Note 8. Stock Compensation Plans

Stock Incentive Plans

We have two stock compensation plans. The first plan (providing only for the issuance of stock options) has been in existence since 1995 (the "1995 Plan") and expired in August 2005 (although options granted under the 1995 Plan prior to that time can remain outstanding for up to 10 years). The second plan, the 2004 Omnibus Stock and Incentive Plan (the "2004 Plan"), was approved by the stockholders in May 2004 and will expire in May 2024. The 2004 Plan provides for the issuance of incentive and non-qualified stock options, restricted stock awards, restricted stock units, SARs settled in stock, and performance-based awards that may be issued to officers, employees, directors and consultants. Awards covering a total of 34.5 million shares of common stock have been authorized for issuance pursuant to the 2004 Plan, of which awards covering no more than 27.2 million shares may be issued in the form of restricted stock or performance-based awards. At December 31, 2014, 9.7 million shares were available under the 2004 Plan for future issuance of awards, all of which could be issued in the form of restricted stock or performance-based awards. Our incentive compensation program is administered by the Compensation Committee of our Board of Directors.

Prior to January 1, 2006, we granted incentive and non-qualified stock options to our employees. Effective January 1, 2006, we completely replaced the use of stock options for employees with SARs settled in stock, as SARs are less dilutive to our stockholders while providing an employee with essentially the same economic benefits as stock options. The stock options and SARs generally become exercisable over a three- or four-year vesting period, with the specific terms of vesting determined at the time of grant based on guidelines established by the Compensation Committee of the Board of Directors. The stock options and SARs expire over terms not to exceed 10 years from the date of grant, 90 days after termination of employment, 90 days or one year after permanent disability, depending on the plan, or one year after the death of the optionee. The stock options and SARs are granted with a strike price equal to the fair market value at the time of grant, which is defined in the 2004 Plan as the closing price on the NYSE on the date of grant.

Holders of non-performance-based restricted stock awards have the rights and privileges of owning the shares (including voting rights) except that the holders are not entitled to delivery of a portion thereof until certain requirements are met. Beginning in 2014, non-performance-based restricted stock awards granted by the Company provide the holders with forfeitable dividend rights until the award vests. Non-performance-based restricted stock awards vest over three-to-four-year vesting periods, with the specific terms of vesting determined at the time of grant.

Annually, the Board of Directors grants performance-based equity awards to officers of Denbury. These performance-based awards generally vest over 1.25 to 3.25 years, and the number of performance-based shares earned (and eligible to vest) during the performance period will depend upon two sets of factors: (1) our level of success in achieving specifically identified performance targets ("Performance-Based Operational Awards") and (2) performance of our stock relative to that of a designated peer group ("Performance-Based TSR Awards"). Generally, one-half of the maximum number of shares that could be earned under the performance-based awards will be earned for performance at the designated target levels (100% target vesting levels) or upon any earlier change of control, and twice the target number of shares will be earned if the maximum target levels are met. If performance is below the designated minimum levels for all performance targets, no performance-based shares will be earned. Performance-Based Operational Awards are valued using the fair market value of Denbury stock on the grant date, and Performance-Based TSR Awards are valued using a Monte Carlo simulation.

Stock-based compensation expense associated with our field employees is included in "Lease operating expenses," while such expense associated with non-field employees is included in "General and administrative expenses" in the Consolidated Statements of Operations. Stock-based compensation associated with our employees involved in exploration and drilling activities is capitalized as part of "Oil and natural gas properties" in the Consolidated Balance Sheets.

Stock-based compensation costs for the years ended December 31, 2014, 2013 and 2012, are as follows:



	Year Ended December 31,
In thousands	2014		2013		2012
Stock-based compensation expensed
General and administrative expenses	$	27,789	$	30,429	$	26,463
Lease operating expenses	2,724		2,574		2,847
Total stock-based compensation expensed	30,513		33,003		29,310
Stock-based compensation capitalized	9,019		9,088		8,587
Total cost of stock-based compensation arrangements	$	39,532	$	42,091	$	37,897

Income tax benefit recognized for stock-based compensation arrangements	$	11,595	$	12,541	$	11,284

Stock Options and SARs

The fair value of each SAR award is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions noted in the following table. The risk-free rate for periods within the contractual life of the SAR is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of SARs granted was derived from examination of our historical SAR grants and subsequent exercises. The contractual terms (cliff vesting and graded vesting) are evaluated separately for the expected life, as the exercise behavior for each is different. Expected volatilities are based on the historical volatility of our common stock.



