Share-Based Compensation

Emergence from Voluntary Reorganization

Upon the Company's emergence from bankruptcy on April 22, 2016, as discussed in Note 1A, the Company’s common stock was canceled and new common stock was issued. The Company's previous share-based compensation awards were either vested or canceled upon the Company's emergence from bankruptcy.

Share-Based Compensation Plans

Upon the Company's emergence from bankruptcy on April 22, 2016, the new Swift Energy Company 2016 Equity Incentive Plan was approved in accordance with the joint plan of reorganization. Under the previous share-based compensation plan the outstanding restricted stock awards and restricted stock unit awards for most employees vested on an accelerated basis while awards issued to certain officers of the Company and the Board of Directors were canceled.

For awards granted after emergence from bankruptcy, the Company does not estimate the forfeiture rate during the initial calculation of compensation cost but rather has elected to account for forfeitures in compensation cost when they occur. For the predecessor periods the Company had estimated the forfeiture rate for share-based compensation during the initial calculation of compensation cost.

The Company computes a deferred tax benefit for restricted stock awards, unit awards and stock options expected to generate future tax deductions by applying its effective tax rate to the expense recorded. For restricted stock units the Company's actual tax deduction is based on the value of the units at the time of vesting.

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.

For the period of April 23, 2016 through December 31, 2016 (successor), no incremental tax benefit was recognized for shares that vested due to the offsetting valuation allowance as discussed in Note 4 in our Form 10-K of these consolidated financial statements. For the period of January 1, 2016 through April 22, 2016 (predecessor) the tax deduction realized was significantly less than the associated deferred tax asset, however the tax asset had been fully offset with a valuation allowance in prior periods so no incremental tax expense was realized. For the years ended December 31, 2015 and 2014 (predecessor), we recognized an income tax shortfall in earnings as referenced in Note 4 of these consolidated financial statements.

Share-based compensation for the predecessor and successor periods are not comparable. The 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 $3.6 million for the period of April 23, 2016 through December 31, 2016 (successor), while for the period of January 1, 2016 through April 22, 2016 (predecessor) and the years ended December 31, 2015 and 2014 (predecessor) the expense was $0.9 million, $4.1 million and $6.7 million, respectively.

We have not capitalized any share-based compensation for the period of April 23, 2016 through December 31, 2016 (successor). For the period of January 1, 2016 through April 22, 2016 (predecessor) and the years ended December 31, 2015 and 2014 (predecessor) we capitalized $0.2 million, $1.4 million and $3.5 million, respectively. We view stock option awards and restricted stock unit 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.

Share-based compensation recorded in lease operating cost was $0.2 million for the years ended December 31, 2015 and 2014 (predecessor). There was no share-based compensation recorded in lease operating cost for the period of January 1, 2016 through April 22, 2016 (predecessor) and the period of April 23, 2016 through December 31, 2016 (successor).

Our shares available for future grant under our Share-Based Compensation plans were 221,295 at December 31, 2016. Each restricted stock award and restricted stock unit granted reduces the shares available for future grant by one share.

Stock Option Awards

On June 8, 2016, 105,811 stock option awards were granted to various officers and directors with an exercise price of $23.25. The compensation cost related to these awards is based on the grant date fair value and is expensed over the vesting period (generally one to three years). We use the Black-Scholes-Merton option pricing model to estimate the fair value of stock option awards with the following assumptions for stock option awards issued during the period of April 23, 2016 through December 31, 2016 (successor):



	Stock Option Valuation Assumptions
Expected Dividend	—
Expected volatility	69.3		%
Risk-free interest rate	1.42		%
Expected life of stock option awards (in years)	4
Weighted average grant-date fair value	$	12.64

To estimate expected volatility of our 2016 stock option grants we used the historical volatility of stock prices based on a group of our peer companies. 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 4 year look-back period to estimate expected volatility of our stock option awards.

At December 31, 2016, we had $0.4 million unrecognized compensation cost related to stock option awards. The following table represents stock option award activity for the year ended December 31, 2016:



	2016
	Shares		Wtd. Avg. Exer. Price

Options outstanding, beginning of period (Predecessor)	1,330,390		$	34.02
Options canceled/vested upon emergence from bankruptcy	(1,330,390	)	$	—
Options outstanding, as of April 22, 2016 (Successor)	—		$	—
Options granted	105,811		$	23.25
Options canceled	—		$	—
Options exercised	—		$	—
Options outstanding, end of period (Successor)	105,811		$	23.25
Options exercisable, end of period (Successor)	60,847		$	23.25

Our outstanding stock option awards at December 31, 2016 had $1.1 million aggregate intrinsic value. At December 31, 2016 the weighted average remaining contract life of stock option awards outstanding was 3.2 years and exercisable was 2.3 years. The total intrinsic value of stock option awards exercisable for the year ended December 31, 2016 was $0.6 million.

