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Stock-Based Incentive Plan
3 Months Ended
Sep. 30, 2011
Stock-Based Incentive Plan 
Stock-Based Incentive Plan

Note 6 — Stock-Based Incentive Plan

 

We may grant option awards to purchase common stock (the “Stock Options”), restricted common stock awards (“Restricted Stock”), and unrestricted fully vested common stock, to employees, directors, and consultants of the Company and its subsidiaries under the Natural Gas Systems Inc. 2003 Stock Plan (the “2003 Stock Plan”) and the Evolution Petroleum Corporation Amended and Restated 2004 Stock Plan (the “2004 Stock Plan” or together, the “EPM Stock Plans”).  Option awards for the purchase of 600,000 shares of common stock were issued under the 2003 Stock Plan.  The 2004 Stock Plan authorized the issuance of 5,500,000 shares of common stock.  No shares are available for grant under the 2003 Stock Plan and 46,356 shares remain available for grant under the 2004 Stock Plan as of October 31, 2011.

 

We have also granted common stock warrants, as authorized by the Board of Directors, to employees in lieu of cash bonuses or as incentive awards to reward previous service or provide incentives to individuals to acquire a proprietary interest in the Company’s success and to remain in the service of the Company (the “Incentive Warrants”).  These Incentive Warrants have similar characteristics of the Stock Options.  A total of 1,037,500 Incentive Warrants have been issued, with Board of Directors approval, outside of the EPM Stock Plans.  We have not issued Incentive Warrants since the listing of our shares on the NYSE Amex (formerly, the American Stock Exchange) in July 2006.

 

Stock Options and Incentive Warrants

 

Non-cash stock-based compensation expense related to Stock Options and Incentive Warrants for the three months ended September 30, 2011 and 2010 was $172,729 and $196,843, respectively.

 

There were no Stock Options granted during the three months ended September 30, 2011 and 2010.

 

We estimated the fair value of Stock Options and Incentive Warrants issued to employees and directors at the date of grant using a Black-Scholes-Merton valuation model.  The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.  The expected term (estimated period of time outstanding) of Stock Options and Incentive Warrants is based on the “simplified” method of the estimated expected term for “plain vanilla” options allowed by the SEC Staff Accounting Bulletin (“SAB”) No. 107 and SAB No. 110, and varied based on the vesting period and contractual term of the Stock Options or Incentive Warrants.   Expected volatility is based on the historical volatility of the Company’s closing common stock price and that of an evaluation of a peer group of similar companies trading activity.  We have not declared any cash dividends on the Company’s common stock.

 

The following summary presents information regarding outstanding Stock Options and Incentive Warrants as of September 30, 2011, and the changes during the fiscal year:

 

 

 

Number of  Stock
Options
and Incentive
Warrants

 

Weighted Average
Exercise Price

 

Aggregate
Intrinsic Value
(1)

 

Weighted
Average
Remaining
Contractual
Term (in
years)

 

 

 

 

 

 

 

 

 

 

 

Stock Options and Incentive Warrants outstanding at July 1, 2011

 

5,392,820

 

$

1.84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

—

 

—

 

 

 

 

 

Exercised

 

(20,000

)

$

4.10

 

 

 

 

 

Cancelled or forfeited

 

—

 

—

 

 

 

 

 

Expired

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Options and Incentive Warrants outstanding at September 30, 2011

 

5,372,820

 

$

1.83

 

$

28,079,813

 

4.2

 

 

 

 

 

 

 

 

 

 

 

Vested or expected to vest at September 30, 2011

 

5,372,820

 

$

1.83

 

$

28,079,813

 

4.2

 

 

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2011

 

5,285,026

 

$

1.80

 

$

27,808,471

 

4.2

 

 

 

(1) Based upon the difference between the market price of our common stock on the last trading date of the period ($7.06 as of September 30, 2011) and the Stock Option or Incentive Warrant exercise price of in-the-money Stock Options and Incentive Warrants.

 

There were 20,000 Stock Options exercised during the three months ended September 30, 2011 with an aggregate intrinsic value of $54,000.  There were 6,875 Stock Options that were exercised during the three months ended September 30, 2010, with an aggregate intrinsic value of $17,531.

 

A summary of the status of our unvested Stock Options and Incentive Warrants as of September 30, 2011 and the changes during the three months ended September 30, 2011, is presented below:

 

 

 

Number of
Stock
Options
and Incentive
Warrants

 

Weighted
Average Grant-
Date Fair Value

 

 

 

 

 

 

 

Unvested at July 1, 2011

 

173,877

 

$

2.20

 

 

 

 

 

 

 

Granted

 

—

 

—

 

 

 

 

 

 

 

Vested

 

(86,083

)

$

1.89

 

 

 

 

 

 

 

Forfeited

 

—

 

—

 

 

 

 

 

 

 

Unvested at September 30, 2011

 

87,794

 

$

2.50

 

 

During the three months ended September 30, 2011 and 2010, there were 86,083 and 95,457 Stock Options and Incentive Warrants that vested with a total grant date fair value of $162,697 and $187,096, respectively.

 

The total unrecognized compensation cost at September 30, 2011, relating to non-vested Stock Options and Incentive Warrants was $170,262.  Such unrecognized expense is expected to be recognized over a weighted average period of 0.95 years.

 

Restricted Stock

 

Stock-based compensation expense related to Restricted Stock grants for the three months ended September 30, 2011 and 2010 was $243,966 and $157,643, respectively.

 

The following table sets forth the Restricted Stock transactions for the three months ended September 30, 2011:

 

 

 

Number of
Restricted
Shares

 

Weighted
Average
Grant-Date
Fair Value

 

 

 

 

 

 

 

Unvested at July 1, 2011

 

495,689

 

$

4.30

 

 

 

 

 

 

 

Granted

 

161,861

 

$

6.36

 

 

 

 

 

 

 

Vested

 

(45,202

)

$

3.97

 

 

 

 

 

 

 

Forfeited

 

—

 

—

 

 

 

 

 

 

 

Unvested at September 30, 2011

 

612,348

 

$

4.87

 

 

At September 30, 2011, unrecognized stock compensation expense related to Restricted Stock grants totaled $2,773,040.  Such unrecognized expense will be recognized over a weighted average period of 3 years.