Stock-Based Compensation and Option Plans

The Company’s Amended and Restated 2005 Employee Long-Term Equity Incentive Plan reserves 10.6 million shares of Abraxas common stock, subject to adjustment following certain events. Awards may be in options or shares of restricted stock. Options have a term not to exceed 10 years. Options issued under this plan vest according to a vesting schedule as determined by the compensation committee of the Company’s board of directors. Vesting may occur upon (1) the attainment of one or more performance goals or targets established by the committee, (2) the optionee’s continued employment or service for a specified period of time, (3) the occurrence of any event or the satisfaction of any other condition specified by the committee, or (4) a combination of any of the foregoing.

Stock Options

The Company utilizes a standard option pricing model (Black-Scholes) to measure the fair value of stock options granted to employees and directors. The fair value for these options was estimated at the date of grant using the following weighted average assumptions for 2014, 2015 and 2016:



	2014			2015			2016
Weighted average value per option granted during the period	$	2.44		$	2.37		$	0.68
Assumptions:
Forfeiture rate (1)	4.2		%	4.5		%	4.2		%
Expected dividend yield (2)	—		%	—		%	—		%
Volatility (3)	80.7		%	81.1		%	71.1		%
Risk free interest rate (4)	2.05		%	1.92		%	1.72		%
Expected life (years) (5)	6.6			7.0			7.0
Fair value of options granted (in thousands)	$	2,666		$	3,792		$	2,307

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(1) The estimated future forfeiture rate is based on the Company’s historical forfeiture rate.

(2) The dividend yield is based on the fact the Company does not pay any dividends.

(3) The volatility is based on the historical volatility of our stock for a period approximating the expected life.


(4)	The risk-free interest rate is based on the observed U.S. Treasury yield curve in effect at the time the options were granted.


(5)	The expected life was derived based on a weighting between (a) the Company’s historical exercise and forfeiture activity and (b) the average midpoint between vesting and the contractual term.

The Company grants options to its officers, directors, and other employees under various stock option and incentive plans.

The following table is a summary of the Company’s stock option activity for the three years ended December 31:



	Options (000s)		Weighted average exercise price		Weighted average remaining life	Intrinsic value per share
Options outstanding December 31, 2013	5,400		$	2.77

Granted	1,091		3.38
Exercised	(410	)	2.71
Forfeited/Expired	(196	)	3.08
Options outstanding December 31, 2014	5,885		$	2.88

Granted	1,601		3.22
Exercised	(164	)	1.03
Forfeited/Expired	(514	)	4.36
Options outstanding December 31, 2015	6,808		$	2.89

Granted	2,265		1.02
Exercised	(83	)	1.40
Forfeited/Expired	(836	)	2.84
Options outstanding December 31, 2016	8,154		$	2.39	6.39	1.70
Exercisable at end of year	4,808				4.90	1.93

Other information pertaining to the Company’s stock option activity for the three years ended December 31:



	2014		2015		2016
Weighted average grant date fair value of stock options granted (per share)	$	2.44	$	2.37	$	0.68
Total fair value of options vested (000’s)	$	1,718	$	2,035	$	2,776
Total intrinsic value of options exercised (000’s)	$	932	$	124	$	39

As of December 31, 2016, the total compensation cost related to non-vested awards not yet recognized was approximately $2.9 million, which will be recognized in 2017 through 2020. For the years ended December 31, 2014, 2015 and 2016, we recognized $1.8 million, $2.4 million and $2.0 million, respectively, in stock-based compensation expense relating to options.

The following table represents the range of stock option prices and the weighted average remaining life of outstanding options as of December 31, 2016:



	Options outstanding				Exercisable
	Number outstanding	Weighted average remaining life	Weighted average exercise price		Number exercisable	Weighted average remaining life	Weighted average exercise price
0.97 - 1.99	3,462,042	6.7	$	1.23	1,595,042	3.8	$	1.52
2.00 - 2.99	1,240,350	5.2	$	2.35	1,102,063	5.0	$	2.35
3.00 - 3.99	2,765,633	7.0	$	3.29	1,438,408	6.3	$	3.41
4.00 - 4.99	585,750	3.6	$	4.56	574,750	3.6	$	4.56
5.00 - 5.99	99,000	7.4	$	5.39	97,500	7.4	$	5.38
6.00 - 6.28	1,000	7.5	$	6.28	500	7.5	$	6.28
	8,153,775				4,808,263

Restricted Stock Awards

Restricted stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the awardee terminates employment with the Company prior to the lapse of the restrictions. The value of such stock is determined using the market price on the grant date. Compensation expense is recorded over the applicable restricted stock vesting periods. As of December 31, 2016, the total compensation cost related to non-vested awards not yet recognized was approximately $1.9 million, which will be recognized in 2017 through 2020. For the years ended December 31, 2014, 2015 and 2016, we recognized $0.9 million, $1.5 million and $1.2 million, respectively, in stock-based compensation expense related to restricted stock awards.

The following table is a summary of the Company’s restricted stock activity for the three years ended December 31, 2016:



	Number of Shares		Weighted average grant date fair value
Unvested December 31, 2013	355,240		$	3.24
Granted	1,582,000		3.49
Vested/Released	(121,622	)	3.64
Forfeited	(39,528	)	3.44
Unvested December 31, 2014	1,776,090		$	3.43
Granted	—		—
Vested/Released	(127,729	)	3.38
Forfeited	(5,077	)	2.56
Unvested December 31, 2015	1,643,284		$	3.44
Granted	—		—
Vested/Released	(52,017	)	2.40
Forfeited	(98,802	)	3.63
Unvested December 31, 2016	1,492,465		$	3.47

Director Stock Awards

The 2005 Directors Plan (as amended and restated) reserves 1.9 million shares of Abraxas common stock, subject to adjustment following certain events. The 2005 Directors Plan provides that each year, at the first regular meeting of the board of directors immediately following Abraxas’ annual stockholder’s meeting, each non-employee director shall be granted or issued awards of 25,000 shares of Abraxas common stock, for participation in board and committee meetings during the previous calendar year. The maximum annual award for any one person is 100,000 shares of Abraxas common stock or options for common stock. If options, as opposed to shares, are awarded, the exercise price shall be no less than 100% of the fair market value on the date of the award while the option terms and vesting schedules are at the discretion of the committee. In 2014 and 2015 directors were paid a retainer fee of $40,000. Beginning in 2016, the retainer fee was reduced by 20% and paid one half in cash and one half in Abraxas common stock. The retainer fee for 2016 was $32,000.

At December 31, 2016, the Company had approximately 9.0 million shares reserved for future issuance for conversion of its stock options, and incentive plans for the Company’s directors, employees and consultants.