Ring Energy, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(k)

EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(k)

12 Months Ended

Dec. 31, 2022

EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(k)

EMPLOYEE STOCK OPTIONS, RESTRICTED STOCK AWARD PLAN AND 401(k)

In June 2020, officers and directors of the Company voluntarily returned stock options that had previously been granted to them. In total, 2,265,000 options with a weighted average exercise price of $6.87 per share were returned to and cancelled by the Company. No grants, cash payments or other consideration has been or will be made to replace the options or otherwise in connection with the return. As a result of the return and cancellation of the options, the Company incurred additional compensation expense of $768,379.

During October and December 2020, as a result of changes to the executive team and the Board of Directors (the “Board”) of the Company, the Company accelerated the vesting of 1,131,955 shares of restricted stock and as a result of such acceleration, the Company incurred additional compensation expense of $2,361,362.

Compensation expense charged against income for share-based awards during the years ended December 31, 2022, 2021, and 2020 was $7,162,231, $2,418,323, and $5,364,162, respectively. These amounts are included in general and administrative expense in the Statements of Operations.

In 2011, the Board approved and adopted a long-term incentive plan (the “2011 Plan”), which was subsequently approved and amended by the shareholders. There were 341,755 shares eligible for grant, either as stock options or as restricted stock, as of December 31, 2022.

In 2021, the Board approved and adopted the Ring Energy, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”), which was subsequently approved and amended by the shareholders at the 2021 Annual Meeting. There were 5,591,224 shares eligible for grant, either as stock options or as restricted stock, as of December 31, 2022.

Employee Stock Options – No stock options have been granted in the years ended December 31, 2022, 2021, or 2020. All outstanding stock option awards vest at the rate of 20% each year over five years beginning one year from the date granted

and expire ten years from the grant date. A summary of the status of the stock options as of December 31, 2022, 2021, and 2020 and changes during the years ended December 31, 2022, 2021, and 2020 is as follows:


	2022			2021			2020
	Options	Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price
Outstanding at beginning of year	365,500	$	3.61	465,500	$	3.26	2,748,500	$	6.28
Issued	—	—		—	—		—	—
Forfeited or rescinded	—	—		—	—		(2,283,000)	6.89
Exercised	(100,000)	2.00		(100,000)	2.00		—	—

Outstanding at end of year	265,500	$	4.21	365,500	$	3.61	465,500	$	3.26

Exercisable at end of year	265,500	$	4.21	365,500	$	3.61	455,300	$	3.11

For the years ended December 31, 2022, 2021, and 2020 the Company incurred share-based compensation expense related to stock options of $—, $20,934, and $927,559, respectively. As of December 31, 2022, the Company had $0 of unrecognized compensation cost related to stock options. The aggregate intrinsic value of options vested and expected to vest as of December 31, 2022 was $89,700. The aggregate intrinsic value of options exercisable at December 31, 2022 was $89,700. The year-end intrinsic values are based on a December 31, 2022 closing stock price of $2.46.

Stock options exercised of 100,000 shares in 2022 had an aggregate intrinsic value on the date of exercise of $221,000. Stock options exercised of 100,000 shares in 2021 had an aggregate intrinsic value on the date of exercise of $114,000. No stock options were exercised in 2020.

The following table summarizes information related to the Company’s stock options outstanding as of December 31, 2022:


		Options Outstanding
Exercise price		Number Outstanding	Weighted- Average Remaining Contractual Life (in years)	Number Exercisable
$	2.00	195,000	1.00	195,000
5.50		5,000	1.21	5,000
14.54		10,000	2.74	10,000
8.00		4,500	2.92	4,500
6.42		15,000	3.34	15,000
11.75		36,000	3.95	36,000
		265,500	1.63	265,500

Restricted stock grants – Following is a table reflecting the restricted stock grants during 2022, 2021 and 2020:


Grant date						# of shares of restricted stock
October 1, 2020						900,000
October 26, 2020						150,000
December 15, 2020						930,000
April 30, 2021						33,950
June 17, 2021						1,162,152
July 6, 2021						11,824
July 12, 2021						4,007
September 1, 2021						10,417
September 8, 2021						3,306
February 9, 2022						1,247,061
April 13, 2022						7,143
May 10, 2022						10,349
June 16, 2022						2,150
July 14, 2022						8,547
August 29, 2022						30,581
September 1, 2022						37,797
September 19, 2022						49,645

