Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation and Other Benefit Plans

v3.20.1
Stock-Based Compensation and Other Benefit Plans
12 Months Ended
Dec. 31, 2019
Stock-Based Compensation and Other Benefit Plans [Abstract]  
Stock-Based Compensation and Other Benefit Plans 17. STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS

The stock-based compensation has been granted under several stock incentive and long-term incentive plans. The plans authorize the Compensation Committee of the Board of Directors to issue various types of incentive compensation. Currently, the Company has issued stock options, restricted shares and SARs from the 2014 Long-Term Incentive Plan (“2014 Plan”). At December 31, 2019, 68,241 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. The Company has no set policy for sourcing shares for option grants. Historically the shares issued under option grants have been new shares.

The Company records non-cash compensation expense related to stock-based compensation as general and administrative expense. For the years ended December 31, 2019, 2018 and 2017, non-cash compensation expense was $3.5 million, $2.4 million and $1.1 million, respectively, related to the issuance of stock options, restricted stock and SARs. The Company computes a deferred tax benefit for restricted shares, SARs and stock options expected to generate future tax deductions by applying the federal statutory tax rate. For restricted shares, the Company's actual tax deduction is based on the value of the shares at the time of vesting.  The Company receives a tax deduction for certain stock option exercises during the period the stock option awards are exercised, generally for the excess of the market value on the exercise date over the exercise price of the stock option awards.

Years Ended December 31,

2019

2018

2017

(in thousands)

Stock-based compensation - equity awards

$

985

$

820

$

977

Stock-based compensation - liability awards

2,521

1,568

121

Total stock-based compensation

$

3,506

$

2,388

$

1,098

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 the 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 $0.3 million, $0.5 million and $39 thousand in cash proceeds received from the exercise of stock options in 2019, 2018 and 2017, respectively.

On February 28, 2019, the Company granted stock options for 622,140 shares 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 with an exercise price of $2.33 per share. On April 1, 2019, the Company granted stock options for 44,163 shares to an employee with an exercise price of $2.29 per share. On June 6, 2019, the Company granted stock options for 257,228 shares to directors with an exercise price of $1.43 per share; these options vested immediately.

During 2018, options for 494,941 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 and have an exercise price of $0.86 per share. Options for 175,644 shares also were granted in 2018 to the non-employee directors, which were fully vested upon their grant and have an exercise price of $1.60 per share. 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 the non-employee directors, which were fully vested upon their grant.

The Company uses 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 2019, 2018 and 2017, the weighted average assumptions shown below were used to calculate the weighted average grant date fair value of option grants. Because the Company has 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.

Years Ended December 31,

2019

2018

2017

Weighted average exercise price - ($/share)

$

2.08

$

1.05

$

0.99

Expected life in years

3.2

3.5

3.2

Average expected volatility

73

%

71

%

73

%

Risk-free interest rate

2.33

%

2.51

%

1.51

%

Weighted average grant date fair value - ($/share)

$

1.06

$

0.68

$

0.49

Stock option activity for the year ended December 31, 2019 is provided below:

Number of Shares Underlying Options

Weighted Average Exercise Price Per Share

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value

(in thousands)

(in years)

(in thousands)

Outstanding at January 1, 2019

2,601

$

1.54

Granted

923

2.08

Exercised

(260)

0.99

Unvested shares forfeited

(306)

1.50

Vested shares expired

(124)

6.70

Outstanding at December 31, 2019

2,834

1.55

2.77

$

2,301

Exercisable at December 31, 2019

1,858

1.46

2.34

$

1,736

The intrinsic value of a stock option is the amount that the current market value of the underlying stock exceeds the exercise price of the option. The intrinsic value of stock options exercised in 2019, 2018 and 2017 was $0.3 million, $0.6 million and $0.0 million, respectively.

As of December 31, 2019, 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 2019.

Restricted Stock

Weighted Average Grant Price

(in thousands)

Non-vested shares outstanding at January 1, 2019

507

$

0.91

Awards granted

309

2.00

Awards vested

(307)

1.12

Awards forfeited

(166)

1.29

Non-vested shares outstanding at December 31, 2019

343

1.52

The total vest-date fair value of restricted stock awards, which vested during 2019, 2018 and 2017 was $0.6 million, $0.4 million and $0.3 million, respectively. The weighted average grant date fair value per share of restricted stock awards was $2.00, $1.71 and $0.98 for the years ended December 31, 2019, 2018 and 2017, respectively.

On February 28, 2019, the Company issued 174,464 shares of service based restricted stock to employees with a grant date fair value of $2.33 per share. On April 1, 2019, the Company issued 22,926 shares of service based restricted stock to employees with a grant date fair value of $2.29 per share. On June 6, 2019, the Company issued 111,888 shares of service based restricted stock to directors with a grant date fair value of $1.43 per share, which vested immediately. 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 the shares granted to employees 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, 2019, unrecognized compensation cost related to restricted stock totaled $0.2 million and is expected to be recognized over a weighted average period of 1.5 years.

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 the 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 the Board of Directors. In addition, SARs will become exercisable upon a change in control, unless provided otherwise by the Compensation Committee of the Board of Directors.

On February 28, 2019, 951,699 SARs were granted that vest over a three-year period with a life of 5 years and have a $2.33 SAR price per share specified in a SAR award on the date of grant. On May 10, 2019, 196,892 SARs were granted which vest over a three-year period with a life of 5 years and have a $1.72 SAR price per share specified in a SAR award on the date of grant.

During 2018, 2,373,411 SARs were granted that 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. During 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 the Company’s 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.

Total compensation expense related to the SARs awards during the year ended December 31, 2019 was $2.5 million.

SAR activity for the year ended December 31, 2019 is provided below:

Number of Shares Underlying SARs

Weighted Average Exercise Price Per Share

Term

Aggregate Intrinsic Value

(in thousands)

(in years)

(in thousands)

Outstanding at January 1, 2019

3,369

$

0.96

Granted

1,148

2.23

Exercised

(558)

1.04

Unvested shares forfeited

(541)

1.41

Vested shares expired

Outstanding at December 31, 2019

3,418

1.30

3.21

$

3,240

Exercisable at December 31, 2019

952

0.99

2.56

$

1,173

Other benefit plans

The Company sponsors a 401(k) plan, with a company match feature, for the employees. Costs incurred in the years ended December 31, 2019, 2018 and 2017 for the Company’s matching contribution and for administering the plan were approximately $0.4 million, $0.3 million and $0.2 million, respectively.