Callon Petroleum Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation

Share-Based Compensation

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The Company grants various forms of share-based compensation awards to employees of the Company and its subsidiaries and to non-employee members of the Board of Directors. At December 31, 2018, shares available for future share-based awards, including stock options or restricted stock grants, under the Company’s only active plan, the 2018 Plan, were 9,806,953.

2011 Omnibus Incentive Plan (the “2011 Plan”)

The 2011 Plan, which became effective May 12, 2011 and as amended through May 14, 2015, authorized and reserved for issuance 5,141,000 shares. As of May 10, 2018, no more shares will be issued from the 2011 Plan and the remaining 1,322,742 shares authorized and available for issuance under the 2011 Plan transferred into the 2018 Omnibus Incentive Plan (the “2018 Plan”). Shares, which would otherwise become available for issuance under the 2011 Plan as a result of vesting and/or forfeiture of any equity awards existing prior to the effective date of the 2018 Plan, will increase the authorized shares available to the 2018 Plan.

RSU equity awards. RSU equity awards issued under the 2011 Plan may be subject to various vesting, accelerated vesting, and forfeiture provisions upon the occurrence of certain events. RSU equity awards under the 2011 Plan generally vest over time but may also be subject to attaining specified performance metrics and may vest immediately or cliff vest at a specified date. The Company will recognize expense ratably over the requisite service (i.e. vesting) period for both cliff and ratably vesting awards.

For performance-based RSU equity awards, the Company recognizes expense based on the fair value of the awards at the grant date. Awards with a performance-based provision do not allow for the reversal of previously recognized expense, even if the market metric is not achieved and no shares ultimately vest or are awarded. Performance-based RSU equity awards that vest are based on a calculation that compares the Company’s total shareholder return to the same calculated return of a group of peer companies as selected by the Company, and the number of units that will vest can range between 0% and 200% of the base units awarded.

Cash-settled RSU awards. Certain of the Company’s RSU awards require cash settlement. Cash-settled RSU awards under the 2011 Plan are accounted for as liabilities as the Company is contractually obligated to settle these awards in cash. Changes in the fair value of cash-settleable awards are recorded as adjustments to compensation expense.

A significant portion of the Company’s cash-settled RSU awards include a performance-based vesting condition that determines the actual number of units that will ultimately vest. The number of RSUs that vest is based on a calculation that compares the Company’s total shareholder return to the same calculated return of a group of peer companies as selected by the Company, and the number of units that will vest can range between 0% and 200% of the base units awarded. The fair value of the Company’s performance-based RSU awards is calculated using a Monte Carlo valuation model, which considers such inputs as the Company’s and its peer group’s stock prices, a risk-free interest rate, and an estimated volatility for the Company and its peer group.

2018 Omnibus Incentive Plan (the “2018 Plan”)

The 2018 Plan, which became effective May 10, 2018 following shareholder approval, authorized and reserved for issuance 9.4 million shares of common stock, which may be issued upon exercise of vested stock options and/or the vesting of any other share-based equity award that is granted under this plan. The 2018 Plan is the Company’s only active plan, and included a provision at inception whereby all remaining, un-issued and authorized shares from the 2011 Plan became issuable under the 2018 Plan. This transfer provision resulted in the transfer of an additional 1,322,742 shares into the 2018 Plan, increasing the quantity authorized and reserved for issuance under the 2018 Plan to 10,722,742 at the inception of the 2018 Plan. Another provision provided that shares, which would otherwise become available for issuance under the 2011 Plan as a result of vesting and/or forfeiture of any equity awards existing as of the effective date of the 2018 Plan, would also increase the authorized shares available to the 2018 Plan.

RSU equity awards. RSU equity awards issued under the 2018 Plan may be subject to various vesting, accelerated vesting, and forfeiture provisions upon the occurrence of certain events. RSU equity awards under the 2018 Plan generally vest over time but may also be subject to attaining specified performance metrics and may vest immediately or cliff vest at a specified date. The Company will recognize expense on the grant date for any immediately vesting awards, while it will recognize expense ratably over the requisite service (i.e. vesting) period for both cliff and ratably vesting awards.

