Incentive Plan

On the Effective Date, the Basic Energy Services, Inc. Management Incentive Plan (the “MIP”) became effective pursuant to the Prepackaged Plan. The MIP provides for the issuance of incentive awards in the form of stock options, restricted stock, restricted stock units and performance awards denominated in our common stock. The MIP provides for the issuance of up to 3,237,671 shares of common stock. Of these authorized shares, approximately 1,326,156 shares were available for grant as of December 31, 2017. The board of directors of the Company (the “Board”) or the Compensation Committee of the Board (the “Compensation Committee”) administers the MIP. The number of shares of common stock authorized under the MIP and the number of shares subject to an award under the MIP, are subject to adjustment in the event of certain recapitalization, reclassification, stock dividend, extraordinary dividend, stock split, reverse stock split or other distribution with respect to our common stock or any merger, reorganization, consolidation, combination, spin-off or other similar corporate change or any other change affecting the common stock.

During the years ended December 31, 2017 and 2016, compensation expense related to share-based arrangements under the MIP, including restricted stock, restricted stock units and stock option awards, was approximately $23.0 million and $10.1 million respectively. For compensation expense recognized during the year ended December 31, 2017 and 2016, Basic did not recognize a tax benefit.

As of December 31, 2017, there was $39.7 million unrecognized compensation related to non-vested share-based compensation arrangements granted under the MIP. That cost is expected to be recognized over a weighted average period of 1.89 years.

The total fair value of share-based awards vested during the years ended December 31, 2017 and 2016, was approximately $7.3 million and $9.7 million, respectively. During 2017 and 2016, there was no excess tax benefit.

Stock Option Awards

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Options granted under the MIP expire 10 years from the date they are granted, and generally vest over a period of three years.

The following table reflects the summary of stock options outstanding at December 31, 2017:



					Weighted
			Weighted		Average	Aggregate
	Number of		Average		Remaining	Intrinsic
	Options		Exercise		Contractual	Value
	Granted		Price		Term (Years)	(000's)
Non-statutory stock options:
Outstanding, beginning of period	323,770		$	36.55
Options granted	333,484		41.80
Options forfeited	(2,158	)	$	36.55
Options exercised	—		$	—
Options expired	(1,080	)	$	36.55
Outstanding, end of period	654,016		$	39.23	9.07	—
Exercisable, end of period	109,019		$	36.55	8.98	—
Vested or expected to vest, end of period	544,997		$	39.76	9.09	—

Restricted Stock Unit Awards

A summary of the status of Basic’s non-vested RSU grants at December 31, 2017 and changes during the year ended December 31, 2017 is presented in the following table:



			Weighted Average
	Number of		Grant Date Fair
	Units		Value Per Unit
Nonvested at beginning of period	539,606		$	36.55
Granted during period	860,402		41.37
Vested during period	(300,300	)	35.93
Forfeited during period	(2,698	)	36.55
Nonvested at end of period	1,097,010		$	40.50

Warrant Agreement

On the Effective Date, the Company entered into a warrant agreement (the “Warrant Agreement”) with American Stock Transfer & Trust Company, LLC, as warrant agent. Pursuant to the terms of the Prepackaged Plan, the Company issued warrants (the “Warrants,” and holders thereof “Warrantholders”), which in the aggregate, are exercisable to purchase up to approximately 2,066,627 shares of common stock. In accordance with the Prepackaged Plan, the Company issued Warrants to the holders of the Predecessor common stock, totaling approximately 2,066,627 Warrants outstanding, exercisable until December 23, 2023, to purchase up to an aggregate of approximately 2,066,627 shares of common stock at an initial exercise price of $55.25 per share, subject to adjustment as provided in the Warrant Agreement. At issuance, the warrants were recorded at fair value, which was determined using the Black-Scholes option pricing model. The warrants are equity classified and, at issuance, were recorded as an increase to additional paid-in capital in the amount of $8.4 million. All unexercised Warrants will expire, and the rights of the Warrantholder to purchase common stock will terminate on December 23, 2023, which is the seventh anniversary of the Effective Date.