(4) Share-Based Compensation

Share-Based Compensation Plans

Upon the Company's emergence from bankruptcy on April 22, 2016, the Company's previous share-based compensation plans were canceled and the SilverBow Resources, Inc. 2016 Equity Incentive Plan (as amended from time to time, the “2016 Plan”), which provides for the grant of equity-based awards, was approved in accordance with the joint plan of reorganization. Under the previous share-based compensation plan, in April 2016, the outstanding restricted stock awards and restricted stock unit awards for most employees became fully vested on an accelerated basis while awards issued to certain officers of the Company and the Board of Directors were canceled. In addition to the 2016 Plan, the SilverBow Resources, Inc. Inducement Plan (as amended from time to time, the “Inducement Plan”), which also provides for the grant of equity-based awards, was adopted by the Board on December 15, 2016. Awards have been granted under the 2016 Plan and the Inducement Plan.

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.

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.

The expense for awards issued to both employees and non-employees, which was recorded in “General and administrative, net” in the accompanying condensed consolidated statements of operations was $1.6 million and $1.4 million for the three months ended September 30, 2018 and 2017, respectively, and $4.2 million and $4.5 million for the nine months ended September 30, 2018 and 2017, respectively. Capitalized share-based compensation was $0.1 million for each of the three months ended September 30, 2018 and 2017, and $0.3 million and $0.1 million for the nine months ended September 30, 2018 and 2017, 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.

Stock Option Awards

The compensation cost related to stock option awards is based on the grant date fair value and is typically expensed over the vesting period (generally one to five years). We use the Black-Scholes-Merton option pricing model to estimate the fair value of stock option awards.

At September 30, 2018, we had $7.1 million of unrecognized compensation cost related to stock option awards. The following table provides information regarding stock option award activity for the nine months ended September 30, 2018:



	Shares		Wtd. Avg. Exer. Price
Options outstanding, beginning of period	508,730		$	26.82
Options granted	201,406		$	31.14
Options forfeited	(24,365	)	$	26.96
Options expired	(11,997	)	$	26.96
Options exercised	(29,199	)	$	24.27
Options outstanding, end of period	644,575		$	28.28
Options exercisable, end of period	159,127		$	26.84

Our outstanding stock option awards at September 30, 2018 had $0.6 million of aggregate intrinsic value. At September 30, 2018, the weighted average remaining contract life of stock option awards outstanding was 7.5 years and exercisable was 3.4 years. The total intrinsic value of stock option awards exercisable for the nine months ended September 30, 2018 was $0.3 million.

Restricted Stock Units

The 2016 Plan and Inducement Plan allow 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 typically expensed over the requisite service period (generally one to five years).

As of September 30, 2018, we had unrecognized compensation expense of $7.3 million related to our restricted stock units which is expected to be recognized over a weighted-average period of 2.5 years.

The following table provides information regarding restricted stock unit award activity for the nine months ended September 30, 2018:



	Shares		Grant Date Price
Restricted stock units outstanding, beginning of period	346,740		$	26.99
Restricted stock units granted	126,728		$	28.63
Restricted stock units forfeited	(26,100	)	$	26.53
Restricted stock units vested	(106,690	)	$	26.99
Restricted stock units outstanding, end of period	340,678		$	27.64

Performance-Based Stock Units

On February 20, 2018, the Company granted 30,700 performance-based stock units for which the number of shares earned is based on the total shareholder return (“TSR”) of the Company's common stock relative to the TSR of its selected peers ("Peer Group") during the performance period from January 1, 2018 to December 31, 2020 ("Performance Period"). The awards contain market conditions which allow a payout ranging between 0% payout and 200% of the target payout. The fair value as of the date of valuation was $41.66 per unit or 150.61% as a percentage of stock price with a remaining performance period of 2.7 years. The compensation expense for these awards is based on the per unit grant date valuation using a Monte-Carlo simulation multiplied by the target payout level. The payout level is calculated based on actual stock price performance achieved during the performance period. The awards have a cliff-vesting period of three years.

As of September 30, 2018, we had unrecognized compensation expense of $1.0 million related to our performance-based stock units, which is expected to be recognized over a period of 2.4 years. No shares vested during the nine months ended September 30, 2018.