Share-Based Compensation

Bankruptcy Proceedings

The Plan of Reorganization, as discussed in Note 1A, provides that the Company’s current common stock will be cancelled and that new common stock will be issued upon emergence from bankruptcy. If the Plan is confirmed by the Bankruptcy Court, the Company's currently existing share-based awards will also be canceled upon the Company's emergence from bankruptcy. Cancellation of these share-based awards will result in the recognition of expense, on the date of cancellation, to record any previously unamortized expense related to the canceled awards.

Share-Based Compensation Plans

We have multiple share-based compensation plans with outstanding awards including the 2005 Stock Compensation Plan, most recently amended by our Board of Directors in May 2013, which was approved by shareholders at the 2005 annual meeting of shareholders; the 2001 Omnibus Stock Compensation Plan, which was adopted by our Board of Directors in February 2001 and was approved by shareholders at the 2001 annual meeting of shareholders; the 1990 Non-Qualified Stock Option Plan solely for our independent directors. No further grants will be made under the 2001 Omnibus Stock Compensation Plan or the 1990 Non-Qualified Stock Option Plan, both of which were replaced by the 2005 Stock Compensation Plan, and no awards remain outstanding under these plans as of December 31, 2015. In addition, we have an employee stock purchase plan and also had an employee stock ownership plan prior to its termination during 2015. We follow guidance contained in FASB ASC 718 to account for share-based compensation.

Under the 2005 plan, stock option awards and other equity based awards may be granted to employees, directors, and consultants, with directors only eligible to receive restricted awards. Under the 2001 plan, stock option awards and other equity based awards were granted to employees. Under the 1990 non-qualified plan, non-employee members of our Board of Directors were automatically granted stock option awards to purchase shares of common stock on a formula basis. All three plans provide that the exercise prices for stock option awards equal 100% of the fair value of the common stock on the date of grant. Restricted stock grants become vested over a three year period, and stock option awards become exercisable in various terms ranging from one year to five years. Stock option awards granted typically expire ten years after the date of grant or earlier in the event of the optionee's separation from employment. At the time the stock option awards are exercised, the cash received is credited to common stock and additional paid-in capital. The 2005 plan allows for the use of a “stock swap” in lieu of a cash exercise for stock option awards, under certain circumstances. The delivery of Swift Energy common stock, held by the optionee for a minimum of six months, which are considered mature shares, with a fair market value equal to the required purchase price of the shares to which the exercise relates, constitutes a valid “stock swap.” Stock option awards issued under a “stock swap” also previously included a reload feature that was discontinued during 2012. There were no mature shares that were delivered in “stock swap” transactions during 2015 or 2014 while there were 10,752 such shared delivered for the year ended December 31, 2013.

The employee stock purchase plan, which began in 1993, provides eligible employees the opportunity to acquire shares of Swift Energy common stock at a discount through payroll deductions. To date, employees have been allowed to authorize payroll deductions of up to 10% of their base salary, within IRS limitations and plan rules, during the plan year by making an election to participate prior to the start of a plan year. The purchase price for stock acquired under the plan is 85% of the lower of the closing price of our common stock at the beginning or end of the plan year. Under this plan for the last three years, we have issued 87,629 shares at a price of $3.44 in 2015, 71,825 shares at a price of $11.47 in 2014 and 72,273 shares at a price of $13.08 in 2013. There were no contributions for the year ended December 31, 2015 while contributions for the years ended December 31, 2014 and 2013 were all made in common stock. As of December 31, 2015, 318,027 shares remained available for issuance under this plan.

We receive 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. We receive an additional tax deduction when restricted stock awards vest at a higher value than the value used to recognize compensation expense at the date of grant. We are required to report excess tax benefits from the award of equity instruments as financing cash flows. We recognized an excess tax shortfall for the years ended December 31, 2015 and 2014, as referenced in Note 3 of these consolidated financial statements. We did not recognize any material excess tax benefit or shortfall in earnings for the year ended December 31, 2013.

There were no stock option exercises for the years ended December 31, 2015 and 2014. Net cash proceeds from the exercise of stock option awards were not material for the year ended December 31, 2013. There was no income tax benefit from stock option exercises for the year ended December 31, 2013.

