12. Stock-Based Compensation and Other Incentives

Determining Fair Value of Stock Options

In determining the fair value of stock option grants, the Company utilized the following assumptions:

Valuation and Amortization Method. The Company estimates the fair value of stock option awards on the date of grant using the Black-Scholes-Merton valuation model. The fair value of all awards is expensed using the “graded-vesting method.”

Expected Life. The expected life of stock options granted represents the period of time that stock options are expected, on average, to be outstanding. The Company determined the expected life to be 3.5 years, for all stock options issued with three-year vesting periods and four-year grant expirations.

Expected Volatility. Using the Black-Scholes-Merton valuation model, the Company estimates the volatility of Predecessor’s common shares at the beginning of the quarter in which the stock option is granted. The volatility of 58.6% is based on weighted average historical movements of Predecessor’s common share price on the ASX over a period that approximates the expected life.

Risk-Free Interest Rate. The Company utilizes a risk-free interest rate equal to the rate of U.S. Treasury zero-coupon issues as of the date of grant with a term equivalent to the stock option’s expected life.

Expected Dividend Yield. The Predecessor and the Successor have not paid any cash dividends on its common shares, and the Successor does not anticipate paying any cash dividends in the foreseeable future. Consequently, a dividend yield of zero is utilized in the Black-Scholes-Merton valuation model.

Expected Forfeitures. The Company has experienced limited forfeitures and therefore has not discounted expenses for forfeitures at the reporting date.

Stock Option Activity

For the year ended December 31, 2017, no stock options were exercised. The following tables summarize certain information related to outstanding stock options under the Lonestar Resources Limited 2012 Employee Share Option Plan and the Lonestar Resources US Inc. 2016 Incentive Plan, which replaced the Lonestar Resources Limited 2012 Employee Share Option Plan following the Reorganization. The number of shares that may be issued under the 2016 Incentive Plan is 2.2 million shares. The number of shares available for issuance under the 2016 Incentive Plan is approximately 0.8 million shares.

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)
Outstanding at December 31, 2016		191,750		$	15.00		0.25
Options vested and exercisable at December 31, 2016		191,750			15.00		0.25
Granted		—			—		—
Exercised		—			—		—
Canceled/expired		(116,750	)		—		—
Forfeited		(75,000	)		20.00		—
Outstanding at December 31, 2017		—		$	—		—
Options vested and exercisable at December 31, 2017		—		$	—		—

Restricted Stock Units

In February 2017, the Company granted awards of restricted stock units (“RSUs”) covering 612,000 shares to certain of its employees. In August 2017, 100,000 units were issued to the Company’s chairman of the board of directors. In October 2017, 28,409 units were issued to the Company’s internal general counsel. The awards vest over a three-year period as follows: 40% on the first anniversary of issuance and 30% on each of the second and third anniversaries of issuance, such that the RSU’s will be fully vested on the third anniversary of issuance. The Company determines the fair value of granted RSUs based on the market price of the Class A voting common stock of the Company on the date of grant. RSUs will be paid in Class A voting common stock or cash, at the Company’s option, after the vesting of the applicable RSU. Compensation expense for granted RSUs is recognized over the vesting period.

	Shares			Weighted Average Remaining Contractual Term (in years)
Outstanding at December 31, 2016		—			—
RSUs vested at December 31, 2016		—			—
Granted		740,409			3.0
Canceled/expired		—			—
Forfeited		(11,500	)		2.2
Outstanding at December 31, 2017		728,909			2.2
RSUs vested at December 31, 2017		—			—

	Shares			Weighted Average Fair Value per Share		Weighted Average Remaining Contractual Term (in years)
Outstanding non-vested RSUs at December 31, 2016		—		$	—		—
Granted		740,409			5.57		3.0
Vested		—			—		—
Forfeited		(11,500	)		6.00		2.2
Outstanding non-vested RSUs at December 31, 2017		728,909		$	5.56		2.2

Stock Appreciation Rights

In February 2017, the Company granted awards of stock appreciation rights (“SARs”) covering 700,000 shares to certain of its employees and its non-employee directors. The awards vest over a three-year period as follows: 40% on the first anniversary of issuance and 30% on each of the second and third anniversaries of issuance, such that the SAR’s will be fully vested on the third anniversary of issuance. The SARs will expire five-years after the date of issuance. The exercise price of the SAR is the fair market value of the Company’s Class A voting common stock on the date of the grant. The SAR entitles the holder to receive from the Company upon exercise of the exercisable portion of the SAR an amount determined by multiplying the excess of the fair market value of one share on the date of exercise over the exercise price per share by the number of shares with respect to which the SAR is exercised. SARs will be paid in cash or common stock at holder’s election once the SAR is vested, with the provision that the Company possesses sufficient liquidity to allow for cash settlement of the SAR. The SARs are being treated as a liability in the Consolidated Balance Sheets. The SAR liability is approximately $0.3 million for the year ended December 31, 2017.

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)
Outstanding at December 31, 2016		—			—		—
SARs vested and exercisable at December 31, 2016		—			—		—
Granted		700,000		$	7.20		5.0
Exercised		—			—		—
Canceled/expired		—			—		—
Forfeited		(10,000	)		7.20		4.8
Outstanding at December 31, 2017		690,000		$	7.20		4.3
SARs vested and exercisable at December 31, 2017		—		$	—		—

	Shares			Weighted Average Fair Value per Share		Weighted Average Exercise Price per share		Weighted Average Remaining Contractual Term (in years)
Outstanding non-vested SARs at December 31, 2016		—		$	—	$	—		—
Granted		700,000			6.00		7.20		5.0
Vested		—			—		—		—
Forfeited		(10,000	)		5.17		7.20		4.3
Outstanding non-vested SARs at December 31, 2017		690,000		$	3.97	$	7.20		4.3

Stock-Based Compensation Expense

For the year ended December 31, 2017 the Company recorded stock-based compensation expense for RSUs and SARs of approximately $1,315 and $314 thousand, respectively. For the year ended 2016, the Company recorded stock-based compensation expense for stock options granted using the fair-value method of approximately $448 thousand. As of December 31, 2017, the Company had approximately $2,725 and $629 thousand of unrecognized compensation cost related to unvested RSUs and SARs, respectively. As all outstanding stock options expired December 31, 2017, no unrecognized compensation cost existed at December 31, 2017.

401(k) Plan

The Company offers a 401(k) plan to which employees may contribute earnings subject to IRS limitations. The Company matches 100% of an employee’s contribution, up to 4% of compensation, as defined by the plan, which is vested immediately. During 2017 and 2016, the Company’s matching contributions to the 401(k) plan were approximately $147 and $155 thousand, respectively.