps to mitigate the impact of the outbreak.  Bart Shuldman, the Chairman and CEO of the Company, informed the Board that he would voluntarily forego 10% of his base salary.  The Board, acting upon the recommendation of management, approved the implementation of an across-the-board 10% wage reduction for salaried, non-commissioned employees, including the Company’s other NEOs.  Mr. Shuldman indicated that the voluntary reduction in his salary would continue for so long as such across the-board wage reduction is in place.  In connection therewith, each non-employee member of the Board agreed to forego 10% of his or her cash retainer fees payable for Board service for so long as the employee wage reduction remains in place. Additional measures taken to mitigate the impact of COVID-19 include the furlough of approximately 10% of the Company’s workforce and reductions across all discretionary expenditures wherever possible.  In support of our customers, we began offering our BOHA!™ Checklist and Timer software applications free-of-charge to restaurants amid the COVID-19 pandemic. The BOHA! Checklist and Timer software applications help restaurant employees monitor and adhere to stringent cleaning and cooking processes, which is essential in this time of heightened caution and reduced workforces.

The Board and the Compensation Committee continue to actively monitor the effects of the COVID-19 pandemic on the economy, the trading markets for equity securities and our operations and future results, including the additional demands placed on our NEOs and employees to meet the challenges that COVID-19 poses to the Company, our employees and our stockholders.  The Compensation Committee will further review compensation determinations for 2020 once it has the opportunity to fully understand the impact of the pandemic on our business.  After this evaluation, the Compensation Committee will take these unusual circumstances into account in determining the nature and composition of compensation for the NEOs for 2020.  We note that this Compensation Discussion and Analysis focuses on our 2019 executive compensation program.

Philosophy and Objectives of the Compensation Program

The philosophy behind our executive compensation program is premised on the belief that our compensation should be primarily performance-based and should be competitive with other similarly-sized companies in similar industries.  The primary objectives of our compensation program are to:

Our executive compensation program principally includes base salary, an annual incentive cash performance bonus and equity incentive awards.  The Compensation Committee believes that each element of the total compensation program helps to ensure that the efforts of our executive officers support the creation of stockholder value by focusing on short-term and long-term performance goals, promoting retention of Company stock and an ownership mentality, and linking individual performance to the Company’s overall performance.  The Committee retains its discretion to modify the compensation program elements in response to the needs of the Company.  Except as otherwise prohibited by law or the Company’s organizational documents, the Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Compensation Committee.

The elements of our executive compensation program are periodically reviewed and analyzed using current publicly available market data, contemporary market trends in the industries in which the Company operates and periodic reviews of compensation and benefit surveys.  Although we perform periodic reviews of salary surveys and occasionally use compensation consultants to analyze elements of our compensation program, we do not believe that it is appropriate to establish compensation levels based solely on the use of such surveys or analysis or to specifically target any particular market compensation level.  This information is used as a market check and as one data point in reviewing our executive compensation program.

The Compensation Committee reviews Company executive officer compensation and performance data to determine whether the Company’s executive compensation program is competitive and reasonable.  The Compensation Committee, on occasion, meets with the CEO and CFO to obtain recommendations with respect to the Company’s compensation programs, practices and packages for the other executive officers, senior managers and other employees.  Our CEO and CFO, with the assistance and support of the human resources department, provide recommendations regarding the design of the Company’s compensation program to the Compensation Committee.  The Compensation Committee considers, but is not bound to accept, management’s recommendations with respect to executive compensation.

During 2018, the Compensation Committee retained Compensation Advisory Partners, an independent compensation consultant, to assist the Compensation Committee in assessing the competitiveness of the Company’s total compensation program for the Company’s CEO and CFO.  Compensation Advisory Partners’ work included a review of total compensation paid to the Company’s CEO and CFO, assessing their compensation relative to individuals holding similar positions at companies in similar industries and size and providing market-based compensation data for base salaries, annual cash incentive awards and long-term equity awards for the CEO and CFO.  

Compensation Advisory Partners used two sources to develop their recommendations to the Compensation Committee.  The first source was Towers Watson’s 2015 CSR General Industry Top Management Compensation Survey Report-U.S. which is based on the responses of 410 organizations, both publicly and privately held, reporting data on 7,374 incumbents.  Of the 410 organizations surveyed by Towers Watson, Compensation Advisory Partners used benchmarking data from those companies with reported annual revenue of approximately $70 million.  The second source was Compensation Advisory Partners’ own proprietary database of public general industry companies, excluding financial service companies, using benchmarking data from those companies that have annual revenue between $30 million and $175 million and a market capitalization between $30 million and $175 million.  This benchmarking data resulted in the use of 62 companies for the CEO position and 53 companies for the CFO position.

