Stock-Based Compensation

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

Management Incentive Plan

In connection with the Company's emergence from bankruptcy, the Plan provided for the adoption of a management incentive plan. On April 31, 2021, the Lonestar Resources US Inc. 2021 Management Incentive Plan (the “MIP”) was approved and adopted by the Company’s board of directors. The aggregate number of the Company’s common shares reserved for issuance under the MIP is equal to 966,184 shares, which are available for issuance pursuant to awards granted to officers, other employees, directors and other service providers. The MIP provides for, among other things, the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents, other stock-based awards, cash awards, or any combination of the foregoing. As of June 30, 2021,awards covering 691,500 shares of the Company’s stock are outstanding under the MIP and 274,684 shares are available for future grants under the MIP, all of which could be issued in the form of restricted stock units. The incentive compensation program is administered by the Compensation Committee of the Company's Board of Directors.

Restricted Stock Units

On April 13, 2021, service-based restricted stock unit awards (“RSUs”) were granted to certain employees and directors under the MIP. One-third of the RSUs granted to employees vested and were immediately settled on the grant date, and the remaining unvested RSUs will vest in equal annual installments December 31, 2021, December 31, 2022, and December 31, 2023, subject to such employee’s continued employment with the Company on each applicable vesting date. One-half of the RSUs granted to directors vested and were immediately settled on the date of grant, and the remaining unvested RSUs will vest on December 31, 2021, subject to such director’s continued service on the Company’s board of directors through such vesting date. Shares of the Company’s common stock to be delivered to participants upon settlement are expected to be made available from authorized but unissued shares reserved under the MIP, however, the RSUs held by directors are eligible for settlement in cash at such directors’ discretion. As a result, RSUs granted to directors are accounted for as a liability on the Company's unaudited condensed consolidated balance sheet.

As of June 30, 2021, there was $1.7 million of unrecognized compensation expense related to the Company’s

RSUs held by employees. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.5 years. For the three months ended June 30, 2021, the Company recognized $1.3 million, of stock-based compensation expense for the RSUs. The liability for directors' unvested RSUs on the accompanying consolidated balance sheet as of June 30, 2021 was $0.1 million.

A summary of the status of the Company's service-based RSU grants issued, and the changes during the six months ended June 30, 2021 is presented below:


	Shares	Weighted Average Fair Value per Share
Nonvested at December 31, 2020	—	$	—
Granted	387,750	7.29
Vested	(143,250)	7.29
Forfeited	—	—
Nonvested at June 30, 2021	244,500	10.28

Performance-Based RSUs

In April 2021, performance-based restricted stock unit awards (“PSUs”) were granted to certain employees under the MIP. The PSUs are eligible to vest in equal annual installments on December 31, 2021, December 31, 2022, and December 31, 2023 (each installment, a “Tranche”), subject to such employee’s continued employment with the Company on each applicable vesting date. Whether the PSUs vest and become settled on each applicable vesting date depends on the achievement of certain performance criteria determined by the Company’s board of directors, which is set within 90 days of the applicable fiscal year with respect to each Tranche. The performance criteria determined by the Company’s board of directors is typically related to the Company’s performance for the preceding fiscal year against several key performance indicators, including free cash flow and spending metrics, as well as discretionary factors. Shares of the Company’s common stock to be delivered to participants upon settlement are expected to be made available from authorized but unissued shares reserved under the MIP.

As of June 30, 2021, there was $2.2 million of unrecognized compensation expense related to the Successor’s

non-vested PSUs. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.6 years. For the three months ended June 30, 2021, the Company recognized $0.1 million, of stock-based compensation expense for the PSUs.

PSUs are valued using a Monte Carlo simulation. Expected volatilities utilized in the model were estimated using historical volatility of the Predecessor stock over a look-back term generally equivalent to the expected life of the award from the grant date.

A range of assumptions used in the Monte Carlo simulation valuation approach is as follows:


	Six Months Ended June 30, 2021
Weighted-average fair value of PSUs granted	$	7.29
Risk-free interest rate	0.21		%
Expected life	3.6
Expected volatility	125		%
Dividend yield	—

A summary of the status of the non-vested PSUs during the six months ended June 30, 2021 is as follows:


	Shares	Weighted Average Fair Value per Share
Non-vested at December 31, 2020	—	$	—
Granted	303,750	7.29
Vested	—	—
Forfeited	—	—
Non-vested at June 30, 2021	303,750	$	10.28