EMPIRE PETROLEUM CORP Stock Compensation Disclosure

Note 10 – Stock Based Compensation

 

Empire recognizes stock-based compensation expense associated with granted stock options and restricted stock units ("RSUs”). Empire accounts for forfeitures of equity-based incentive awards as they occur. Stock-based compensation expense related to time-based restricted stock units is based on the price of the common stock on the grant date and recognized as vesting occurs. For options, the fair value is determined using the Black-Scholes option valuation assumptions on dividend yield, expected annual volatility, risk-free interest rate and an expected useful life. Stock-based compensation expense for restricted stock units and stock options is included in general and administrative expense in the consolidated statements of operations and is recorded with a corresponding increase in additional paid-in capital within the consolidated balance sheets.

 

On April 3, 2019, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2019 Stock Option Plan (the “2019 Stock Option Plan”). The total number of shares of common stock that may be issued pursuant to stock options under the 2019 Stock Option Plan was 2,500,000. On August 27, 2021, the Board of Directors of the Company adopted the Company’s 2021 Stock and Incentive Compensation Plan (the “2021 Incentive Plan”) which was subsequently approved by stockholders of the Company. As a result of such approval, no further awards will be made under the 2019 Incentive Plan. The total number of shares of common stock that could be issued pursuant to the 2021 Incentive Plan is 750,000. On August 26, 2022, the stockholders of the Company approved the Company’s 2022 Stock and Incentive Compensation Plan (the “2022 Incentive Plan”) which reserves 750,000 shares of the Company’s common stock for issuance thereunder. As a result of such approval, no further awards will be made under the 2021 Incentive Plan. On June 9, 2023, the stockholders of the Company approved the Company’s 2023 Stock and Incentive Compensation Plan (the “2023 Incentive Plan”) which reserves 700,000 shares of the Company’s common stock for issuance thereunder. As a result of such approval, no further awards will be made under the 2022 Incentive Plan. On June 14, 2024, the Board of Directors adopted the Company’s 2024 Stock and Incentive Compensation Plan (the “2024 Incentive Plan”) which reserves 700,000 shares of the Company’s common stock for issuance thereunder. As a result of such approval no further awards will be made under the 2023 Incentive Plan. The 2024 Incentive Plan authorizes the grant of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards (restricted stock awards, restricted stock units, performance shares and performance units are collectively referred to as restricted stock units for purposes of this Note). At December 31, 2024, 528,165 shares of our common stock were available for future grants.

 

Restricted Stock Units

Each RSU represents the contingent right to receive one share of common stock. The holders of outstanding RSUs do not receive dividends or have voting rights prior to vesting and settlement. The Company determines the fair value of granted RSUs based on the market price of the common stock on the date of the grant. Compensation expense for granted RSUs is recognized on a straight-line basis over the vesting and is net of forfeitures, as incurred.

 

RSUs are generally granted with 12-month, 13-month, or 3-year service periods. Total value assigned to the RSUs granted in 2024 based on grant date price approximated $0.6 million. For the years ended December 31, 2024 and 2023, approximately $0.9 million and $2.3 million of compensation expense related to RSUs was recognized. At December 31, 2024, approximately $0.7 million of unrecognized compensation expense remained and will be recognized on a straight-line basis depending on the service period of each grant.

 

 

The following summary reflects nonvested restricted stock unit activity and related information:

 

						Weighted-Average
		Shares				Fair Value (1)
Outstanding, December 31, 2022			224,288			$	15.42
Granted			180,430				10.33
Vested			(145,700	)			16.20
Forfeited			(54,201	)			14.57
Outstanding, December 31, 2023			204,817			$	10.61
Granted			106,260				5.29
Vested			(162,034	)			9.79
Forfeited			(22,500	)			11.05
Outstanding, December 31, 2024			126,543			$	7.11

 

(1)

Shares are valued at the grant-date market price.

 

		2024
Weighted-Average grant date fair value of restricted stock units granted during the year, per share		$	5.29
Total fair value of restricted stock units vested during the year		$	1,586,313

 

 

Stock Options

 

Each stock option award provides the opportunity in the future to purchase Empire common shares at the market price of our common stock on the date the award is granted (the strike price). The options generally become exercisable in equal amounts over a three-year vesting period or over one-year for options awarded to the Board of Directors of the Company; however, certain options become exercisable only if certain performance criteria are met. Stock options have no financial statement effect on the date they are granted but rather are reflected over time through recording stock-based compensation expense. The stock-based compensation expense is based on the estimated fair value of the awards expected to vest, and that amount is amortized as compensation expense on a straight-line basis over the respective vesting period and is net of forfeitures, as incurred.

 

The estimated fair value of an option is calculated using a Black-Scholes option valuation model with the following assumption inputs: dividend yield, expected annual volatility, risk free interest rate and an expected life of the option. The following table summarizes the weighted-average fair value and assumptions:

 

		2024				2023
Weighted-average grant-date fair value of stock options		$	3.25			$	4.52
Stock Options Valuation Assumptions:
Risk-free interest rate			4.5%				3.9%
Dividend yield			0.0%				0.0%
Expected volatility			73.9%				64.9%
Expected option life (in years)			5.00				2.88
Other pricing model inputs:
Weighted average grant-date market prices of Empire stock (strike price)		$	5.12			$	10.07

 

 

For the years ended December 31, 2024 and 2023, approximately $1.1 million and $0.9 million of compensation expense related to stock options was recognized. At December 31, 2024, approximately $1.0 million of unrecognized compensation expense remained and will be recognized on a straight-line basis depending on the service period of each grant.

 

 

 

 

The following summary reflects stock option activity and related information:

 

								Weighted-Average
				Options				Exercise Price
	Outstanding, December 31, 2022				2,379,700			$	3.31
	Granted				533,000				10.07
	Exercised				(355,000	)			1.35
	Forfeited				(492,319	)			5.42
	Outstanding, December 31, 2023				2,065,381			$	4.89
	Granted				149,335				5.12
	Exercised				(193,866	)			1.35
	Forfeited				(135,000	)			12.17
	Outstanding, December 31, 2024				1,885,850			$	4.75

 

 

The following table summarizes information about stock options as of December 31, 2024:

 Schedule of summarizes information about stock options outstanding

 

Range of Exercise Price		$1.32 to $12.36
Weighted-Average Remaining Contractual Life		4.17 years
Options Outstanding			1,885,850
Options Exercisable			1,489,928
Options Outstanding Aggregate Intrinsic Value			$5,376,036
Options Exercisable Aggregate Intrinsic Value			$5,453,136
Weighted-Average Outstanding Price			$4.75
Weighted-Average Exercise Price			$3.94