The following table summarizes information about stock option awards outstanding at December 31, 2016:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at 12/31/16	Wtd. Avg. Remaining Contractual Life	Wtd. Avg. Exercise Price		Number Exercisable at 12/31/16	Wtd. Avg. Exercise Price
$1.00 to $25.00	105,811	3.2	$	23.25	60,874	$	23.25

Restricted Stock Awards

The following table represents restricted stock award activity for the year ended December 31, 2016:



	2016
	Shares			Wtd. Avg. Grant Price
Restricted awards outstanding, beginning of period (Predecessor)	1,487,076			$	8.94
Restricted awards canceled/vested upon emergence from bankruptcy	(1,487,076		)	$	8.94
Restricted awards, as of April 22, 2016 (Successor)	$	—		$	—
Restricted shares outstanding, end of period (Successor)	—			$	—

Restricted Stock Units

The 2016 equity incentive compensation plan allows for the issuance of restricted stock unit awards that generally may not be sold or otherwise transferred until certain restrictions have lapsed. The compensation cost related to these awards is based on the grant date fair value and is expensed over the requisite service period (generally one to three years).

On June 8, 2016, 254,905 restricted stock unit awards were granted to various officers and directors with a grant-date fair value of $23.25. These grants generally vest over a period of one to three years.

As of December 31, 2016, we had unrecognized compensation expense of $3.2 million related to our restricted stock units which is expected to be recognized over a weighted-average period of 2.3 years.

The following table represents restricted stock unit activity for the year ended December 31, 2016:



	Shares		Wtd. Avg. Grant Price
Restricted units outstanding, beginning of period (Predecessor)	591,400		$	9.20
Restricted units canceled/vested upon emergence from bankruptcy	(591,400	)	$	9.20
Restricted units, as of April 22, 2016 (Successor)	—		$	—
Restricted stock units granted	254,905		$	23.25
Restricted stock units canceled	—		$	—
Restricted stock units vested	76,058		$	23.25
Restricted stock units outstanding, end of period (Successor)	178,847		$	23.25

In accordance with their employment agreements, the Chief Executive Officer and Chief Financial Officer vested in all of their share-based compensation awards in conjunction with their retirements. As such, all expense for their stock option awards and restricted stock unit awards was accelerated and is included in the share-based compensation expense for the period of April 23, 2016 through December 31, 2016 (successor). The total expense included in the period for such awards was $1.6 million for 76,058 restricted stock unit awards and $0.7 million for 60,847 stock option awards.

Employee Savings Plan

We have a savings plan under Section 401(k) of the Internal Revenue Code. For 2016 the Company contributed on behalf of the eligible employee an amount up to 100% of the first 2% of compensation based on the contributions made by the eligible employees. The Company's 2016 plan contribution of $0.3 million was paid in cash during the first quarter of 2017. The Company's contributions to the 401(k) savings plan were $0.7 million for the year ended December 31, 2015 and were $1.9 million for the year ended December 31, 2014. 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.

Predecessor Share-Based Compensation Awards

We previously had shares outstanding under multiple share-based compensation plans with outstanding awards including the 2005 Stock Compensation Plan, last 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. In addition, we had an employee stock purchase plan and also had an employee stock ownership plan prior to their termination during 2016 and 2015, respectively.

Under the 2005 plan, stock option awards and other equity-based awards could 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. Restricted stock grants became vested over a three year period, and stock option awards were exercisable in various terms ranging from one year to five years. Stock option awards granted typically expired 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 were exercised, the cash received was credited to common stock and additional paid-in capital.

The employee stock purchase plan, which began in 1993, provided eligible employees the opportunity to acquire shares of Swift Energy common stock at a discount through payroll deductions. Under this plan, we had issued 87,629 shares at a price of $3.44 in 2015 and 71,825 shares at a price of $11.47 in 2014. As of December 31, 2015, this plan was terminated.

During the years ended December 31, 2015 and 2014, we did not grant any stock option awards and there were no stock option exercises for the years ended December 31, 2015 and 2014. The total intrinsic value of stock option awards exercised for the years ended December 31, 2015 and 2014 was not material.

For the years ended December 31, 2015 and 2014, the Company issued 609,238 shares and 747,400 shares, respectively, of restricted stock to employees, consultants, and directors. The weighted average fair values of these shares when issued, for the years ended December 31, 2015 and 2014 were $2.64 and $11.55 per share, respectively. The grant date fair values of shares vested for the years ended December 31, 2015 and 2014 were $6.1 million and $11.8 million, respectively. All of the remaining grants either vested or were canceled upon emergence from bankruptcy.

During the year ended 2015, the Company granted 147,812 units of cash-settled restricted stock units. The grants had a cliff vesting period of approximately 1.0 year while the compensation expense and corresponding liability were re-measured quarterly over the corresponding service period. All of the remaining grants were canceled upon emergence from bankruptcy.

For the years ended December 31, 2015 and 2014, the Company granted 216,450 and 185,250 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. No shares vested during the years ended December 31, 2015 and 2014. The weighted average grant date fair value for the restricted stock units granted during the years ended December 31, 2015 and 2014 was $1.98 and $11.68 per unit, respectively. All of the remaining grants were canceled upon emergence from bankruptcy.