Stock-Based Incentive Plan

Under the terms of the Evolution Petroleum Corporation Amended and Restated 2004 Stock Plan (the "Plan"), we have granted option awards to purchase common stock (the "Stock Options"), restricted common stock awards ("Restricted Stock"), contingent restricted common stock awards ("Contingent Restricted Stock") and/or unrestricted fully vested common stock, to employees, directors, and consultants of the Company. The Plan authorizes the issuance of 6,500,000 shares of common stock prior to its expiration on October 24, 2017 and 282,133 shares remain available for grant as of June 30, 2016.

Stock Options and Incentive Warrants

No Stock Options have been granted since August 2008 and all compensation costs attributable to Stock Options have been recognized in prior periods. No Incentive Warrants have been granted since February 2006. All compensation costs attributable to these awards have been recognized in prior periods and all remaining awards were exercised in November 2013. The following summary presents information regarding outstanding Stock Options as of June 30, 2016, and the changes during the period:



	Number of Stock Options		Weighted Average Exercise Price		Aggregate Intrinsic Value(1)		Weighted Average Remaining Contractual Term (in years)
Stock Options outstanding at July 1, 2015	91,061		$	2.50
Exercised	(50,000	)	2.55
Expired	(5,830	)	4.02
Stock Options outstanding at June 30, 2016	35,231		$	2.19	$	115,558	1.2
Vested at June 30, 2016	35,231		$	2.19	$	115,558	1.2
Exercisable at June 30, 2016	35,231		$	2.19	$	115,558	1.2


(1)	Based upon the difference between the market price of our common stock on the last trading date of the period ($5.47 as of June 30, 2016) and the Stock Option exercise price of in-the-money Stock Options.

For the year ended June 30, 2016, there were 50,000 Stock Options exercised with an aggregate intrinsic value of $131,000. For the year ended June 30, 2015, there were 87,000 Stock Options exercised, with an aggregate intrinsic value of $501,810. For the year ended June 30, 2014, there were 4,644,759 Stock Options and Incentive Warrants exercised with an aggregate intrinsic value of $47,504,114.

No stock options vested during the years ended June 30, 2016, 2015, and 2014.

Restricted Stock and Contingent Restricted Stock

Prior to August 28, 2014, all Restricted Stock grants contained a four-year vesting period based solely on service. Restricted Stock which vests based solely on service is valued at the fair market value on the date of grant and are amortized over the service period.

In August 2014 and in December 2015, the Company awarded grants of both Restricted Stock and Contingent Restricted Stock as part of its long-term incentive plan. Such grants, which expire after four years if unvested, contain service-based, performance-based and market-based vesting provisions. The common shares underlying the Restricted Stock grants were issued on the date of grant, whereas the Contingent Restricted Stock are reserved from the Plan, but will be issued only upon the attainment of specified performance-based or market-based vesting provisions.

Performance-based grants vest upon the attainment of earnings, revenue and other operational goals and require that the recipient remain an employee of the Company through the vesting date. The Company recognizes compensation expense for performance-based awards ratably over the expected vesting period based on the grant date fair value when it is deemed probable, for accounting purposes, that the performance criteria will be achieved. The expected vesting period may be deemed to be shorter than the four-year term. As of June 30, 2016, certain performance-based awards were not considered probable of vesting for accounting purposes and no compensation expense has been recognized with regard to these awards. If these awards are later determined to be probable of vesting, cumulative compensation expense would be recorded at that time and amortization would continue over the remaining expected vesting period.

Market-based awards entitle employees to vest in a fixed number of shares when the three-year trailing total return on the Company’s common stock exceeds the corresponding total returns of various quartiles of companies comprising the SIG Exploration and Production Index (NASDAQ EPX) during defined measurement periods. The fair value and expected vesting period of these awards were determined using a Monte Carlo simulation based on the historical volatility of the Company's total return compared to the historical volatilities of the other companies in the index. During the fiscal year ended June 30, 2016, we granted market-based awards with fair values ranging from $2.93 to $5.07, all with an expected vesting period of 3.83 years, based on the various quartiles of comparative market performance. During the fiscal year ended June 30, 2015, we granted market-based awards with fair values ranging from $4.26 to $8.40 and with expected vesting periods of 3.30 years to 2.55 years, based on the various quartiles of comparative market performance. Compensation expense for market-based awards is recognized over the expected vesting period using the straight-line method, so long as the award holder remains an employee of the Company. Total compensation expense is based on the fair value of the awards at the date of grant and is independent of vesting or expiration of the awards, except for termination of service.

In December 2015, one employee resigned and three others left the Company when we restructured our artificial lift technology operations. As a result 31,467 restricted shares and 14,212 contingent restricted shares were forfeited. Also in connection with the restructuring, at the Company’s request in February 2016, certain employees agreed to voluntarily relinquish 31,307 restricted performance-based shares and 15,654 contingent performance-based shares in exchange for 22,016 shares of service-based restricted stock subject to vesting in three annual tranches ending on August 28, 2018.

Unvested Restricted Stock awards at June 30, 2016 consisted of the following:



Award Type	Number of Restricted Shares	Weighted Average Grant-Date Fair Value
Service-based awards	224,515	$	7.08
Performance-based awards	89,079	7.17
Market-based awards	93,254	5.50
Unvested at June 30, 2016	406,848	$	6.74

The following table sets forth the Restricted Stock transactions for the year ended June 30, 2016:



	Number of Restricted Shares		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense at June 30, 2016		Weighted Average Remaining Amortization Period (Years)
Unvested at July 1, 2015	262,227		$	9.37	$	—
Service-based awards granted	164,610		5.84
Performance-based awards granted	64,752		6.09
Market-based awards granted	64,752		4.58
Vested	(86,719	)	8.73
Forfeited	(62,774	)	9.72
Unvested at June 30, 2016	406,848		$	6.74	$	1,536,125	2.6

During the years ended June 30, 2016, 2015, and 2014, there were 86,719, 91,306, and 277,198 shares of Restricted Stock that vested with a total grant date fair value of $757,229, $766,970, and $1,796,243, respectively.

Unvested Contingent Restricted Stock awards at June 30, 2016 consisted of the following:



Award Type	Number of Contingent Restricted Shares	Weighted Average Grant-Date Fair Value
Performance-based awards	44,542	$	7.17
Market-based awards	46,630	3.34
Unvested at June 30, 2016	91,172	$	5.21

The following table summarizes Contingent Restricted Stock activity:



	Number of Restricted Stock Units		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense at June 30, 2016 (1)		Weighted Average Remaining Amortization Period (Years)
Unvested at July 1, 2015	56,286		$	8.20
Performance-based awards granted	32,376		6.09
Market-based awards granted	32,376		2.93
Forfeited	(29,866	)	$	9.33
Unvested at June 30, 2016	91,172		$	5.21	$	107,219	2.8

(1) Excludes $122,268 of potential future compensation expense for performance-based awards for which vesting is not considered probable at this time for accounting purposes.

Stock-based Compensation Expense

For the years ended June 30, 2016, 2015, and 2014, we recognized stock-based compensation expense related to Restricted Stock, Contingent Restricted Stock grants, and Stock Option grants of $1,809,548, $943,653, and $1,728,687, respectively. Included in these amounts are stock-based compensation expense of $59,339 for the year ended June 30, 2016 and $376,365 for the year ended June 30, 2014 that were reflected in restructuring charges.