8.  COMPENSATION

Our stock-based compensation has been granted under several stock incentive and long-term incentive plans. The plans authorize the Compensation Committee of our Board of Directors to issue various types of incentive compensation. Currently, we have issued stock options, restricted shares and SARs under the 2014 Long-Term Incentive Plan (“2014 Plan”). At March 31, 2017,  3,121,839 shares were authorized for future grants under this plan.

For each stock option granted, the number of authorized shares under the 2014 Plan will be reduced on a one-for-one basis. For each restricted share granted, the number of shares authorized under the 2014 Plan will be reduced by twice the number of restricted shares. We have no set policy for sourcing shares for option grants. Historically the shares issued under option grants have been new shares.

We record non-cash compensation expense related to stock-based compensation as general and administrative expense. For the three months ended March 31, 2017 and 2016, non-cash compensation was $0.2 million and $0.4 million, respectively, related to the issuance of stock options and restricted stock. Because we do not pay significant United States federal income taxes, no amounts were recorded for tax benefits.

Stock options

Stock options have an exercise price that may not be less than the fair market value of the underlying shares on the date of grant. In general, stock options granted to participants will become exercisable over a period determined by the Compensation Committee of our Board of Directors, which in the past has been a five year life, with the options vesting over a service period of up to five years. In addition, stock options will become exercisable upon a change in control, unless provided otherwise by the Compensation Committee. There were immaterial cash proceeds from the exercise of stock options in the three months ended March 31, 2017 and 2016. A portion of the stock options granted in the three months ended March 31, 2016 were vested immediately with the remainder vesting over a two-year period.

Stock option activity for the three months ended March  31, 2017 is provided below:

No stock options were granted during the three months ended March 31, 2017. In April 2017, options for 1,084,491 shares with an exercise price of $0.99 per share were granted to employees. These options vest over a three-year period, vesting in three equal parts on the first, second and third anniversaries from the date of grant.

Restricted shares

Restricted stock granted to employees will vest over a period determined by the Compensation Committee which is generally a three year period, vesting in three equal parts on the first three anniversaries of the date of the grant. Share grants to directors vest immediately and are not restricted. The following is a summary of activity in unvested restricted stock in the three months ended March 31, 2017.

In the three months ended March 31, 2017 and 2016, no shares and 31,808 shares were added to treasury due to tax withholding on vesting restricted shares.

No restricted share grants were made to employees during the three months ended March 31, 2017. In April 2017, 183,919 restricted shares were granted to employees which vest in three equal parts on the first, second and third anniversaries from the date of grant.

Stock appreciation rights (“SARs”)

SARs are granted under the VAALCO Energy, Inc. 2016 Stock Appreciation Rights Plan. A SAR is the right to receive a cash amount equal to the spread with respect to a share of common stock upon the exercise of the SAR.  The spread is the difference between the SAR price per share specified in a SAR award on the date of grant (which may not be less than the fair market value of our common stock on the date of grant) and the fair market value per share on the date of exercise of the SAR. SARs granted to participants will become exercisable over a period determined by the Compensation Committee of our Board of Directors. In addition, SARs will become exercisable upon a change in control, unless provided otherwise by the Compensation Committee of our Board of Directors.

The 815,355 SARs granted in the three months ended March 31, 2016 vest over a three year period with a life of 5 years and have a maximum spread of 300% of the $1.04 SAR price per share specified in a SAR award on the date of grant. Of these, only the amounts listed in the table below remain outstanding as of March 31, 2017. Compensation payable related to these awards through March 31, 2017 is not significant.

SAR activity for the three months ended March 31, 2017 is provided below:





No SARs were granted during the three months ended March 31, 2017. In April 2017, 1,049,528 SARs were granted with an exercise price of $1.20 per share. One-third of the SARs vest on the date on or after the first anniversary of the grant date when the price exceeds $1.30; one-third of the SARs vest on the date on or after the second anniversary of the grant date when the share price exceeds $1.50; and one-third of the SARs vest on the date on or after the third anniversary of the grant date when the share price exceeds $1.75.