Stock-Based Incentive Plan

At the December 8, 2016 annual meeting, the stockholders approved the adoption of the Evolution Petroleum Corporation 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the Evolution Petroleum Corporation Amended and Restated 2004 Stock Plan (the "2004 Plan"). The 2016 Plan authorizes the issuance of 1,100,000 shares of common stock prior to its expiration on December 8, 2026. Incentives under the 2016 Plan may be granted to employees, directors and consultants of the Company in any one or a combination of the following forms: incentive stock options and non-statutory stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards, performance share awards, performance cash awards, and other forms of incentives valued in whole or in part by reference to, or otherwise based on, our common stock, including its appreciation in value. As of December 31, 2016, 1,100,000 shares were available for grant under the 2016 Plan.

At December 31, 2016, there were no shares remaining available for grant under the 2004 Plan. We were authorized to issue 6,500,000 shares of common stock under the 2004 Plan prior to its scheduled expiration on October 24, 2017. In connection with the adoption of the 2016 Plan, the Board terminated the 2004 Plan on December 8, 2016 and 32,146 remaining reserved shares were released to the Company's authorized but unissued and unreserved shares. All outstanding awards granted under the 2004 Plan continue to be subject to the terms and conditions as set forth in the agreements evidencing such awards and the terms of the 2004 Plan. Under these agreements, 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.

Stock Options

No Stock Options have been granted since August 2008 and all compensation costs attributable to Stock Options have been recognized in prior periods. The following summary presents information regarding outstanding Stock Options as of December 31, 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, 2016	35,231	$	2.19
Exercised	—	—
Expired	—	—
Stock Options outstanding at December 31, 2016	35,231	$	2.19	$	275,154	0.7
Vested and exercisable at December 31, 2016	35,231	$	2.19	$	275,154	0.7

(1) Based upon the difference between the market price of our common stock on the last trading date of the period ($10.00 as of December 31, 2016) and the Stock Option exercise price of in-the-money Stock Options.

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 amortized over the service period.

In August 2014, December 2015 and September 2016, 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 December 31, 2016, certain contingent 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 will be recorded at that time and amortization would continue over the remaining expected vesting period.

Market-based awards granted in 2014 and 2015 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. Market-based awards granted in 2016 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 an index consisting of designated peer companies 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 six months ended December 31, 2016, we granted market-based awards with grant date fair values ranging from $3.42 to $5.62 per share, all with an expected vesting period of 2.83 years, based on the various quartiles of comparative market performance. During the fiscal year ended June 30, 2016, we granted market-based awards with grant date fair values ranging from $2.93 to $5.07 per share, 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 grant date fair values ranging from $4.26 to $8.40 per share 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.

Unvested Restricted Stock awards at December 31, 2016 consisted of the following:



Award Type	Number of Restricted Shares	Weighted Average Grant-Date Fair Value
Service-based awards	221,956	$	7.12
Performance-based awards	54,475	5.67
Market-based awards	119,227	4.97
Unvested Restricted Stock at December 31, 2016	395,658	$	6.28

The following table sets forth the Restricted Stock transactions for the six months ended December 31, 2016:



	Number of Restricted Shares		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense at December 31, 2016		Weighted Average Remaining Amortization Period (Years)
Unvested at July 1, 2016	406,848		$	6.74
Service-based shares granted	86,563		7.02
Performance-based shares granted	54,475		5.67
Market-based shares granted	54,475		5.44
Vested	(206,703	)	7.11
Unvested Restricted Stock at December 31, 2016	395,658		$	6.28	$	2,194,326	2.4

Unvested Contingent Restricted Stock awards at December 31, 2016 consisted of the following:



Award Type	Number of Contingent Restricted Shares	Weighted Average Grant-Date Fair Value
Performance-based awards	39,403	$	7.02
Market-based awards	73,867	3.37
Unvested contingent shares at December 31, 2016	113,270	$	4.64

The following table sets forth Contingent Restricted Stock transactions for the six months ended December 31, 2016:



	Number of Contingent Restricted Shares		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense at December 31, 2016 (1)		Weighted Average Remaining Amortization Period (Years)
Unvested at July 1, 2016	91,172		$	5.21
Performance-based awards granted	27,237		5.67
Market-based awards granted	27,237		3.42
Vested	(32,376	)	6.09
Unvested contingent shares at December 31, 2016	113,270		$	4.64	$	167,781	2.4

(1) Excludes $276,702 of potential future compensation expense for contingent performance-based awards for which vesting is not considered probable at this time for accounting purposes.

Stock-based compensation expense related to Restricted Stock and Contingent Restricted Stock grants for the three months ended December 31, 2016 and 2015 was $275,184 and $272,063, respectively. For the corresponding six month periods, non-cash stock compensation expense was $586,872 and $490,178, respectively.