Beginning in 2019, based on the review conducted by Compensation Advisory Partners, the Compensation Committee revised the elements of the Company’s annual and long-term incentive compensation programs to further align the Company’s CEO and CFO annual incentive compensation with the goal of building stockholder value.

The Compensation Committee similarly engaged Compensation Advisory Partners in 2017 in connection with the review of the compensation of our directors, as discussed below under “Director Compensation for Fiscal Year 2019.”

Compensation Advisory Partners did not advise management of the Company, and neither Compensation Advisory Partners nor its affiliates received any compensation from the Company for services other than those performed for the Compensation Committee.  The Committee reviewed the independence of Compensation Advisory Partners and concluded that no conflict of interest was raised by the services provided by Compensation Advisory Partners.

Elements of the Company’s Compensation Program

The principal elements of the Company’s 2019 compensation program were (i) base salary, (ii) an annual incentive cash bonus and (iii) long-term incentive awards, which consisted 70% of long-term equity incentive awards and 30% of a performance-based long-term cash incentive award.

Base Salary: In general, base salaries for employees, including executive officers, are established based on the scope of their responsibilities, individual contribution, prior experience, sustained performance, external market data and anticipated level of difficulty of replacing the employee with someone of comparable experience and skill.  Base salary for each executive is reviewed on an annual basis as part of our Company-wide merit review process.  The amount of any merit increase to an executive’s base salary is determined based on a combination of the current position of the executive’s pay against market data and the executive’s performance and results during the past year.  Our CEO is responsible for assessing the performance of each executive reporting to him.  Our Compensation Committee assesses the performance of our CEO.

Annual Incentive Cash Bonus:  We have historically maintained an annual incentive cash bonus program for all executive officers, except for those who receive sales commissions, which provides our executives with the opportunity to receive performance bonuses in the form of cash upon the attainment of certain annual financial objectives, as well as performance and business objectives.  The incentive bonus opportunity is designed to be a significant portion of executive compensation in order to create and maintain a strong incentive for our executives to achieve or exceed our business strategic and annual financial objectives.  Fifty percent of each executive’s Target Bonus (as defined below) is based on achievement of a specified level of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and fifty percent is based solely on achievement of specific individual strategic performance and business objectives.

To ensure alignment of compensation with our business objectives, our CEO and other executive officers establish specific quantitative and qualitative performance metrics for our business each fiscal year.  These performance metrics as used for incentive bonus targets are then reviewed and approved by our Compensation Committee.  The metrics are aligned with our strategic and annual business plans and are reviewed by our Board and Compensation Committee.  For 2019, the quantifiable metric of our annual incentive bonus program consisted of a target level of EBITDA of $4,800,000, excluding the effect of external acquisition related expenses and certain legal fees (the “EBITDA Target”).  The threshold and maximum EBITDA performance metrics set forth in the incentive bonus program by our Compensation Committee were $3,600,000 and $11,400,000, respectively, excluding the effect of external acquisition related expenses and certain legal fees.

Our executive officers, except for those that receive sales commissions, participate in the incentive bonus program.  Each of our NEOs participates in the incentive bonus program, with the exception of Ms. Chernay, who is eligible to earn sales commission on our casino and gaming annual sales.  Bonuses are paid under the incentive bonus program only if the Company meets the specified quantifiable performance objectives and/or the executive meets specified individual strategic performance and business objectives.  The incentive cash bonus that any particular executive is eligible to earn is established as a percentage of the individual’s base salary (“Target Bonus”).  The Target Bonus percentages for 2019 for each of our NEOs who participated in the incentive bonus program were as follows:  Mr. Shuldman, 75%; Mr. DeMartino, 50%; Mr. Hoffman, 30%; and Mr. Brooks, 30%.  For 2019, 50% of each executive’s Target Bonus was based on achievement of the EBITDA Target (the “EBITDA Bonus Amount”) and 50% was based solely on achievement of individual strategic performance and business objectives established by the CEO and the Compensation Committee for each participant (the “Performance Bonus Amount”).  No EBITDA Bonus Amount is payable unless adjusted EBITDA exceeds the specified threshold ($3,600,000 for 2019), however the executive may still earn the Performance Bonus Award based solely on the achievement of certain qualitative non-financial objectives.  Above the threshold, the EBITDA Bonus Amount is adjusted upward on a sliding scale ranging from 3% up to a maximum of 150% of the Target Bonus for 2019.  Adjusted EBITDA is defined as net income before net interest expense, income taxes, depreciation and amortization and is adjusted for share-based compensation and the effect of external acquisition related expenses and certain legal fees. The Company adjusts EBITDA for share-based compensation because the Company considers share-based compensation to be a non-cash expense similar to depreciation and amortization.  The Company adjusts EBITDA for external acquisition related expenses and certain legal fees to provide a measure of our ongoing performance of our existing business.  A reconciliation of adjusted EBITDA to net income, the most comparable GAAP financial measure, can be found in the “2019 Executive Compensation” section.

