Equity Incentive Compensation Plans and Other Benefit Plans

The successor Company does not have any equity incentive plans under which it grants stock awards. Prior to the LINN Energy transaction, the Company granted equity awards to its employees under its own equity incentive plans. The predecessor Company recognized stock-based compensation expense over the requisite service period in an amount equal to the fair value of stock-based awards granted to employees and nonemployee directors. The fair value of stock-based awards was computed at the date of grant and was not remeasured.

In connection with the LINN Energy transaction, effective December 16, 2013, the following occurred with respect to the Company’s stock-based incentive awards:

Each Company restricted stock unit (“RSU”) that was vested as of the effective time of the acquisition, that was held by a current or former nonemployee director or by an employee of the Company whose employment was terminated in connection with the acquisition as agreed by the parties or that was subject to performance-based vesting criteria was converted as of the effective time of the acquisition into a number of LinnCo common shares equal to the product determined by multiplying the number of shares of the Company’s Common Stock subject to the Company RSU immediately prior to the effective time of the acquisition by the exchange ratio (1.68). Each performance-based Company RSU that was outstanding immediately prior to the effective time of the acquisition was deemed to have been earned at the target level as specified in the applicable award agreement.

Each unvested Company RSU (excluding any Company RSU held by a current or former nonemployee director of the Company or by an employee of the Company whose employment was terminated in connection with the acquisition as agreed by the parties and any performance-based Company RSU) was converted into a restricted unit award in respect of the number of LINN Energy units (rounded to the nearest whole unit) equal to the product determined by multiplying the number of shares of the Company Common Stock subject to the Company RSU immediately prior to the effective time of the acquisition by the exchange ratio (1.68) and by the LinnCo/LINN exchange ratio (1.0013), and are subject generally to the same terms and conditions as were applicable to the related Company RSU immediately prior to the effective time of the acquisition. The LinnCo/LINN exchange ratio was the average of the closing prices of one LinnCo common share on the NASDAQ on the last five full trading days prior to the closing date of the acquisition divided by the average of the closing prices of one LINN Energy unit on the NASDAQ on the last five full trading days prior to the closing date of the acquisition.

Each option to purchase shares of the Company Common Stock was converted into an option to purchase, generally on the same terms and conditions as were applicable to such option immediately prior to the effective time of the acquisition, (i) a number of LINN Energy units (rounded down to the nearest whole unit) equal to the product determined by multiplying the number of shares of Company Common Stock subject to such option by the exchange ratio and by the LinnCo/LINN exchange ratio, (ii) at an exercise price per LINN Energy unit (rounded up to the nearest whole cent) equal to the quotient determined by dividing the per share exercise price for the shares of Company Common Stock subject to the option by the product determined by multiplying the exchange ratio and the LinnCo/LINN exchange ratio.

The following disclosures relate to the predecessor periods and the conversion of Company RSUs and options only. All information is based on historical Company stock prices and includes no adjustments for the exchange ratios.

Predecessor Stock Compensation Plans

The Predecessor’s 2010 Equity Incentive Plan (“2010 Plan”) and 2005 Equity Incentive Plan (“2005 Plan”), collectively, (the (“Equity Incentive Plans”), approved by the Company’s shareholders in May 2010 and May 2005, provided for granting of equity compensation up to an aggregate of 1,000,000 shares and 2,900,000 shares of Common Stock, respectively. The purpose of the Equity Incentive Plans was to encourage ownership in the Company by key personnel whose long-term service was considered essential to the Company’s continued progress and, thereby, align participants’ and shareholders’ interests. Stock options, stock appreciation rights (“SAR”), cash awards and stock awards, including restricted shares and stock units, could be granted under the Equity Incentive Plans. The exercise price of an option could not be less than the fair market value of one share of Common Stock on the date of grant. Stock options and RSUs granted under the Equity Incentive Plans historically vested either in increments of 25% on each of the first four anniversary dates of the date of grant or 100% after three years. Stock options and RSUs granted to nonemployee directors historically vested immediately. Options granted under the Equity Incentive Plans had a term of ten years.

The total compensation expense recognized by the predecessor in the statements of operations for grants under the Equity Incentive Plans was approximately $12 million and $9 million for the period from January 1, 2013 through December 16, 2013, and for the year ended December 31, 2012, respectively.

Stock Options

The following table summarizes stock option activity under the predecessor’s Equity Incentive Plans for the period from January 1, 2013 through December 16, 2013, and for the year ended December 31, 2012:



	Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands) ⁽¹⁾		Weighted Average Remaining Contractual Term (Years)

Outstanding at December 31, 2011	1,520,689		30.32		17,798
Granted	82,262		53.02
Exercised	(215,359	)	17.12		7,194
Outstanding at December 31, 2012	1,387,592		33.71		4,681
Exercised	(57,350	)	12.74		2,066
Outstanding at December 16, 2013	1,330,242		$	34.61	$	19,243	3.21
Vested and expected to vest at December 16, 2013	1,328,771		$	34.60	$	19,243	3.21
Exercisable at December 16, 2013	1,224,022		$	33.18	$	19,229	2.81


⁽¹⁾	The intrinsic value of a stock option is the amount by which the market value of the underlying stock at the end of the related period exceeds the exercise price of the option.

