Deferred compensation

Our deferred compensation includes cash awards and equity-based awards which are either settled in cash or in stock.

Cash Awards

From time to time, we have granted cash awards with long term vesting requirements. During 2015 and 2017, we granted long term cash awards to certain employees of the Company, which vest in equal annual increments over a four-year period. In August 2019, we granted cash awards, which vest in one year. Since the cash awards do not vary according to the value of the Company’s equity, the awards are not considered “stock-based compensation” under accounting guidance. We accrue for the cost of each annual increment over the period service is required to vest. A summary of compensation expense for our cash awards is presented below:



	Three months ended September 30,					Nine months ended September 30,
	2019			2018		2019		2018
Cash LTIP expense (net of amounts capitalized)	$	(11	)	$	185	$	147	$	473
Cash LTIP awarded	775			127		775		174
Cash LTIP payments	955			1,166		955		1,183

The negative expense for the three months ended September 30, 2019, was a result of forfeitures. As of September 30, 2019, the outstanding liability accrued for our Cash LTIP, based on requisite service provided, was $732.

Equity Awards

The Company’s outstanding equity based awards have been granted under the 2017 Chaparral Energy, Inc. Management Incentive Plan (the “MIP”) and the Chaparral Energy, Inc. 2019 Long-Term Incentive Plan (the “LTIP”), which replaced the MIP in June 2019. The LTIP provides for the following types of awards: options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other incentive awards. The aggregate number of shares of Class A common stock, par value $0.01 per share, reserved for issuance pursuant to the LTIP is set at 3,500,000. Generally, and to the extent not provided otherwise in an award agreement, (i) in the event of a Change in Control (as defined in the LTIP) in which the acquiring or surviving entity does not assume an outstanding award, the award will fully vest, and (ii) in the event of termination by the Company of a participant’s employment or service without cause or by the participant for Good Reason (as defined in the LTIP), in each case, within one year following the occurrence of a Change in Control, the award will fully vest. These accelerated vesting provisions are in addition to the service, performance or market based vesting provisions described below.

Restricted Stock Awards (“RSAs”)

Pursuant to the MIP, we have granted RSAs to our executive employees and members of our Board of Directors (the “Board”). Grants awarded to executives generally consist of shares for which 75% are subject to service vesting conditions (the “Time Shares”) and 25% are subject to performance or market-based vesting conditions (the “Performance Shares”). All grants to members of our Board were Time Shares.

Both the Time Shares and the Performance Shares are classified as equity-based awards. The Time Shares vest in equal annual installments over the three-year vesting period. The Performance Shares vest in three tranches annually according to performance or market-based conditions established each year which generally relate to profitability, stock returns, drilling results and other strategic goals.

Vesting conditions for Performance Shares vesting in 2019 were established and approved by our Board in March 2019 and we began recognizing expense for the related shares in the first quarter of 2019. Our Board established that all Performance Shares scheduled to vest in 2019 shall be subject to a market condition that is based on our stock return relative to a group of peer companies. See “Valuation of Awards” below for a discussion of grant date fair values of our market condition awards.

A summary of our restricted stock activity pursuant to our MIP is presented below:



	Time Shares						Performance Shares
	Weighted average award date fair value		Restricted shares		Vest date fair value		Weighted average award date fair value		Restricted shares
	($ per share)						($ per share)
Unvested and outstanding at January 1, 2019	$	20.06	818,206				$	20.12	125,528
Granted	$	6.94	198,378				$	6.74	55,000
Vested	$	20.00	(393,178	)	$	2,319	$	—	—
Forfeited	$	20.05	(95,684	)			$	20.05	(28,098	)
Unvested and outstanding at September 30, 2019	$	15.17	527,722				$	15.30	152,430

Restricted Stock Units (“RSUs”)

In 2018, we issued RSUs under our MIP to certain non-executive employees in lieu of cash awards. Certain RSUs are to be settled in stock upon vesting while others are to be settled in cash. The stock-settled RSUs are classified as equity awards while the cash-settled RSUs are classified as liability awards. These awards, which are service-based, will vest in equal installments over a three-year period.

In August 2019, we issued RSUs under our LTIP to executive employees, non-executive employees and members of our Board with the following provisions:

Executive employee awards: Grants consisted of RSUs for which 50% are subject to service vesting conditions and 50% are subject to market-based vesting conditions. Service-based RSUs vest in equal annual installments over a three-year period. Market condition RSUs vest in three annual tranches according to our stock return performance relative to a group of peers. The stock return performance is measured over three separate twelve month periods associated with each of the tranches. Both types of awards were classified as equity awards.