Share-based compensation expense for awards issued to both employees and non-employees, which was recorded in “General and administrative, net” in the accompanying consolidated statements of operations, was $4.1 million, $6.7 million and $9.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. Share-based compensation recorded in lease operating cost was $0.2 million for the years ended December 31, 2015 and 2014, respectively and $0.3 million for the year ended December 31, 2013. We also capitalized $1.4 million, $3.5 million and $5.5 million of share-based compensation for the years ended December 31, 2015, 2014 and 2013, respectively. We view stock option awards and restricted stock awards with graded vesting as single awards with an expected life equal to the average expected life of component awards, and we amortize the awards on a straight-line basis over the life of the awards.

Our shares available for future grant under our Share-Based Compensation plans were 1,253,306 at December 31, 2015. Each stock option award granted reduces the aforementioned total by 1.0 share, while each restricted stock award and restricted stock unit granted reduces the shares available for future grant by 1.44 shares.

Stock Option Awards

During the years ended December 31, 2015, 2014 and 2013, we did not grant any stock option awards. The expected term for grants issued considers all relevant factors including historical and expected future employee exercise behavior. We have analyzed historical volatility and, based on an analysis of all relevant factors, we have used a 5.5 year look-back period to estimate expected volatility of our stock option awards.

At December 31, 2015, we had no unrecognized compensation cost related to stock option awards. The following table represents stock option award activity for the year ended December 31, 2015:



	2015
	Shares		Wtd. Avg. Exer. Price

Options outstanding, beginning of period	1,332,190		$	34.02
Options granted	—		$	—
Options canceled	(1,800	)	$	34.15
Options exercised	—		$	—
Options outstanding, end of period	1,330,390		$	34.02
Options exercisable, end of period	1,330,390		$	34.02

Our outstanding and exercisable stock option awards at December 31, 2015 had no aggregate intrinsic value since all outstanding stock option awards were out of the money. At December 31, 2015 the weighted average remaining contract life of stock option awards outstanding and exercisable was 3.8 years. The total intrinsic value of stock option awards exercised for the years ended December 31, 2015, 2014 and 2013 was not material.

The following table summarizes information about stock option awards outstanding at December 31, 2015:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at 12/31/15	Wtd. Avg. Remaining Contractual Life	Wtd. Avg. Exercise Price		Number Exercisable at 12/31/15	Wtd. Avg. Exercise Price
$8.00 to $24.99	380,080	3.6	$	19.91	380,080	$	19.91
$25.00 to $45.00	950,310	3.8	$	39.67	950,310	$	39.67
$8.00 to $45.00	1,330,390	3.7	$	34.02	1,330,390	$	34.02

Restricted Stock Awards

For the years ended December 31, 2015, 2014 and 2013, the Company issued 609,238 shares, 747,400 shares and 869,430 shares, respectively, of restricted stock to employees, consultants, and directors. These shares vest over three years and remain subject to forfeiture if vesting conditions are not met. The ultimate treatment of these grants will be determined by the Bankruptcy Court, which may include forfeiture of all unvested awards to certain members of management of the Company and the Board of Directors. The weighted average fair values of these shares when issued, for the years ended December 31, 2015, 2014 and 2013 were $2.64, $11.55 and $14.86 per share, respectively.

The compensation expense for these awards was determined based on the closing market price of our stock at the date of grant applied to the total number of shares that were anticipated to fully vest. As of December 31, 2015, we had unrecognized compensation expense of $3.6 million related to restricted stock awards which is expected to be recognized over a weighted-average period of 1.2 years. The grant date fair values of shares vested for the years ended December 31, 2015, 2014 and 2013 were $6.1 million, $11.8 million and $12.8 million, respectively.

The following table represents restricted stock award activity for the year ended December 31, 2015:



	2015
	Shares		Wtd. Avg. Grant Price
Restricted shares outstanding, beginning of period	1,414,012		$	14.81
Restricted shares granted	609,238		$	2.64
Restricted shares canceled	(232,482	)	$	13.65
Restricted shares vested	(303,692	)	$	20.04
Restricted shares outstanding, end of period	1,487,076		$	8.94

Performance-Based Restricted Stock Units

For the years ended December 31, 2015, 2014 and 2013, the Company granted 216,450, 185,250 and 189,700 performance-based restricted stock units, respectively. These units contained predetermined market and performance conditions set by our compensation committee with a performance period of 3 years and a cliff vesting period of 3.1 years. Further, the ultimate treatment of these grants will be determined by the Bankruptcy Court, which may include forfeiture of all unvested awards to certain members of management. The Target payout is 100% of the units granted while the conditions of the grants allow for a payout ranging between no payout and 200% of target.

