Note 9 - Incentive Plans

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 9. Incentive Plans

401(k) Plan. The HighPeak Energy Employees, Inc 401(k) Plan (the “401(k) Plan”) is a defined contribution plan established under Section 401 of the Internal Revenue Code of 1986, as amended (the “Code”). All regular full-time and part-time employees of the Company are eligible to participate in the 401(k) Plan after three continuous months of employment with the Company. Participants may contribute up to 80 percent of their annual base salary into the 401(k) Plan. Matching contributions are made to the 401(k) Plan in cash by the Company in amounts equal to 100 percent of a participant’s contributions to the 401(k) Plan up to four percent of the participant’s annual base salary (the “Matching Contribution”). Each participant’s account is credited with the participant’s contributions, Matching Contributions and allocations of the 401(k) Plan’s earnings. Participants are fully vested in their account balances at their eligibility date. During the years ended December 31, 2023, 2022 and 2021, the Company contributed $218,000, $358,000 and $227,000 to the 401(k) Plan, respectively.

Long-Term Incentive Plan. The Company’s Second Amended & Restated Long Term Incentive Plan (“LTIP”) provides for the grant of stock options, restricted stock, stock awards, dividend equivalents, cash awards and substitute awards to officers, employees, directors and consultants of the Company. The number of shares available for grant pursuant to awards under the LTIP as of December 31, 2023 and 2022 are as follows:

	December 31,
	2023			2022
Approved and authorized shares		16,414,015			14,340,324
Shares subject to awards issued under plan		(15,759,791	)		(13,769,191	)
Shares available for future grant		654,224			571,133

Stock options. Stock option awards were granted to employees on August 24, 2020, November 4, 2021, May 4, 2022, August 15, 2022 and July 21, 2023. Stock-based compensation expense related to the Company’s stock option awards for the years ended December 31, 2023 and 2022 was $11.0 million and $18.1 million, respectively, and as of December 31, 2023 and 2022 there was $145,000 and $1.1 million, respectively, of unrecognized stock-based compensation expense related to unvested stock option awards. The unrecognized compensation expense will be recognized on a straight-line basis over the remaining vesting periods of the awards, which is a period of less than one year. The 1,949,000 stock options granted in July 2023 were 100% vested upon grant on July 21, 2023. However, to encourage long-term alignment with the Company stockholders, the stock options are not exercisable until the earlier of (i) August 31, 2026, (ii) upon a change in control or (iii) upon the death or disability of the grantee.

The Company estimates the fair values of stock options granted on the grant date using a Black-Scholes option valuation model, which requires the Company to make several assumptions. The expected term of options granted was determined based on the simplified method of the midpoint between the vesting dates and the contractual term of the options. The risk-free interest rate is based on the U.S. treasury yield curve rate for the expected term of the option at the date of grant and the volatility was based on the volatility of either an index of exploration and production crude oil and natural gas companies or on a peer group of companies with similar characteristics of the Company on the date of grant since the Company had minimal or did not have any trading history. More detailed stock options activity and details are as follows:

	Stock Options			Average Exercise Price		Remaining Term in Years		Intrinsic Value (in thousands)
Outstanding at December 31, 2021		9,983,727		$	10.19		8.7	$	44,395
Awards granted		1,564,500		$	25.09
Exercised		(12,000	)	$	10.00
Forfeitures		(18,999	)	$	18.66
Outstanding at December 31, 2022		11,517,228		$	12.20		7.9	$	128,429
Awards granted		1,949,000			10.50
Exercised		(11,834	)	$	12.52
Forfeitures		(5,333	)	$	24.83
Outstanding at December 31, 2023		13,449,061		$	11.95		6.3	$	47,672
Vested at December 31, 2022		11,304,747		$	12.02		7.9	$	127,591
Exercisable at December 31, 2022		11,304,747		$	12.02		7.9	$	127,591
Vested at December 31, 2023		13,387,074		$	11.88		6.3	$	47,672
Exercisable at December 31, 2023		11,438,074		$	12.12		6.9	$	40,383

Restricted stock issued to employee members of the Board and certain employees. A total of 1,500,500 shares of restricted stock was approved by the Board to be granted to certain employee members of the Board of the Company on November 4, 2021, which vest on the three-year anniversary of such grant assuming the employees remain in his or her position as of the anniversary date. Therefore, stock-based compensation expense of $7.2 million, $7.2 million and $1.2 million was recognized during the years ended December 31, 2023, 2022 and 2021, respectively, and the remaining $6.0 million as of December 31, 2023 will be recognized over the remaining restricted period, which was based upon the closing price of the stock on the date of the restricted stock issuance. The Board also cancelled the previously issued equity-based liability bonuses and approved a total of 600,000 shares of restricted stock to be granted to certain employees of the Company on June 1, 2022, which vest on November 4, 2024, assuming the employees remain in his or her position as of that date and cancelled certain contractual equity-based bonuses to such employees. Therefore, stock-based compensation expense of $7.0 million, $7.3 million and $488,000 was recognized during the years ended December 31, 2023, 2022 and 2021, respectively, and the remaining $5.9 million as of December 31, 2023 will be recognized over the remaining restricted period, which was based upon the closing price of the stock on the date of the restricted stock issuance.

Stock issued to outside directors. A total of 58,767 shares of restricted stock was approved by the Board to be granted to the outside directors of the Company on June 1, 2023, which will vest at the next annual meeting, assuming the Board members maintain their positions on the Board. Therefore, stock-based compensation expense of $442,000 was recognized during the year ended December 31, 2023 and the remaining $316,000 will be recognized between January and May 2024, which was based upon the closing price of the stock on the date of the restricted stock issuance. In addition, a total of 21,184 shares of restricted stock was approved by the Board to be granted to the outside directors of the Company on June 1, 2022, which vested during the second quarter of 2022. Therefore, stock-based compensation expense of $305,000, $427,000 was recognized during the years ended December 31, 2023 and 2022, respectively, which was based upon the closing price of the stock on the date of the restricted stock issuance. Finally, a total of 67,779 shares of restricted stock was approved by the Board to be granted to the outside directors of the Company on June 1, 2021, which vested in January 2022. Therefore, stock-based compensation expense of $284,000 and $398,000 was recognized during the years ended December 31, 2022 and 2021, respectively, which was based upon the closing price of the stock on the date of the restricted stock issuance.