Non-executive employee awards: Grants consisted of RSUs with service vesting conditions and vest in equal annual installments over a three-year period. These awards were classified as equity awards.

Board awards: Grants consisted of RSUs with service vesting conditions and which vest in its entirety on the earlier of (a) the first anniversary of the grant date or (b) the date of the next Company ensuing annual meeting. These awards were classified as liability awards.

A summary of our RSU activity is presented below:



	Equity classified RSUs
	Service-condition RSUs						Market condition RSUs
	Weighted average award date fair value		Restricted units		Vest date fair value		Weighted average award date fair value		Restricted units
	($ per share)						($ per share)
Unvested and outstanding at January 1, 2019	$	17.66	89,633				$	—	—
Granted	$	1.33	788,323				$	1.36	565,000
Vested	$	17.66	(25,099	)	$	33	$	—	—
Forfeited	$	17.66	(14,305	)			$	—	—
Unvested and outstanding at September 30, 2019	$	2.31	838,552				$	1.36	565,000



	Liability classified RSUs (1)
	Weighted average award date fair value		Restricted units		Vest date fair value
	($ per share)
Unvested and outstanding at January 1, 2019	$	17.66	37,196
Granted	$	1.44	71,570
Vested	$	17.09	(10,302	)	$	14
Forfeited	$	17.66	(7,836	)
Unvested and outstanding at September 30, 2019	$	4.92	90,628

Valuation of Awards

Compensation cost is generally recognized and measured according to the grant date fair value of the awards. For awards with service and performance conditions, the fair value is based on the market price of our Class A common stock on the grant date. For awards with a market condition, expense is based on a grant date fair value that incorporates the probability of vesting and the potential value of the award at vesting. We utilize Monte Carlo simulations to estimate the fair value our market based awards. The fair value and associated assumptions, which are considered to be Level 3 inputs within the fair value hierarchy, for each RSA or RSU granted in 2019 with a market condition is as follows:



	Grant Date of Market Condition Award
	August 30, 2019			April 22, 2019			March 11, 2019
Grant date fair value	$	1.41		$	8.59		$	4.66
Risk free rate	1.75		%	2.52		%	2.52		%
Volatility	90.0		%	64.1		%	64.1		%

Company-wide stock award

Historically, new employees were eligible for a grant of 100 shares of our Class A common stock subsequent to being employed for a certain period of time. There are no vesting requirements for these awards and thus compensation is recognized in full on the award date based on the closing price of our Class A common stock on that date. During the nine months ended September 30, 2019, 1,100 shares of Class A common stock were awarded to new employees under this program.

Stock-based compensation cost

Compensation cost is calculated net of forfeitures. We recognize the impact of forfeitures due to employee terminations in expense as those forfeitures occur instead of incorporating an estimate of such forfeitures. For awards with performance conditions, we will assess the probability that a performance condition will be achieved at each reporting period to determine whether and when to recognize compensation cost. For awards with market conditions, expense is recognized on the entire value of the award regardless of the vesting outcome so long as the participant remains employed.

A portion of stock-based compensation cost associated with employees involved in our acquisition, exploration, and development activities has been capitalized as part of our oil and natural gas properties. The remaining cost is reflected in lease operating and general and administrative expenses in the consolidated statements of operations. Stock-based compensation expense is as follows for the periods indicated:



	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Stock-based compensation cost	$	883		$	3,112		$	3,603		$	11,027
Less: stock-based compensation cost capitalized	(222		)	(807		)	(1,247		)	(2,428		)
Stock-based compensation expense	$	661		$	2,305		$	2,356		$	8,599
Number of vested shares repurchased or settled in cash	17,889			—			224,542			256,895
Payments for stock-based compensation	24			—			1,195			4,872

Based on a quarter end market price of $1.34 per share of our Class A common stock, the aggregate intrinsic value of all restricted shares and stock settled RSUs outstanding was $2,914 as of September 30, 2019. The repurchases or cash settlements and associated payments disclosed above were primarily for tax withholding. As of September 30, 2019, and December 31, 2018, accrued payroll and benefits payable included for stock-based compensation costs expected to be settled within the next twelve months were $17 and $17, respectively, all of which relates to our cash-settled RSUs. Unrecognized stock-based compensation cost of approximately $4,296 as of September 30, 2019, is expected to be recognized over a weighted-average period of 1.2 years.