11. Stock Based Compensation Expense—The Company accounts for stock-based awards to employees and directors in accordance with FASB ASC 718, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including shares of common stock granted for services, employee stock options, and employee stock purchases related to the Employee Stock Purchase Plan based on estimated fair values.

Stock Options—During the six months ended June 30, 2014, the Company did not grant any employees options to acquire shares of common stock.

Option activity within each plan is as follows:


	Incentive Stock Option Plans			Weighted Average Price Per Share		Exercisable Weighted Average Price Per Share
Balance outstanding, December 31, 2013		561,029		$	7.76	$	7.70
Options exercised, $7.50		(82,650	)		7.50

Balance outstanding, March 31, 2014		478,379		$	7.80	$	7.74
Options exercised, $7.50		(17,500	)		7.50

Balance outstanding, June 30, 2014		460,879		$	7.81	$	7.77

Information relating to stock options at June 30, 2014 summarized by exercise price is as follows:


	Outstanding Weighted Average						Exercisable Weighted Average
Exercise Price Per Share	Shares		Remaining Life (Months)		Exercise Price		Shares		Exercise Price
Incentive Stock Option Plan:
$7.50		434,200		77	$	7.50		434,200	$	7.50
$11.32—$14.75		26,679		74	$	12.90		23,346	$	12.85

		460,879			$	7.81		457,546	$	7.77

The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life for options outstanding as of June 30, 2014 was as follows:


	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Months)		Intrinsic Value (thousands)
As of June 30, 2014:
Incentive Stock Option Plans:
Outstanding		460,879	$	7.81		77	$	2,503
Expected to Vest		460,879	$	7.81		77	$	2,503
Exercisable		457,546	$	7.77		77	$	2,503

During the six months ended June 30, 2014 and 2013, the Company recognized stock-based compensation expense, excluding expense associated with modifications, related to stock options of $21 and $423, respectively.

As of June 30, 2014, the Company had no unamortized stock-based compensation expenses related to unvested stock options outstanding. Stock-based compensation expense will change if any stock options are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.

Restricted Shares—A status summary of non-vested shares as of and for the six months ended June 30, 2014 is presented below:


	Number of Shares			Weighted Average Grant- Date Fair Value
Nonvested shares at December 31, 2013		376,702		$	24.85
Vested		(1,000	)	$	31.83
Forfeited		(1,840	)	$	24.23

Nonvested shares at March 31, 2014		373,862		$	24.83
Granted		240,724		$	14.81
Vested		(23,478	)	$	13.84
Forfeited		—		$	—

Nonvested shares at June 30, 2014		591,108		$	21.19

Restricted stock grants — During the six months ended June 30, 2014, the Company granted a total of 240,724 shares of common stock. Of these, 23,478 shares vest immediately, and the balance will cliff vest after three years of service. The shares granted in 2014 were average fair valued at $14.81 per share. The fair value was determined by using the publicly traded share price as of the date of grant. The Company is recognizing as expense the value of restricted shares over the required service period.

During the six months ended June 30, 2013, the Company granted a total of 154,114 shares of common stock. Of these, 3,000 shares will vest one-third each year on the anniversaries of the employee’s employment date, 8,230 shares vest immediately, and the balance will cliff vest after three years of service. The shares granted in 2013 were average fair valued at $31.22 per share. The fair value was determined by using the publicly traded share price as of the date of grant. The Company is recognizing as expense the value of restricted shares over the required service period.

During the six months ended June 30, 2014 and 2013, the Company recognized stock-based compensation expense related to restricted shares of $1,819 and $1,297, respectively.

As of June 30, 2014, the Company had approximately $7,153 of unamortized stock-based compensation expenses related to unvested restricted shares. This amount will be recognized over the weighted-average period of 2.1 years. This projected expense will change if any restricted shares are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.

Performance Based Shares—A status summary of non-vested performance based shares as of and for the six months ended June 30, 2014 is presented below:


	Number of Shares		Weighted Average Grant- Date Fair Value
Nonvested shares at December 31, 2013		24,637	$	28.43
Vested		—	$	—
Forfeited		—	$	—

Nonvested shares at March 31, 2014		24,637	$	28.43
Granted		79,270	$	14.23
Vested		—	$	—
Forfeited		—	$	—

Nonvested shares at June 30, 2014		103,907	$	17.60

Performance Based Shares — During the six months ended June 30, 2014, the Company granted a total of 79,270 performance based shares that will cliff vest on May 23, 2017, provided that recipient is continuously employed by the Company during the vesting period. 80% of these performance based shares are based upon financial performance of the Company, specifically, an earnings before income tax (“EBIT”) goal weighted at 50% and a net sales goal weighted at 30% for the period commencing April 1, 2014 and ending December 31, 2016; the remaining 20% of performance based shares are based upon AVD stock price appreciation over the same performance measurement period. The EBIT and net sales goal measures the relative growth of the Company’s EBIT and net sales for the performance measurement period, as compared to the median growth of EBIT and net sales for an identified peer group. The shareholder return goal measures the relative growth of the fair market value of the Company’s stock price over the performance measurement period, as compared to that of the Russell 2000 Index and the median fair market value of the common stock of the comparator companies, identified in the Company’s 2014 Proxy Statement. All parts of these awards vest in three years, but are subject to reduction to a minimum (or even zero) for meeting less than the targeted performance and to increase to a maximum of 200% for meeting in excess of the targeted performance.

During the six months ended June 30, 2013, the Company granted a total of 26,942 performance based shares that will cliff vest after three years of service. 80% of these performance based shares are based upon net income and net sales for the period commencing April 1, 2013 and ending December 31, 2015; the remaining 20% of performance based shares are based upon AVD stock price appreciation over the course of the period commencing June 6, 2013 and ending on December 31, 2015. Both parts of these awards vest in three years, but are subject to reduction to a minimum (or even zero) for meeting less than the targeted performance and to increase to a maximum of 200% for meeting in excess of the targeted performance.

The performance based shares related to EBIT and net sales were average fair valued at $14.92 per share. The fair value was determined by using the publicly traded share price as of the date of grant. The performance based shares related to AVD stock price were average fair valued at $11.47 per share. The fair value was determined by using the Monte Carlo valuation method. The Company is recognizing as expense the value of these shares over the required service period of three years.

During the six months ended June 30, 2014, the Company recognized a reduction in stock-based compensation expense related to performance based shares of $34. During the six months ended June 30, 2013, the Company recognized stock-based compensation expense related to performance based shares of $26.

As of June 30, 2014, the Company had approximately $1,559 of unamortized stock-based compensation expenses related to unvested performance based shares. This amount will be recognized over the weighted-average period of 2.6 years. This projected expense will change if any performance based shares are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.