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Stock-Based Incentive Plan
 12 Months Ended
Jun. 30, 2012
Stock-Based Incentive Plan  
Stock-Based Incentive Plan

 

Note 8 — Stock-Based Incentive Plan

 

We have granted option awards to purchase common stock (the “Stock Options”), restricted common stock awards (“Restricted Stock”), and/or 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 6,500,000 shares of common stock.  No shares are available for grant under the 2003 Stock Plan and 1,012,111 shares remain available for grant under the 2004 Stock Plan as of June 30, 2012.

 

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 MKT (formerly, the American Stock Exchange) in July 2006.

 

Short-term Incentive Compensation

 

On September 10, 2010, the Board of Directors authorized the issuance of 106,927 shares of common stock from the 2004 Stock Plan to certain employees for the payment of fiscal 2010 bonuses in lieu of cash.  The value of the shares issued was $587,033, based on the fair market value on the date of issuance, or $5.49 per share.  The amount of bonus was accrued as of June 30, 2010, and recognized as a long term liability.  On September 10, 2010, the liability was reclassified as additional paid-in capital.

 

Stock Options and Incentive Warrants

 

Non-cash stock-based compensation expense related to Stock Options and Incentive Warrants for the years ended June 30, 2012, 2011 and 2010 was $327,776, $715,027and $985,060, respectively.

 

There were no Stock Options granted during the years ended June 30, 2012, 2011 and 2010.  During the year ended June 30, 2009, we granted Stock Options to purchase 591,090 shares of common stock under the 2004 Stock Plan with a weighted average exercise price of $4.27.  The exercise price was determined based on the market price of the Company’s common stock on the date of grant.  The Stock Options granted during the years ended June 30, 2009 generally vest quarterly, on a straight line basis, over a period of four years.  The Stock Options granted during the year ended June 30, 2009 have a contractual life of seven years.  The weighted average assumptions used to calculate the fair value of these Stock Options and the weighted average fair value of each option granted are as follows:

 

Expected volatility

 

87.1

%

Expected dividends

 

—

 

Expected term (in years)

 

4.6

 

Risk-free rate

 

3.10

%

Fair value

 

$

2.62

 

 

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 June 30, 2012, 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

 

$

1.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

—

 

—

 

 

 

 

 

Exercised

 

(20,000

)

$

4.10

 

 

 

 

 

Cancelled or forfeited

 

—

 

—

 

 

 

 

 

Expired

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Options and Incentive Warrants outstanding at June 30, 2012

 

5,372,820

 

$

1.83

 

$

34,957,022

 

3.4

 

 

 

 

 

 

 

 

 

 

 

Vested or expected to vest at June 30, 2012

 

5,372,820

 

$

1.83

 

$

34,957,022

 

3.4

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2012

 

5,353,898

 

$

1.83

 

$

34,875,456

 

3.4

 

 

 

(1) Based upon the difference between the market price of our common stock on the last trading date of the period ($8.34 as of June 30, 2012) and the Stock Option or Incentive Warrant exercise price of in-the-money Stock Options and Incentive Warrants.

 

For the year ended June 30, 2012, 20,000 Stock Options were exercised having an aggregate intrinsic value of $54,000.  There were 86,875 Stock Options exercised during the year ended June 30, 2011 with an aggregate intrinsic value of $493,923.  There were 3,000 Stock Options exercised during the year ended June 30, 2010 with an aggregate intrinsic value of $13,620.

 

A summary of the status of our unvested Stock Options and Incentive Warrants as of June 30, 2012 and the changes during that year ended are 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

 

(154,955

)

$

2.17

 

 

 

 

 

 

 

Unvested at June 30, 2012

 

18,922

 

$

2.45

 

 

During the years ended June 30, 2012, June 30, 2011 and 2010, there were 154,955, 375,580, and 539,330 Stock Options and Incentive Warrants that vested with a total grant date fair value of $336,252, $739,893, and $1,024,727, respectively.

 

The total unrecognized compensation cost at June 30, 2012, relating to non-vested Stock Options and Incentive Warrants was $26,273.  Such unrecognized expense is expected to be recognized over a weighted average remaining service period of 0.25 years.

 

Restricted Stock

 

Stock-based compensation expense related to Restricted Stock grants for the years ended June 30, 2012, 2011 and 2010 was $1,148,219, $820,980, and $576,307, respectively.  See Note 7 for a detail of Restricted Stock transactions during the years ended June 30, 2012, 2011 and 2010.

 

The following table sets forth the Restricted Stock transactions for the year ended June 30, 2012:

 

 

 

Number of
Restricted
Shares

 

Weighted
Average
Grant-Date
Fair Value

 

 

 

 

 

 

 

Unvested at July 1, 2011

 

495,689

 

$

4.30

 

 

 

 

 

 

 

Granted

 

196,106

 

$

6.52

 

 

 

 

 

 

 

Vested

 

(239,195

)

$

4.51

 

 

 

 

 

 

 

Unvested at June 30, 2012

 

452,600

 

$

5.60

 

 

During the years ended June 30, 2012, June 30, 2011 and 2010, there were 239,195, 206,858, and 243,954 shares of Restricted Stock that vested with a total grant date fair value of $1,078,769, $794,335, and $551,336, respectively.

 

At June 30, 2012, unrecognized stock compensation expense related to Restricted Stock grants totaled $2,118,741.  Such unrecognized expense will be recognized over a weighted average remaining service period of 2.3 years.