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") for which there were no shares available for future grants. 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 March 31, 2020, 390,489 shares remained available for grant under the 2016 Plan.

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 outstanding grants of restricted common stock awards ("Restricted Stock") and contingent restricted common stock awards ("Contingent Restricted Stock") to employees and directors of the Company.

Restricted Stock and Contingent Restricted Stock

The Company has awarded grants of both Restricted Stock and Contingent Restricted Stock as part of its long-term incentive plan. Such grants, which expire after a maximum of four years if unvested, contain service-based, performance-based and market-based vesting provisions. The common shares underlying the Restricted Stock grants are issued on the date of grant. Contingent Restricted Stock grants vest only upon the attainment of higher performance-based or market-based vesting thresholds and are issued only upon vesting. Shares underlying Contingent Restricted Stock awards are reserved from the Plan they were granted under.

In July 2019, the new chief executive officer upon his employment, received 48,872 shares of serviced-based restricted common stock which vest in three equal amounts on June 30, 2020, 2021 and 2022, and was also awarded a total of 200,000 market-based restricted stock units consisting of four equal tranches, each of which may vest only if its respective stock price requirement is met before the award term expires. Each tranche has a separate stated price requirement and respective vesting will occur only if, before July 1, 2023, the ninety-day trailing average Company stock share price equals or exceeds its tranche price requirement.

Later during the nine months ended March 31, 2020, we granted 52,119 service-based and 104,236 market-based Restricted Stock awards to our employees as well as 56,395 service-based awards to the Company's directors.

Service-based awards vest with continuous employment by the Company, generally in annual installments over their terms of three to four years. Awards to the Company's directors have one-year cliff vesting. Restricted Stock grants which vest based on service are valued at the fair market value on the date of grant and amortized over the service period.

Performance-based grants vest upon the attainment of earnings, revenue and other operational goals and require that the recipient remain an employee or director of the Company through the vesting date. The Company recognizes compensation expense for performance-based awards ratably over the expected vesting period based on third-party independent assessment of the grant date fair value and 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 term of the award. As of March 31, 2020, there were no performance-based awards outstanding.

Many of our past market-based awards could vest if their respective two- or three-year trailing total returns on the Company’s common stock exceed the corresponding total returns of various quartiles of indices consisting of peer companies. Additionally, more recent market-based awards vest when the average of the Company's closing stock price over a defined measurement period meets or exceeds a required stock price. The third-party independent assessment of fair values and expected vesting periods of these awards are 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. Compensation expense for market-based awards is recognized over the expected vesting period using the straight-line method, so long as the holder remains an employee or director 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.

For market-based awards granted during the nine months ended March 31, 2020 and 2019, the assumptions used in the Monte Carlo simulation valuations, expected lives and fair values were as follows:



	Nine Months Ended March 31,
	2020		2019
Weighted average fair value of market-based awards granted	$	3.79	$	8.24
Risk-free interest rate	1.65% to 1.87%		2.69		%
Expected vesting term in years	1.35 to 2.56		2.82
Expected volatility	38.6% to 43.7%		41.8		%
Dividend yield	6% to 7.2%		4.0		%

Unvested Restricted Stock awards at March 31, 2020 consisted of the following:



	Number of Restricted Shares	Weighted Average Grant-Date Fair Value
Service-based awards	171,609	$	5.95
Market-based awards	129,710	5.10
Unvested Restricted Stock at March 31, 2020	301,319	$	5.59

The following table sets forth the Restricted Stock transactions for the nine months ended March 31, 2020:



	Number of Restricted Shares		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense at March 31, 2020		Weighted Average Remaining Amortization Period (Years)
Unvested at July 1, 2019	176,683		$	8.09
Service-based shares granted	157,386		5.73
Market-based shares granted	104,236		4.34
Vested	(87,868	)	7.29
Forfeited	(49,118	)	9.35
Unvested Restricted Stock at March 31, 2020	301,319		$	5.59	$	1,221,702	1.89

Unvested Contingent Restricted Stock awards table below consists solely of market-based awards:



	Number of Contingent Restricted Shares		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense at March 31, 2020		Weighted Average Remaining Amortization Period (Years)
Unvested at July 1, 2019	10,156		$	3.42
Market-based awards granted	200,000		3.50
Vested	(10,156	)	3.42
Unvested contingent shares at March 31, 2020	200,000		$	3.50	$	295,235	0.66

Stock-based compensation expense related to Restricted Stock and Contingent Restricted Stock grants for the three months ended March 31, 2020 and 2019 was $358,591 and $208,665, respectively. For the corresponding nine-month periods, stock-based compensation expense was $926,794 and $678,149, respectively.