With respect to the Performance Bonus Amount, performance objectives include personal goals that support the Company’s overall business objectives as well as other financial and non-financial measurements.  The Compensation Committee is responsible for determining achievement of performance objectives for the CEO.  The CEO is responsible for determining achievement of performance objectives for each of his direct reports.  For other participants, achievement of performance objectives will be determined by the President or the appropriate Vice President or manager.  For 2019, the Performance Bonus Amount ranged from 0% to 50% of the Target Bonus depending on the level of achievement.

Long-Term Incentive Awards:  The goal of our equity-based incentive awards is to align the interests of our executives with our stockholders and to provide executives with a long-term incentive to manage the Company from the perspective of an owner with an equity stake in the business.  Because vesting of our stock awards is based on continued employment, our equity-based incentives also facilitate the retention of executives through the term of the awards.  Generally, we believe that stock options have proven to be an effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of stock options to our future stock price performance – i.e. executives are able to profit from stock options only if our stock price increases in value over the stock option’s exercise price.  Accordingly, the Compensation Committee has historically granted, and continued to grant in 2019, all NEOs stock option awards as an element of their compensation.

From 2016 through 2018, based on a prior review conducted by Compensation Advisory Partners, the Company’s CEO and CFO were awarded three types of long-term equity awards: (1) non-qualified stock options (“NQSOs”), (2) restricted stock units (“RSUs”) and (3) performance share awards (“PSAs”).  Starting in 2019, based upon a review conducted by Compensation Advisory Partners during 2018, we replaced the PSA compensation component with a performance-based, long term cash incentive (“LTCI”).  We believe these elements of long-term compensation for the CEO and CFO provide further alignment with stockholders’ interests and enhance our pay for performance objectives.

Grants of long-term incentive awards are approved annually by the Compensation Committee at its regularly scheduled meeting typically held on or about March 1. While the majority of equity awards (historically, stock options) to our employees are made under our annual grant program, the Compensation Committee may grant equity awards to employees at other times, including at the time of hire of an employee, promotion of an employee, to reward an employee, for retention purposes or in other circumstances as recommended by the CEO or the Compensation Committee.  In determining the size of the long-term equity incentives to be awarded to employees, we take into consideration a number of factors including, but not limited to, relative job scope, individual performance level, prior contributions to the Company, the need to retain the employee, the size of prior grants and competitive market data.  Based upon these factors, the Compensation Committee determines the size of the equity incentives at levels it considers appropriate to create meaningful opportunity for reward predicated on the creation of long-term stockholder value.

The total dollar value of each executive’s equity incentive award is determined based on competitive market data provided by Compensation Advisory Partners during their compensation study and is allocated to the CEO and CFO in the following proportions: 40% NQSOs, 30% RSUs and 30% LTCI and 100% NQSOs for all other NEOs.  NQSOs vest 25% per year over four years and have a ten-year term.  The exercise price of options granted is set at the closing price of our common stock on the date of grant.  RSUs convert to common stock on a one-to-one basis and vest 25% per year over four years.  The LTCI is earned on a variable basis and paid in cash dependent upon level of achievement against a long-term performance metric, which for 2019 was a two-year combined EBITDA target for 2019 and 2020.  Payout of the LTCI, if any, will occur following Compensation Committee certification of performance results in 2021 after the two-year performance period and ranges from a threshold payout of 50% of target to a maximum payout of 200% of target, depending on the level of performance achievement.  Below threshold-level performance will result in a payout of 0% of target.  As of December 31, 2019 we are estimating that our two-year EBITDA for 2019 and 2020 will be below the threshold-level performance which will result in a payout of 0% of the LTCI approved during 2019.

