12.  STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS

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 from the 2014 Long-Term Incentive Plan (“2014 Plan”). At December 31, 2017,  2,404,442 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 years ended December 31, 2017,  2016 and 2015, non-cash compensation expense was $1.1 million, $0.2 million and $3.8 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 $39 thousand in cash proceeds received from the exercise of stock options in 2017.  For 2016 and 2015 there were no cash proceeds received from the exercise of stock options.  During 2017,  options for 1,162,930 shares were granted to employees; these options vest over a three-year period, vesting in three equal parts on the first, second and third anniversaries after the date of grant.  Options for 465,950 shares also were granted in 2017 to our non-employee directors, which were fully vested upon their grant.

We use the Black-Scholes model to calculate the grant date fair value of stock option awards. This fair value is then amortized to expense over the vesting period of the option. During 2017, 2016 and 2015, the weighted average assumptions shown below were used to calculate the weighted average grant date fair value of option grants. Because we have not paid cash dividends and do not anticipate paying cash dividends on the common stock in the foreseeable future, no expected dividend yield was input to the Black-Scholes model.



Stock option activity for the year ended December 31, 2017 is provided below:



The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option.  The intrinsic value of stock options exercised in 2017 and 2015 was $0.0 million and  $0.3 million, respectively.  There were no exercises of stock options in 2016.

On February 28, 2018, the Company granted stock options for 494,941 shares with an exercise price of $0.86 per share.

As of December 31, 2017, unrecognized compensation cost related to outstanding stock options was $0.3 million which is expected to be recognized over a weighted average period of 1.5 years.

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 following 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 2017.



The total vest-date fair value of restricted stock awards which vested during 2017,  2016 and 2015 was $0.3 million, $0.6 million and $0.7 million, respectively. The weighted average grant date fair value per share of restricted stock awards was $0.98,  $1.11 and $3.34 for the years ended December 31, 2017,  2016 and 2015, respectively.

On February 28, 2018, the Company issued 323,474 shares of service based restricted stock with a grant date fair value of $0.86 per share.  The vesting of these shares is dependent upon the employee’s continued service with the Company.  The shares will vest in three equal parts over three years.

As of December 31, 2017, unrecognized compensation cost related to restricted stock totaled $0.2 million and is expected to be recognized over a weighted average period of 1.6 years.

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. The compensation expense related to these awards through December 31, 2016 was $25 thousand.

On February 28, 2018, 2,373,411 SARs were granted which vest over a three-year period with a life of 5 years and have a $0.86 SAR price per share specified in a SAR award on the date of grant.  

For the year ended December 31, 2017,  1,049,528 SARs were granted, all having an exercise price of $1.20 per share. One-third of the SARs are to vest on or after the first anniversary of the grant date at such time when the market price per share of our common stock exceeds $1.30; one-third of the SARs are to vest on or after the second anniversary of the grant date at such time when the share price exceeds $1.50; and one-third of the SARs are to vest on or after the third anniversary of the grant date at such time when the share price exceeds $1.75. SARs granted in 2017 vest over a three year period with a life of 5 years; these SARs have a maximum spread equal to 300% of the $1.04 SAR price per share specified in a SAR award on the date of grant. The compensation expense related to these awards through December 31, 2017 was $0.1 million.

SAR activity for the year ended December 31, 2017 is provided below:





Other benefit plans

We sponsor a 401(k) plan, with a company match feature, for our employees. Costs incurred in the years ended December 31, 2017,  2016 and 2015 for administering the plan, including the company match feature, were approximately $0.2 million, $0.3 million and $0.4 million, respectively.