The following table presents share-based compensation expense for each respective period:

໿



	For the Year Ended December 31,
	2018				2017				2016
Share-based compensation cost for:	Equity-based		Liability-based		Equity-based		Liability-based		Equity-based		Liability-based
RSU equity awards ^(a)	$	9,460	$	—	$	10,225	$	—	$	4,536	$	—
Cash-settleable RSU awards ^(a)	—		336		—		4,294		—		12,285
Total share-based compensation cost^(b)	$	9,460	$	336	$	10,225	$	4,294	$	4,536	$	12,285


(a)	Includes the settlement of the outstanding share-based award agreements of the Company’s former Chief Executive Officer, resulting in $6,351 recorded on the Consolidated Statements of Operations as settled share-based awards for the year ended December 31, 2017.


(b)	The portion of this share-based compensation cost that was included in general and administrative expense totaled $6,362, $4,966 and $9,547 for the years ended December 31, 2018, 2017 and 2016, respectively, and the portion capitalized to oil and gas properties was $3,434, $3,202 and $7,274, for the years ended December 31, 2018, 2017, and 2016, respectively.

The following table presents the unrecognized compensation cost for the indicated periods:



	December 31,
Unrecognized compensation cost related to:	2018		2017		2016
Unvested RSU equity awards	$	15,720	$	13,158	$	7,276
Unvested cash-settleable RSU awards	1,822		3,776		8,948

The Company’s unrecognized compensation cost related to unvested RSU equity awards and cash-settleable RSU awards is expected to be recognized over a weighted-average period of two years.

The following table summarizes the Company’s liability for cash-settled RSU awards for the periods indicated:



	December 31,
Consolidated Balance Sheets Classification	2018		2017
Cash-settleable RSU awards (current)	$	1,390	$	4,621
Cash-settleable RSU awards (non-current)	2,067		3,490
Total cash-settleable RSU awards	$	3,457	$	8,111

Stock Options

The Company issued no stock options for the past three years and all existing options expired by year end December 31, 2017. As of December 31, 2016, the Company had 15,000 options outstanding and exercisable at a weighted average exercise price per option of $14.37, with no aggregate intrinsic value and with a weighted-average remaining contract life per unit of 0.3 years.

Restricted Stock Units

The following table represents unvested stock-settleable restricted stock activity for the year ended December 31, 2018:



			Weighted average
(shares in 000s)	Number of Shares		Grant-Date Fair Value per Share		Years Over Which Expense is Expected to be Recognized
Outstanding at the beginning of the period	1,790		$	11.54
Granted^(a)	872		13.89
Vested^(b)	(506	)	9.56
Forfeited	(53	)	11.43
Outstanding at the end of the period	2,103		$	13.24	1.85


(a)	Includes 208 performance-based RSUs that will vest at a range of 0% - 200%.


(b)	The fair value of shares vested was $6,344.

For the year ended December 31, 2017, the Company granted 1,173,094 RSUs with a weighted average grant-date fair value of $12.25 per share. The fair value of shares vested during 2017 was $9,045. For the year ended December 31, 2016, the Company granted 684,090 RSUs with a weighted average grant-date fair value of $12.63 per share. The fair value of shares vested during 2016 was $2,608.

As of December 31, 2018, the Company had the following cash-settleable RSUs outstanding (including those that are not based on a market condition):



(shares in 000s)	Base Units Outstanding	Potential Minimum Units Vesting	Potential Maximum Units Vesting
Vesting in 2019	190	17	364
Vesting in 2020	323	—	645
Vesting in 2021	—	—	—
Other	146	146	146
Total cash-settleable RSUs	659	163	1,155

For the year ended December 31, 2018, 207,261 performance-based cash-settled RSUs, subject to the peer performance-based vesting described above, vested at between 100% to 163% of their issued units, depending on the date of the vesting, resulting in cash payments of $89 in 2018 and payable amounts of $1,296 in 2019. Also during 2018, 129,753 non-performance-based cash settled RSUs vested, resulting in cash payments of $1,834 in 2018.