	Year Ended December 31,
	2014			2013			2012
Weighted average fair value of SARs granted	$	3.55		$	6.72		$	8.90
Risk-free interest rate	1.31		%	0.67		%	0.79		%
Expected life	3.8 to 4.0 years			3.6 to 4.8 years			4.0 to 5.0 years
Expected volatility	38.0		%	50.4		%	64.9		%
Dividend yield	3.10		%	—		%	—		%

The following is a summary of our stock option and SAR activity:



	Number of Awards		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2013	8,986,915		$	16.00
Granted	555,786		14.60
Exercised	(1,612,822	)	10.23
Forfeited	(136,493	)	17.03
Expired	(324,653	)	21.02
Outstanding at December 31, 2014	7,468,733		16.90		2.8	$	178

Exercisable at end of period	5,846,933		$	17.05	2.2	$	74

The following is a summary of the total intrinsic value of stock options and SARs exercised and grant-date fair value of stock options and SARs vested:



	Year Ended December 31,
In thousands	2014		2013		2012
Intrinsic value of stock options and SARs exercised	$	7,985	$	17,287	$	17,315
Grant-date fair value of stock options and SARs vested	9,998		12,852		26,391

As of December 31, 2014, there was $3.5 million of total compensation cost to be recognized in future periods related to nonvested share-based SAR compensation arrangements. The cost is expected to be recognized over a weighted-average period of 1.6 years. The following is a summary of cash received from stock option exercises under share-based payment arrangements and tax benefits realized from the exercises of stock options and SARs:



	Year Ended December 31,
In thousands	2014		2013		2012
Cash received from stock option exercises	$	7,022	$	5,487	$	6,022
Tax benefit realized for the exercises of stock options and SARs	212		437		458

Restricted Stock – 2004 Plan

As of December 31, 2014, there was $27.7 million of unrecognized compensation expense related to nonvested non-performance-based restricted stock grants. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.8 years. The following is a summary of the total vesting date fair value of non-performance-based restricted stock under the 2004 Plan:



	Year Ended December 31,
In thousands	2014		2013		2012
Fair value of restricted stock vested	$	24,780	$	21,529	$	22,332

A summary of the status of our nonvested non-performance-based restricted stock grants issued under our 2004 Plan and the changes during the year ended December 31, 2014, is presented below:



	Number of Shares		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2013	3,761,084		$	15.98
Granted	2,001,148		16.34
Vested	(1,512,407	)	16.91
Forfeited	(510,791	)	13.27
Nonvested at December 31, 2014	3,739,034		16.17

Restricted Stock – Legacy Encore Plan

In February 2010, prior to the consummation of the merger with Encore, Encore issued a restricted stock grant to its employees under the Encore Acquisition Company 2008 Incentive Stock Plan ("Encore Plan"). At the time of the merger with Encore, the shares were converted into shares of Denbury restricted stock. The shares vest ratably over a four-year graded vesting period; however, legacy Encore employees who terminated their employment for Good Reason, as defined by Encore's legacy Employee Severance Protection Plan, automatically vested in their awards upon termination. The remaining nonvested restricted stock issued under the Encore Plan vested during the first quarter of 2014. The following is a summary of the total vesting date fair value of restricted stock under the Encore Plan:



	Year Ended December 31,
In thousands	2014		2013		2012
Fair value of restricted stock vested	$	340	$	512	$	584

A summary of the status of the vested restricted stock grants under the Encore Plan and the changes during the year ended December 31, 2014, is presented below:



	Number of Shares		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2013	21,741		$	15.43
Vested	(21,078	)	15.43
Forfeited	(663	)	15.43
Nonvested at December 31, 2014	—		—

Performance-Based Equity Awards

During 2014 and 2013, we granted Performance-Based Operational Awards and Performance-Based TSR Awards to our officers. As of December 31, 2014, there was $5.3 million of unrecognized compensation expense related to nonvested performance-based equity awards. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.9 years. The range of assumptions used in the Monte Carlo simulation valuation approach for Performance-Based TSR Awards (presented at the target level) are as follows:



	Year Ended December 31,
	2014			2013			2012
Weighted average fair value of Performance-Based TSR Awards granted	$	19.81		$	20.08		$	24.68
Risk-free interest rate	0.80		%	0.41		%	0.42		%
Expected life	3.0 years			3.0 years			2.8 years
Expected volatility	39.4		%	42.3		%	45.2		%
Dividend yield	2.50		%	—		%	—		%

A summary of the status of the nonvested performance-based equity awards (presented at the target level) during the year ended December 31, 2014, is as follows:



	Performance-Based Operational Awards				Performance-Based TSR Awards
	Number of Awards		Weighted Average Grant-Date Fair Value		Number of Awards		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2013	209,474		$	16.77	296,391		$	21.43
Granted	275,870		16.55		275,870		19.81
Forfeited	(33,946	)	16.64		(38,650	)	20.50
Nonvested at December 31, 2014	451,398		16.65		533,611		20.66

The following is a summary of the total vesting date fair value of performance-based equity awards:



	Year Ended December 31,
In thousands	2014		2013		2012
Vesting date fair value of Performance-Based Operational Awards	$	—	$	2,541	$	2,191