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Note 11 - Long-term Incentive Plan | 9 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] | Note 11 . Long-T erm Incentive Plan On March 14, 2019, the Board of Directors of Avalon approved the renewal of the expired 2009 Long-term Incentive Plan (the “2009 Plan”), which is set to expire in October of 2019. The 2009 Plan provides for the granting of options which are intended to be non-qualified stock options (“NQSO’s”) for federal income tax purposes except for those options designated as incentive stock options (“ISO’s”) which qualify under Section 422 of the Internal Revenue Code. The name of the plan was changed to the 2019 Long-term Incentive Plan (“the Option Plan”) to reflect the year of approval. The Option Plan represents the renewal of the 2009 Plan which had 1,300,000 shares of Class A Common Stock available for stock options to employees and non-employee directors. The Option Plan has 1,300,000 shares available for stock options, less any shares of stock issued pursuant to options exercised under the 2009 Plan. The total number of shares under the Option Plan and the 2009 Plan will not exceed 1,300,000. Shares of stock covered by options granted pursuant to the 2009 Plan which terminate or expire prior to exercise or have been surrendered or canceled shall be available for further option grants under the Option Plan. On April 25, 2019, at the Annual Meeting of Shareholders, the shareholders approved the Option Plan. The purpose of the Avalon Holdings Corporation 2019 Long-term Incentive Plan (the “Plan”) is (a) to improve individual employee performance by providing long-term incentives and rewards to employees of Avalon, (b) to assist Avalon in attracting, retaining and motivating employees and non-employee directors with experience and ability, and (c) to associate the interests of such employees and directors with those of the Avalon shareholders. At September 30, 2019, options to purchase 760,000 shares have been granted under the 2009 Plan. Of these, 72,000 shares have been exercised, and options for 688,000 shares remain outstanding. NQSO’s may be granted with an exercise price which is not less than 100% of the fair market value of the Class A Common Stock on the date of grant. Options designated as ISO’s shall not be less than 110% of fair market value for employees who are ten percent shareholders and not less than 100% of fair market value for other employees. The Board of Directors may, from time to time in its discretion, grant options to one or more outside directors, subject to such terms and conditions as the Board of Directors may determine, provided that such terms and conditions are not inconsistent with other applicable provisions of the Option Plan. Options shall have a term of no longer than ten years from the date of grant; except that for an option designated as an ISO which is granted to a ten percent shareholder, the option shall have a term no longer than five years. No option shall be exercisable prior to one year after its grant, unless otherwise provided by the Option Committee of the Board of Directors (but in no event before 6 months after its grant), and thereafter options shall become exercisable in installments, if any, as provided by the Option Committee. Options must be exercised for full shares of common stock. To the extent that options are not exercised when they become initially exercisable, they shall be carried forward and be exercisable until the expiration of the term of such options. No option may be exercised by an optionee after his or her termination of employment for any reason with Avalon or an affiliate, except in certain situations provided by the Option Plan. The stock options, vest ratably over a five year period and have a contractual term of ten years from the date of grant. At the end of each contractual vesting period, the share price of the Avalon common stock, traded on a public stock exchange (NYSE Amex), must reach a predetermined price within three years following such contractual vesting period before the stock options are exercisable (See table below). If the Avalon common stock price does not reach the predetermined price, the stock options will either be cancelled or the period will be extended at the discretion of the Board of Directors. In 2018, the Board of Directors extended the period of time for certain vested options that were not exercisable due to those options not meeting the predetermined stock price within the three years following the contractual vesting period. The grant-date fair values of the stock option awards were estimated using the Monte Carlo Simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1 ) the exercise price of the option, 2 ) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3 ) the current fair value of the underlying equity, 4 ) the expected volatility of the value of the underlying share for the expected term of the option, 5 ) the expected dividends on the underlying share for the expected term of the option and 6 ) the risk-free interest rate(s) for the expected term of the option. The grant date fair value of the underlying equity was determined to be equal to Avalon’s publicly traded stock price as of the grant dates times the sum of the Class A and Class B common shares outstanding. The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company’s stock. Due to the fact that the Company has had no historical exercising activity, prior to 2018, the simplified method was applied. Because of the nature of the vesting described above, the options are separated into five blocks, with each block having its own vesting period and expected term. For stock option awards, the expected volatility was based on the observed historical volatility of Avalon common stock. There were no expected dividends and the risk-free interest rate was based on yield data for U. S. Treasury securities over a period consistent with the expected term. The following table is a summary of the stock option activity during 2019:
|  |  |  |  |  | Weighted |  |  | Weighted |
|  | Number of |  |  | Average |  |  | Average |
|  | Options |  |  | Exercise |  |  | Fair Value at |
|  | Granted |  |  | Price |  |  | Grant Date |
Outstanding at January 1, 2019 |  |  | 688,000 |  |  |  | 2.52 |  |  |  | 1.00 |
Options granted |  |  | - |  |  |  | - |  |  |  | - |
Options exercised |  |  | - |  |  |  | - |  |  |  | - |
Options cancelled or forfeited |  |  | - |  |  |  | - |  |  |  | - |
Outstanding at September 30, 2019 |  |  | 688,000 |  |  | $ | 2.52 |  |  | $ | 1.00 |
Options Vested |  |  | 652,000 |  |  | $ | 2.56 |  |  | $ | 1.03 |
Exercisable at September 30, 2019 |  |  | 634,000 |  |  | $ | 2.58 |  |  | $ | 1.05 |
The stock options vest and become exercisable based upon achieving two critical metrics as follows:
1 ) | Contract Vesting Term: The stock options vest ratably over a five year period.
2 ) | The Avalon common stock price traded on a public stock exchange (NYSE Amex) must reach the predetermined vesting price within three years after the options become vested under the contractual vesting term.
The table below represents the period and predetermined stock price needed for vesting.
|  | Begins |  | Ends |  | Predetermined |
|  | Vesting |  | Vesting |  | Vesting Price |
Block 1 |  | 12 months after Grant Dates |  | 48 months after Grant Dates |  | $ | 3.43 |
Block 2 |  | 24 months after Grant Dates |  | 60 months after Grant Dates |  | $ | 4.69 |
Block 3 |  | 36 months after Grant Dates |  | 72 months after Grant Dates |  | $ | 6.43 |
Block 4 |  | 48 months after Grant Dates |  | 84 months after Grant Dates |  | $ | 8.81 |
Block 5 |  | 60 months after Grant Dates |  | 96 months after Grant Dates |  | $ | 12.07 |
Compensation costs were approximately $1,000 and $2,000 for the three months ended September 30, 2019 and 2018, respectively, and $4,000 and $5,000 for the nine months ended September 30, 2019 and 2018, respectively, based upon the estimated grant date fair value calculations. As of September 30, 2019, there was approximately $19,000 of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 4.67 years.

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