2019 Executive Compensation

The specific compensation decisions made for each of our executive officers for 2019 reflect the performance of the Company against key financial and operational measurements, as well as performance against objectives.

Base Salary:  The Company’s Director, Human Resources and the CEO and CFO review and discuss the base salaries of the NEOs (other than the CEO and CFO).  In connection with establishing the base salary adjustments for the NEOs (other than the CEO and CFO), the Director, Human Resources provides merit increase percentage guidelines based on market compensation data, knowledge of competitive market practices and the Company’s salary budget.  The merit increase percentage guidelines (the “Merit Increase Guideline”) for the 2019 base salary increases for all NEOs serving at the time were from 0% to 3% and took effect on March 1, 2019.  After considering the Merit Increase Guideline and evaluating each NEO’s performance and the position of his or her current base salary, the CEO, as direct supervisor, makes a specific base salary adjustment recommendation to the Compensation Committee (other than for himself).  Each NEO’s actual base salary adjustment, if any, is determined by the Compensation Committee.

In determining the base salaries of the NEOs for 2019 the Compensation Committee evaluated the overall performance of the Company and the individual’s contributions to that performance, as well as the performance of the sales unit or function that each leads when relevant, and market data.  Based on individual considerations with respect to each NEO such as his or her experience and contributions to the Company, and recognizing that the Company must also react to a competitive marketplace on a case-by-case basis when seeking to recruit and retain executives, the Compensation Committee strives to set each NEO’s base salary within the Merit Increase Guideline, if warranted.  For 2019, each NEO’s base salary adjustment was in line with the Merit Increase Guideline.  No additional adjustments were considered necessary to executive compensation in 2019 other than this customary annual base salary increase.  Mr. Shuldman and Mr. DeMartino voluntarily agreed not to take any increase in base salary for 2019.

Annual Incentive Cash Bonus Program:  For 2019, the Company achieved adjusted EBITDA of $2,734,000, as reviewed and approved by the Compensation Committee.  These results were approximately 43% below the EBITDA Target of $4,800,000, which would have resulted in a payout of 0% of the EBITDA Target for the EBITDA bonus amount.  During 2019 and subsequent to the approval of the incentive cash bonus program, the Company launched our BOHA! solution, which combines our latest generation terminal, cloud-based software applications and hardware into a unique solution to automate the back-of-house operations in restaurants and food service operations.  Due to the significant investment in engineering and selling and marketing required to support the BOHA! launch and take advantage of the opportunities we see in the food service technology market; the Compensation Committee adjusted the bonus payout percentage for 2019.  Therefore, for 2019, the incentive cash bonus payout for all eligible employees was approved at 80% of each individual’s annual Target Bonus which the Compensation Committee believes reflects the considerable efforts by the Company in launching BOHA!. Each NEO achieved all of his or her performance objectives set for 2019.  For 2019, Mr. Shuldman, Mr. DeMartino, Mr. Hoffman and Mr. Brooks were paid cash incentive bonuses of $309,000, $136,944, $57,558 and $48,622, respectively.  These amounts are shown in the “Summary Compensation Table” below under the “Non-Equity Incentive Plan Compensation” column.  These bonuses were calculated as a percentage of each executive’s base salary in effect as of March 2019.  Ms. Chernay was not eligible to participate in the incentive bonus program as she earned commissions based on annual sales from her sales unit.  Ms. Chernay received a commission, paid monthly, equal to approximately 0.4% of sales achieved by her sales unit during 2019, resulting in the payout amount shown in the “Summary Compensation Table” under the “Bonus” column.  The following is a reconciliation of the non-GAAP financial measure, adjusted EBITDA for the year ended December 31, 2019:

Long-Term Incentive Awards:  For 2019, our CEO recommended to the Compensation Committee a total equity award dollar value range for each executive officer, other than the CEO and CFO, primarily based on a compensation study performed by Compensation Advisory Partners performed in 2016.  After considering our CEO’s recommendations and the compensation study, the Compensation Committee, with our CEO’s participation, determined the total equity award dollar value for each NEO other than our CEO.  The Compensation Committee determined our CEO’s total equity award dollar value without input of management.  The Compensation Committee considered several factors in making its determinations, including our CEO’s recommendations, the Compensation Advisory Partners compensation study, the Company’s performance, each NEO’s position within the Company and his or her perceived potential contributions to the Company, and the Compensation Committee’s subjective understanding of competitive practices in the marketplace with respect to equity awards.  The factors used by our CEO to determine recommendations regarding total equity award dollar value ranges for each NEO and by the Compensation Committee to establish each NEO’s total equity award dollar value were assessed by our CEO and the Compensation Committee, respectively, on a subjective basis.