The fair value of each option granted was estimated using the Black-Scholes option pricing model. Expected volatility was calculated based on the historical volatility of the Company’s Common Stock, and the risk-free interest rate was based on U.S. treasury yield curve rates with maturities consistent with the expected life of each stock option. The key assumptions used in computing the weighted average fair market value of stock options granted were as follows:



	2012

Expected volatility	50.00%
Risk-free rate	0.95%
Dividend yield	0.57%
Expected term (in years)	5.2

The following table summarizes information about stock options at December 16, 2013:



	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Remaining Contractual Term (Years)	Weighted Average Exercise Price		Number of Options	Weighted Average Remaining Contractual Term (Years)	Weighted Average Exercise Price

$21.58-$21.77	240,000	0.90	$	21.60	240,000	0.90	$	21.60
$30.65-$32.57	639,000	2.50	31.70		639,000	2.50	31.70
$38.00-$53.02	451,242	5.43	45.66		345,022	4.71	43.98
	1,330,242	3.21	$	34.61	1,224,022	2.81	$	33.18

Restricted Stock Units

The following table summarizes RSU activity under the predecessor’s Equity Incentive Plans for the period from January 1, 2013 through December 16, 2013, and for the year ended December 31, 2012:



	RSUs		Weighted Average Intrinsic Value at Grant Date		Vest Date Fair Value (in thousands)

Outstanding at December 31, 2011	915,022		$	23.88
Granted	164,112		50.60
Issued	(79,068	)	33.10		$	3,401
Canceled/expired	(18,189	)	41.50
December 31, 2012	981,877		$	26.72
Granted	286,344		45.51
Issued	(853,169	)	23.94		$	39,513
Canceled/expired	(22,511	)	44.69
Outstanding at December 16, 2013	392,541		$	46.86

The grant date fair value of RSUs issued under the 2005 Plan and 2010 Plan was based on the average high and low stock price of a share of Common Stock on the date of grant and the closing price of a share of Common Stock on the date of grant, respectively. The Company used historical data and projections to estimate expected restricted stock forfeitures. The expected forfeitures are then included as part of the grant date estimate of compensation expense.

Performance Share Program

The following table summarizes performance share award activity under the predecessor’s Equity Incentive Plans for the period from January 1, 2013 through December 16, 2013, and for the year ended December 31, 2012:



	Performance Share Awards		Weighted Average Grant Date Fair Value		Vest Date Fair Value (in thousands)

Outstanding at December 31, 2011	162,849		$	39.00
Granted	59,738		63.69
Outstanding at December 31, 2012	222,587		$	45.79
Issued	(135,167	)	44.33		$	6,308
Canceled/expired	(87,420	)	44.42
Outstanding at December 16, 2013	—		$	—

The vesting of the performance share awards was contingent upon satisfying certain performance criteria. For the portion of the performance share awards subject to internal performance metrics, the grant date fair value was determined by reference to the closing price of a share of Common Stock on the date of grant. The Company recognized compensation expense when it became probable that these conditions would be achieved. However, any such compensation expense recognized was reversed if vesting did not actually occur.

For the portion of the performance share awards subject to market-based vesting criteria, the grant date fair value was estimated using a Monte Carlo valuation model. The Monte Carlo model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility was calculated based on the historical volatility of the Company’s Common Stock, and the risk-free interest rate is based on U.S. treasury yield curve rates with maturities consistent with the three-year vesting period. The key assumptions used in valuing the market-based portion of the performance share awards were as follows:



	2012

Number of simulations	100,000
Expected volatility	50%
Risk-free rate	0.42%

The total grant date fair value of the market-based portion of the performance share awards issued during the year ended December 31, 2012, as determined by the Monte Carlo valuation model, was approximately $1 million and was being recognized ratably over the respective three-year vesting period. Compensation expense for the market-based portion of the performance share awards was not reversed if vesting did not actually occur.

Director Fees

Under the predecessor, the Company’s directors could elect to receive their annual retainer and meeting fees in the form of the Company’s Common Stock issued pursuant to the Company’s Non-Employee Director Deferred Stock and Compensation Plan (“Deferred Plan”). The Deferred Plan permitted eligible directors, in recognition of their contributions to the Company, to receive compensation for service and to defer recognition of their compensation in whole or in part to a stock unit account or an interest account. When the eligible director ceased to be a director, the distribution from the stock unit account was made in shares of Common Stock while the distribution from the interest account was made in cash. Shares of Common Stock earned and deferred in accordance with the Deferred Plan for the period from January 1, 2013 through December 16, 2013, and for the year ended December 31, 2012, were 10,758 and 12,797, respectively.

Amounts allocated to the stock unit account had the right to receive a “dividend equivalent” equal to the dividends declared and paid by the Company and reinvested in additional stock units and credited to the director’s account using an established market value. Amounts allocated to the interest account were credited with interest at an established interest rate.

Defined Contribution Plan

Prior to the LINN Energy transaction, the Company sponsored a defined contribution thrift plan under section 401(k) of the Internal Revenue Code to assist all employees in providing for retirement or other future financial needs. Employees were eligible to participate in the 401(k) Plan on their date of hire and the Company matched 100% of each employee’s contribution up to 8% of an employee’s eligible compensation. Approximately 93% of the Company’s employees participated in the 401(k) Plan for the period from January 1, 2013 through December 16, 2013. The Company’s contributions to the 401(k) Plan, net of forfeitures, were approximately $2 million for both the period from January 1, 2013 through December 16, 2013, and for the year ended December 31, 2012.

At December 31, 2014, and December 31, 2013, the Company had no employees. All former employees of the Company that were retained after the LINN Energy transaction became employees of Linn Operating, Inc. (“LOI”), a subsidiary of LINN Energy, and along with other LOI personnel, provide services and support to the Company in accordance with an agency agreement and power of attorney between the Company and LOI.