Restricted stock grants issued prior to 2020 vest at the rate of 20% each year over five years beginning one year from the date granted. Restricted stock grants issued during 2020 and in following years vest at a rate of 33% each year over three years beginning one year from the date granted for all employees; for members of the Board, the restricted stock grants vest on the earliest of (i) the day before the next shareholder meeting or (ii) the first anniversary of the date of the award. A summary of the status of restricted stock grants and changes during the years ended December 31, 2022, 2021 and 2020 is as follows:


	2022			2021			2020
	Restricted stock	Weighted- Average Grant Date Fair Value		Restricted stock	Weighted- Average Grant Date Fair Value		Restricted stock	Weighted- Average Grant Date Fair Value
Outstanding at beginning of year	2,572,596	$	1.75	2,132,297	$	2.94	1,341,889	$	4.99
Granted	1,393,273	2.83		1,225,656	2.77		1,980,000	0.71
Forfeited or rescinded	(31,185)	2.83		0	—		(9,200)	3.97
Vested	(1,310,894)	1.79		(785,357)	1.37		(1,180,392)	4.97
Outstanding at end of year	2,623,790	$	2.29	2,572,596	$	1.75	2,132,297	$	2.94

For the years ended December 31, 2022, 2021 and 2020, the Company incurred share-based compensation expense related to restricted stock grants of $4,148,639, $2,225,895, and $4,436,603, respectively. As of December 31, 2022, the Company had $2,457,386 of unrecognized compensation cost related to restricted stock grants that will be recognized over a weighted average period of 1.78 years.

During 2022, 2021, and 2020, 1,310,894, 785,357, and 1,180,392 shares of restricted stock vested, respectively. At the dates of vesting those shares had an aggregate intrinsic value of $3,807,996, $2,049,603, and $801,133, respectively.

Performance Stock Units - In accordance with the 2021 Plan, as of November 22, 2021, the Company entered into performance stock unit (“PSU”) agreements (the “PSU Agreement”) with certain employees. Upon approval the Board, a total of 860,216 PSU were granted to the Company’s five executive officers (the “2021 PSU Awards”). The performance

period for the 2021 PSU Awards began on January 1, 2021, and will end December 31, 2023, with such awards vesting on the last day of the performance period (the vesting date). The PSUs are performance-based restricted stock units subject to the terms of the 2021 Plan and the PSU Agreement. On February 9, 2022, the Company granted additional PSU awards. A total of 860,216 PSU awards were granted to the Company's five executive officers (the "2022 PSU Awards"). The performance period for the 2022 PSU Awards began on January 1, 2022, and will end on December 31, 2024, with such awards vesting on the last day of the performance period (the vesting date). The PSUs are performance-based restricted stock units subject to the terms of the 2021 Plan and the PSU Agreement.

A summary of the status of the performance stock grants as of December 31, 2022 and 2021 along with changes during the year ended December 31, 2022 and 2021 are as follows:


	2022			2021
	Performance Stock Units	Weighted- Average Grant Date Fair Value		Performance Stock Units	Weighted- Average Grant Date Fair Value
Outstanding at beginning of year	860,216	$	3.87	—	$	—
Granted	860,216	3.65		860,216	3.87
Forfeited or rescinded	—	—		—	—
Vested	—	—		—	—
Outstanding at end of year	1,720,432	$	3.76	860,216	$	3.87

For the year ended December 31, 2022 and 2021, the Company incurred share-based compensation expense related to the PSU Awards of $3,013,592 and $171,494, respectively. As of December 31, 2022, the Company had $4,037,141 of unrecognized compensation cost related to the PSU Awards that will be recognized over a weighted average period of 1.56 years.

401(k) Plan- In 2019, the Company initiated a sponsored 401(k) plan that is a defined contribution plan for the benefit of all eligible employees. The plan allows eligible employees, after a three-month waiting period, to make pre-tax or after-tax contributions, not to exceed annual limits established by the federal government. The Company makes matching contributions of up to 6% of any employee’s compensation. Employees are 100% vested in the employer contribution upon receipt.

The following table presents the matching contributions expense recognized for the Company’s 401(k) plan for the years ended December 31, 2022, 2021, and 2020:


	2022	2021	2020
Employer safe harbor match	284,094	228,273	138,997