The compensation expense for the market condition is based on the per unit grant date valuation using a Monte-Carlo simulation. The performance condition is remeasured quarterly and compensation expense is recorded based on the closing market price of our stock per unit on the grant date multiplied by the expected payout level. The payout level for the 2015 awards is calculated based on actual stock price performance achieved during the performance period while the payout level for the 2014 and 2013 awards is calculated based on actual performance achieved during the performance period compared to a defined peer group.

As of December 31, 2015, we had unrecognized compensation expense of $0.9 million related to our restricted stock units which is expected to be recognized over a weighted-average period of 1.5 years. No shares vested during the years ended December 31, 2015, 2014 and 2013. The weighted average grant date fair value for the restricted stock units granted during the years ended December 31, 2015, 2014 and 2013 was $1.98, $11.68 and $15.01 per unit, respectively.

The following table represents restricted stock unit activity for the year ended December 31, 2015:



	Shares	Wtd. Avg. Grant Price
Restricted stock units outstanding, beginning of period	374,950	$	13.36
Restricted stock units granted	216,450	$	1.98
Restricted stock units canceled	—	$	—
Restricted stock units vested	—	$	—
Restricted stock units outstanding, end of period	591,400	$	9.20

Cash-Settled Restricted Stock Units (Liability Awards)

During the year ended 2015, the Company granted 147,812 units of cash-settled restricted stock units. The grants have a cliff vesting period of approximately 1.0 year while the compensation expense and corresponding liability are remeasured quarterly over the corresponding service period. The vesting of these grants, the timing of which is currently uncertain due to the bankruptcy proceedings, originally required a cash payout based on the fair value of the stock price on the date of the next Annual Shareholder Meeting in May of 2016. The ultimate treatment of these grants will be determined by the Bankruptcy Court, which may include forfeiture of all unvested awards.

Employee Stock Ownership Plan

The company established the Employee Stock Ownership Plan (“ESOP”), effective January 1, 1996. All employees over the age of 21 with one year of service were participants. This plan had a three-year cliff vesting requirement. The ESOP was designed to enable our employees to accumulate stock ownership. While employees did not contribute to the plan, contributions made by the Company provided participants with an allocation of stock within the plan. The plan could also acquire Swift Energy common stock, purchased at fair market value. The ESOP could borrow money from Swift Energy to buy Swift Energy common stock. ESOP payouts were paid in a lump sum or installments, and the participants generally had the choice of receiving cash or stock. In 2015, with the approval of the Board of Directors, the Company began winding down the ESOP and on October 25, 2015, the Board of Directors approved the termination of the ESOP. Distributions were made to all participants with a balance based on each participant’s election, and as of December 31, 2015, there were no remaining participants in the ESOP. The Company is in the process of completing the remaining administrative steps necessary to formally terminate the ESOP. Accordingly, no contributions were made by Swift Energy for the years ended December 31, 2015 and 2014. Our contribution to the ESOP plan totaled $0.2 million for the year ended year ended December 31, 2013, and was all made in common stock, from treasury shares which totaled 14,815, and was recorded as “General and administrative, net” on the accompanying consolidated statements of operations.

Employee Savings Plan

We have a savings plan under Section 401(k) of the Internal Revenue Code. In 2013 this plan was updated so that eligible employees may make voluntary contributions into the 401(k) savings plan with Swift Energy contributing on behalf of the eligible employee an amount up to 100% of the first 6% of compensation based on the contributions made by the eligible employees. The 2015 plan contributions of $0.7 million are expected to be paid in cash during the first quarter of 2016. Our contributions to the 401(k) savings plan were $1.9 million for the year ended December 31, 2014 and were $1.8 million for the year ended December 31, 2013. These amounts were recorded as “General and administrative, net” on the accompanying consolidated statements of operations. The 2014 plan contributions were made with a combination of $0.9 million of cash and 352,476 shares of common stock, from treasury shares, while the 2013 plan contributions were made in common stock, from treasury shares. The shares of common stock contributed to the 401(k) savings plan totaled 139,850 for the year ended December 31, 2013.