10. STOCK-BASED COMPENSATION

The company has an equity incentive plan that reserves 4,110,000 shares of common stock for issuance to its directors and employees. The plan provides for shares, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, performance shares, and restricted and deferred stock unit awards, to be granted to eligible employees, non-employee directors and consultants. The company measures stock-based compensation at fair value on the grant date, with no adjustments for estimated forfeitures. The company records noncash compensation expense related to equity awards in its consolidated financial statements over the requisite period on a straight-line basis.

Stock Options

The activity related to the exercisable stock options for the six months ended June 30, 2018, is as follows:


	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017	143,750	$	12.44	1.8	$	635
Granted	-		-	-		-
Exercised	(15,000)		10.00	-		120
Forfeited	-		-	-		-
Expired	-		-	-		-
Outstanding at June 30, 2018	128,750	$	12.72	1.5	$	718
Exercisable at June 30, 2018 (1)	128,750	$	12.72	1.5	$	718

(1) Represents in-the-money options.

Option awards allow employees to exercise options through cash payment for the shares of common stock or simultaneous broker-assisted transactions in which the employee authorizes the exercise and immediate sale of the shares in the open market. The company uses newly issued shares of common stock to satisfy its stock-based payment obligations.

Restricted Stock

The non-vested stock award and deferred stock unit activity for the six months ended June 30, 2018, is as follows:


	Non-Vested Shares and Deferred Stock Units	Weighted- Average Grant- Date Fair Value		Weighted-Average Remaining Vesting Term (in years)
Non-Vested at December 31, 2017	1,068,947	$	20.41
Granted	660,509		18.20
Forfeited	(7,741)		20.17
Vested	(501,621)		20.62
Non-Vested at June 30, 2018	1,220,094	$	19.12	2.1

Performance Shares

On March 19, 2018, the board of directors granted 153,030 performance shares to be awarded in the form of common stock to certain participants of the plan. Performance shares vest based on the company's average return on net assets (RONA) and the company’s total shareholder return (TSR), as further described herein. The performance shares vest on March 19, 2021, if the RONA and TSR criteria are achieved and the participant is then employed by the company. Fifty percent of the performance shares vest based upon the company’s ability to achieve a predetermined RONA during the three year performance period. The remaining fifty percent of the performance shares vest based upon the company’s total TSR during the three year performance period relative to that of the company’s performance peer group.

The performance shares were granted at a target of 100%, but each performance share will increase or decrease depending on results for the performance period for the company's RONA, and the company’s TSR relative to that of the performance peer group. If the company’s RONA and TSR achieve the maximum goals, the maximum amount of shares available to be issued pursuant to this award is 229,545 performance shares or 150% of the 153,030 performance shares granted on March 19, 2018. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the company’s RONA, and the company’s TSR compared to the peer performance at the end of the performance period.

The company used the Monte Carlo valuation model to estimate the fair value of the performance shares on the date of the grant. The weighted average assumptions used by the company in applying the Monte Carlo valuation model for performance share grants during the six months ended June 30, 2018 are illustrated in the following table:


	Six Months Ended June 30, 2018
Risk-free interest rate	2.44	%
Dividend yield	2.64	%
Expected volatility	45.11	%

The Monte Carlo valuation also estimated the number of performance shares that would be awarded which is reflected in the fair value on the grant date. The Monte Carlo valuation assumed 97.39% of the performance shares granted on March 19, 2018 would be awarded on March 19, 2021 based upon the estimated company’s total shareholder return relative to peer performance. The company’s closing stock price was $18.15 on the date of the grant.

At June 30, 2018 unrecognized stock compensation expense of $2.5 million, excluding any potential forfeitures, will be recognized over the vesting period of these performance share awards on a straight-line basis.

Green Plains Partners

Green Plains Partners adopted the LTIP, an incentive plan intended to promote the interests of the partnership, its general partner and affiliates by providing incentive compensation based on units to employees, consultants and directors to encourage superior performance. The incentive plan reserves 2,500,000 common units for issuance in the form of options, restricted units, phantom units, distributable equivalent rights, substitute awards, unit appreciation rights, unit awards, profits interest units or other unit-based awards. The partnership measures unit-based compensation related to equity awards in its consolidated financial statements over the requisite service period on a straight-line basis.

The non-vested unit-based awards activity for the six months ended June 30, 2018, is as follows:


	Non-Vested Shares and Deferred Stock Units	Weighted- Average Grant- Date Fair Value		Weighted-Average Remaining Vesting Term (in years)
Non-Vested at December 31, 2017	11,549	$	19.06
Granted	-		-
Forfeited	-		-
Vested	(11,549)		19.06
Non-Vested at June 30, 2018	-	$	-	0.0

Compensation costs for stock-based and unit-based payment plans during the three and six months ended June 30, 2018, were approximately $3.0 million and $5.4 million, respectively, and $3.0 million and $5.5 million during the three and six months ended June 30, 2017, respectively. At June 30, 2018, there was $17.0 million of unrecognized compensation costs from stock-based and unit-based compensation related to non-vested awards, excluding performance shares noted above. This compensation is expected to be recognized over a weighted-average period of approximately 2.1 years. The potential tax benefit related to stock-based payment is approximately 24.4% of these expenses.