(12) Equity Plan Awards

Under the Company’s Equity Incentive Plan of 1993, as amended (“the Plan”), all employees are eligible to receive non-assignable and non-transferable restricted stock, options to purchase common stock, and other forms of equity. As of December 31, 2017, the number of securities remaining available for future issuance under the Plan is 2,000,579.

Incentive Stock Option Plans (“ISOP”)

Under the terms of the Company’s ISOP, under which options to purchase common stock can be issued, all employees are eligible to receive non-assignable and non-transferable options to purchase shares. The exercise price of any option may not be less than the fair market value of the shares on the date of grant; provided, however, that the exercise price of any option granted to an eligible employee owning more than 10% of the outstanding common stock may not be less than 110% of the fair market value of the shares underlying such option on the date of grant. No options granted may be exercisable more than ten years after the date of grant.

In 2017, 2016 and 2015, no options were granted.

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, 2014		724,904		$	9.22	$	7.82
Options exercised,		(63,950	)	$	7.50
Options forfeited,		(34,109	)		12.00
Balance outstanding, December 31, 2015		626,845		$	9.25	$	7.73
Options exercised,		(58,900	)	$	7.50
Options forfeited,		(26,040	)		11.49
Balance outstanding, December 31, 2016		541,905		$	9.33	$	7.97
Options exercised,		(55,979	)	$	8.37
Options forfeited,		(13,143	)		11.49
Balance outstanding, December 31, 2017		472,783		$	9.38	$	9.38

Information relating to stock options at December 31, 2017 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		249,050		35	$	7.50		249,050	$	7.50
$11.32-$14.75		223,733		82	$	11.48		223,733	$	11.48
		472,783		57	$	9.38		472,783	$	9.38

During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to incentive stock options of $345, $354, and $431, respectively.

The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life for options outstanding as of December 31, 2017 and 2016 was as follows:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Months)		Intrinsic Value (thousands)
As of December 31, 2017:
Incentive Stock Option Plans:
Outstanding		472,783	$	9.38		57	$	4,853
Vested		472,783	$	9.38		57	$	4,853
Exercisable		472,783	$	9.38		57	$	4,853
As of December 31, 2016:
Incentive Stock Option Plans:
Outstanding		541,905	$	9.33		67	$	5,321
Expected to Vest		536,531	$	9.31		67	$	5,280
Exercisable		332,684	$	7.97		49	$	3,719

The total intrinsic value of options exercised during 2017, 2016 and 2015 was $545, $493, and $361, respectively. Cash received from stock options exercised during 2017, 2016, and 2015 was $468, $442, and $480, respectively.

Nonstatutory Stock Options (“NSSO”)

The Company did not grant any non-statutory stock options during the three years ended December 31, 2017. There are 16,333 shares of options outstanding for year ended December 31, 2017.

Common Stock Grants

During 2017, the Company issued a total of 290,977 shares of common stock to certain employees and non-executive board members. Of these, 26,820 shares vest immediately, 1,300 shares will vest one-half each year on the anniversaries of the employee’s employment date, 1,782 shares will vest two years from the employee’s employment date, and the balance will cliff vest after three years of service. The fair values of the grants range from $14.92 to $19.90 per share based on the publicly traded share prices at the date of grants. The total fair value of $4,726 is being recognized over the vesting period, which is representative of the related service periods. During 2017, 20,815 shares of common stock granted to employees were forfeited.

During 2016, the Company issued a total of 150,009 shares of common stock to certain employees and non-executive board members. Of these, 21,139 shares vest immediately, 2,600 shares will vest one-half each year on the anniversaries of the employee’s employment date, 3,000 shares will vest two years from the employee’s employment date, and the balance will cliff vest after three years of service. The fair values of the grants range from $15.08 to $17.35 per share based on the publicly traded share prices at the date of grants. The total fair value of $2,283 is being recognized over the vesting period, which is representative of the related service periods. During 2016, 35,615 shares of common stock granted to employees were forfeited.

A status summary of non-vested shares as of December 31, 2017 and 2016, are presented below:

	December 31, 2017					December 31, 2016
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Nonvested shares at January 1^st		324,756		$	14.75		362,841		$	20.43
Granted		290,977			16.24		150,009			15.22
Vested		(203,165	)		15.14		(152,479	)		15.19
Forfeited		(20,815	)		15.29		(35,615	)		18.89
Nonvested shares at December 31^st		391,753		$	15.63		324,756		$	14.75

During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to restricted shares of $2,705, $1,630, and $2,972, respectively.

Performance Based Stock Grants

During the year ended December 31, 2017, the Company issued a total of 128,594 performance based shares to employees. The shares granted during 2017 have an average fair value of $15.43. The fair value was determined by using the publicly traded share price as of the date of grant. The Company will recognize as expense the value of the performance based shares over the required service period from grant date. The shares will cliff vest on February 8, 2020 with a measurement period commencing January 1, 2017 and ending December 31, 2019. Eighty percent of these performance based shares are based upon the financial performance of the Company, specifically, an earnings before income taxes (“EBIT”) goal weighted at 50% and a net sales goal weighted at 30% . 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 goals measure 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 stockholder 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 2016 Proxy Statement. All parts of these awards vest in three years, but are subject to reduction to a minimum (or even zero) for recording less than the targeted performance and to increase to a maximum of 200% for achieving in excess of the targeted performance.