On February 27, 2019, the Compensation Committee awarded grants to Mr. Shuldman, Mr. DeMartino, Mr. Hoffman, Ms. Chernay and Mr. Brooks of stock options to purchase 105,200, 37,100, 5,000, 5,000, and 5,000 shares, respectively.  On February 27, 2019, the Compensation Committee awarded a grant of restricted stock units to Mr. Shuldman and Mr. DeMartino of 25,100 and 8,900, respectively.  On July 31, 2019, the Compensation Committee awarded a grant of performance-based, long term cash incentive to Mr. Shuldman and Mr. DeMartino of $237,300 and $83,700, respectively.  The vesting terms of the grant of each stock award are outlined in the table entitled “Grants of Plan-Based Awards in 2019.”  The amount of the LTCI payout is based on achieving 100% of the target level performance metric.  The level of awards granted to all the other NEOs was in line with the recommendations received from Compensation Advisory Partners’ study performed in 2016.  The Compensation Committee’s decision to grant three types of awards in the following proportions, was based on the recommendation of Compensation Advisory Partners: 40% NQSO, 30% RSUs and 30% LTCI.

Results of 2019 Annual Meeting

At our 2019 Annual Meeting of stockholders, 58.7% of the votes cast by stockholders voted, on an advisory basis, to approve the compensation of the Company’s NEOs (sometimes referred to as a “say-on-pay vote”).  The Board considered these voting results and evaluated our executive compensation practices. After considering the principles underlying our executive compensation practices and the results of last year’s say-on-pay vote, the Board reaffirmed the basic elements of our executive compensation program and policies for 2020.  The Board has adopted a policy of providing for annual say-on-pay votes.  Our stockholders also voted, on an advisory basis, to conduct the say-on-pay vote every year, in accordance with the Board’s recommendation and current practice.

Tax Deductibility of Compensation

Prior to the 2018 tax year, Section 162(m) of the Internal Revenue Code limited the tax deductibility of annual compensation paid to certain executive officers of publicly held corporations to the extent that any officer’s compensation (other than qualified performance-based compensation) exceeded $1 million. The exemption was repealed, effective for taxable years beginning after December 31, 2017.  As a result, compensation paid to any “covered employee” in excess of $1 million is no longer deductible, unless the compensation qualified for limited transition relief applicable to certain performance-based compensation arrangements in place as of November 2, 2017. A “covered employee” is defined under Section162(m) as any employee who has served as CEO, CFO or other NEO for tax years after December 31, 2016. The rules and regulations promulgated under Section 162(m) are complicated, have recently changed, and may further change from time to time, and the scope of the transition relief under the legislation repealing Section 162(m)’s exemption from the deduction limit is uncertain. As such, there can be no guarantee that compensation intended to satisfy the requirements for tax deductibility in fact will.

The Committee believes that its primary responsibility is to provide a compensation program that attracts, retains and rewards the executive officers necessary for the Company’s success, as described above. As a result, we currently and may in the future award compensation that is not fully deductible under Section 162(m) in order to ensure competitive levels of total compensation for our executive officers and when we otherwise view such compensation as consistent with our compensation policies.

Prohibition on Hedging and Pledging

The Company’s Insider Trading Policy prohibits directors, officers and employees, as well as other persons or entities informed by management to be subject to the Insider Trading Policy from time to time, from:

•

Entering into any hedging transaction with respect to the Company’s securities, including, but not limited to, the purchase or use of, directly or indirectly through any other persons or entities, any stock option, prepaid variable forward contracts, equity swaps, collars, exchange funds or any other instruments designed to offset any decrease in the market value of the Company’s securities;

•	Pledging of Company securities owned by such persons;

•	Placing any Company securities in margin accounts, unless the margin accounts are treated as non-marginable by the brokerage firm; and

•	Engaging in short sales of Company securities (i.e., sales of Company securities that the seller does not own), including a “sale against the box” (i.e., a sale with delayed delivery); and

•	Engaging in speculative trading, including transactions in publicly traded options of the Company, such as puts, calls, warrants, and other derivative securities, on an exchange or in any other organized market.