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Stock-Based Compensation
9 Months Ended
Sep. 30, 2022
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation

Note 13 – Stock-Based Compensation

 

Stock Options

 

On April 3, 2019, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2019 Stock Option Plan (the “Stock Option Plan”). The total number of shares of common stock that may be issued pursuant to stock options under the Stock Option Plan is 2,500,000. Further, on April 3, 2019, the Company granted Mr. Pritchard and Mr. Morrisett each, options to purchase 625,000 shares of common stock of the Company at an exercise price of $1.32 per share. Each option vested in three installments with 312,500 vesting immediately and 156,250 vesting each in April 2020 and April 2021. All of the options expire in April 2029. The value allocated to the vested options was the fair value determined using the Black-Scholes option valuation with the following assumptions:  no dividend yield, expected annual volatility of 213%, risk free interest rate of 2.32% and a term of 5.375 years. As a result of the adoption of a 2021 plan, the Board of Directors and management have determined that there would be no further issuances from the Stock Option Plan. In April 2022, Mr. Pritchard exercised options to purchase 235,000 shares of common stock and as of September 30, 2022, there were 1,943,200 unexercised options under the Stock Option Plan.

 

On August 27, 2021, the Board of Directors of the Company adopted the Empire Petroleum Corporation 2021 Stock and Incentive Compensation Plan (the “Incentive Plan”). The total number of shares of common stock that may be issued pursuant to the Incentive Plan is 750,000. Four grants were made in 2021 that amounted to 187,500 options. Two of the grants were for a cumulative amount of 62,500 options and vested immediately upon grant in November 2021. Valuation was calculated using the Black-Scholes option valuation model with the following assumptions: no dividend yield, expected annual volatility of 229%, risk free interest rate of 0.81%, and term of 3 years. The third grant was for 62,500 options and the valuation used the following inputs: no dividend yield, expected annual volatility of 277%, risk free interest rate of 0.99%, and term of 4 years. The fourth grant was for 62,500 options and inputs used to value the grant included no dividend yield, expected annual volatility of 335%, risk free interest rate of 1.16%, and a term of 5 years.

 

On February 28, 2022, management issued a combination of stock options and restricted stock units under the Incentive Plan. 249,000 stock options were granted to employees and members of management with three-year vesting terms and expirations of August 2025 and 2026. Stock option values were calculated using a Black-Scholes option valuation with the following assumptions: no dividend yield, expected annual volatility of 56% as calculated by utilizing the stock price from the date of the XTO acquisition through grant date, risk free interest rate of 1.62% and 1.67% for the 2025 and 2026 options, respectively, and expected useful lives of 2.75 and 3.75 years for the 2025 and 2026 options, respectively. Total fair value of the stock option grants was approximately $1.2 million. The value of these options are being recognized to expense in a straight-line method from date of grant through expiration date.

 

In July 2022, a former director of the Company exercised 75,000 of his stock options granted under the Stock Option Plan.

 

Restricted Stock Units

 

The Incentive Plan allows for the grant of restricted stock units (“RSUs”). Any grants of RSUs are made in accordance with the terms of the Incentive Plan that allows a maximum of 750,000 shares of common stock to be issued.

 

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. Stock-based compensation is included in General and Administrative expense in the Condensed Consolidated Statements of Operations and is recorded with a corresponding increase in Additional Paid-in Capital within the Condensed Consolidated Balance Sheets.

RSUs were granted on February 28, 2022 with 12- and 13-month service periods. Total value assigned to the RSUs based on grant date approximated $585,000. For the nine months ended September 30, 2022, approximately $339,000 of compensation expense related to RSUs was recognized, leaving approximately $244,000 of unrecognized compensation expense which will be recognized on a straight-line basis depending on the service period of each grant.

 

On May 22, 2022, RSUs were granted to Board members with 13-month service periods. Total value assigned to the RSUs based on grant date was $1,545,000. Compensation expense of approximately $491,000 was recognized for the nine months ended September 30, 2022, related to these grants and unrecognized compensation expense to be recognized on a straight-line basis over the remaining service period approximated $1,054,000 at September 30, 2022.

On August 26, 2022, the stockholders of the Company approved the Company’s 2022 Stock and Incentive Compensation 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 Incentive Plan.