On January 6, 2016, the Company granted a total of 52,170 performance based shares that will cliff vest on January 6, 2019 with a measurement period commencing January 1, 2016 through December 31, 2018, provided that the participating employees are continuously employed by the Company during the vesting period. Eighty percent 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%. 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 goals measure 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 stockholder 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 2016 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 2015, the Company granted a total of 10,696 performance based shares. Of these, 7,500 shares will cliff vest on January 5, 2018 with a measurement period commencing January 1, 2015 and ending December 31, 2017 and 3,196 shares will cliff vest on August 1, 2018 with a measurement period commencing July 1, 2015 and ending June 30, 2018, provided that the participating employees are continuously employed by the Company during the vesting period. Eighty percent 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%. 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 goals measure 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 stockholder 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 2015 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.

As of December 31, 2017, the performance based shares related to EBIT and net sales have an average fair value of $16.10 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 the Company’s stock price have an average fair value of $12.60 per share. The fair value was determined by using the Monte Carlo valuation method. For awards with performance conditions, the Company recognizes share-based compensation cost on a straight-line basis for each performance criteria over the implied service period.

As of December 31, 2016, the performance based shares related to EBIT and net sales have an average fair value of $15.08 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 the Company’s stock price have an average fair value of $11.63 per share. The fair value was determined by using the Monte Carlo valuation method. For awards with performance conditions, the Company recognizes share-based compensation cost on a straight-line basis for each performance criteria over the implied service period.

As of December 31, 2015, performance based shares related to EBIT and net sales have an average fair value of $11.86 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 the Company’s stock price have an average fair value of $9.48 per share. The fair value was determined by using the Monte Carlo valuation method. For awards with performance conditions, the Company recognizes share-based compensation cost on a straight-line basis for each performance criteria over the implied service period.

During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to performance based shares of $1,248, $995, and $329, respectively. In 2017, the Company assessed the likelihood of achieving the performance measures based on peer group information currently available for the performance based shares granted in 2015 and 2014. Based on the performance thus far, the Company has concluded that it is likely that the performance measure based on EBIT and net sales will be met at 200% of targeted performance and have recorded the related additional expense in 2016. The performance shares based on market price, however, are not expected to meet targeted performance and in that event, will be forfeited. Any forfeiture related to market condition shares are included in the grant date fair value valuation and no forfeitures were recognized in 2017.

As of December 31, 2017, the Company had approximately $1,642 of unamortized stock-based compensation expenses related to unvested performance based shares. This amount will be recognized over the weighted-average period of 1.8 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.

A summary of non-vested shares as of December 31, 2017 and 2016, is presented below:

	December 31, 2017					December 31, 2016
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Nonvested shares at January 1^st		119,022		$	14.18		104,403		$	17.05
Granted		128,594			15.43		52,170			14.39
Vested		(48,046	)		14.92		—			—
Forfeited		(13,513	)		13.08		(37,551	)		22.45
Nonvested shares at December 31^st		186,057		$	14.93		119,022		$	14.18

Performance Incentive Stock Option Plan

For the three years ended December 31, 2017, the Company did not grant any employees performance incentive stock options to acquire shares of common stock.

Performance option activity is as follows:

	Incentive Stock Option Plans			Weighted Average Price Per Share		Exercisable Weighted Average Price Per Share
Balance outstanding, December 31, 2015		98,410		$	11.49	$	—
Options forfeited		(16,076	)		11.49
Balance outstanding, December 31, 2016		82,334		$	11.49	$	—
Options forfeited		(668	)		11.49
Balance outstanding, December 31, 2017		81,666		$	11.49	$	—

Information relating to performance stock options at December 31, 2017 is 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
Performance Incentive Stock Option Plan:
$11.49		81,666		—	⁽¹⁾	$	11.49		—	$	—
		81,666		—		$	11.49		—	$	—

(1)

The Incentive Stock Option awards have been totally vested on 12/31/2017. The remaining contractual term is 7 years for these awards.

The weighted average exercise price for performance options granted and exercisable and the weighted average remaining contractual life for performance options outstanding as of December 31, 2017 and 2016 was as follows:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Months)		Intrinsic Value (thousands)
As of December 31, 2017:
Performance Incentive Stock Option Plans:
Outstanding		81,666	$	11.49		—	$	666
Expected to Vest		81,666	$	11.49		—	$	666
Exercisable		—	$	—		—	$	—
As of December 31, 2016:
Performance Incentive Stock Option Plans:
Outstanding		82,334	$	11.49		12	$	631
Expected to Vest		75,312	$	11.49		12	$	577
Exercisable		—	$	—		—	$	—

During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to performance incentive stock options of $416, $188, and $149, respectively. In 2017, the Company assessed the likelihood of achieving the performance measures based on peer group information currently available for the performance incentive stock options awarded in 2014. The Company has concluded that the performance measure based on EBIT will be met at 200% of targeted performance and net sales will be met at 200% of targeted performance and have recorded the related additional expense in 2017. While the performance incentive stock options based on market price is likely to be met at 200% targeted performance, no additional expenses were recognized in 2017 as the grant date valuation of these awards reflects market conditions.