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

Annual report pursuant to Section 13 and 15(d)

EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK AWARD PLAN

EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK AWARD PLAN

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 8 EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK AWARD PLAN

In 2011, the Company’s Board of Directors approved and adopted a long term incentive plan, which was subsequently approved and amended by the shareholders. There were 1,367,150 shares eligible for grant, either as options or as restricted stock, at December 31, 2016.

Employee Stock Options Following is a table reflecting the issuances during 2014, 2015 and 2016 and their related exercise prices:

Grant date	# of options		Exercise price
April 11, 2014		5,000	$	16.99
September 25, 2014		23,000		14.54
October 13, 2014		2,500		13.12
November 18, 2014		45,000		12.79
December 1, 2014		293,000		8.00

April 1, 2015		3,750	$	10.89
December 9, 2015		291,000		8.25

January 13, 2016 (1)		241,000	$	5.25
May 3, 2016		15,000		6.42
December 13, 2016		582,500		11.75
		1,501,750

(1) On December 9, 2015, Ring issued option awards to its named executive officers and directors. On January 13, 2016, upon the recommendation of the Compensation Committee, Ring rescinded the option awards granted to its employees and directors (other than Messrs McCabe and Rochford, who are the members of the Compensation Committee) as the result of a significant decline in the stock price and re-issued the the option awards as of that date to meet the goals and objectives of the Company’s equity based compensation program. The amounts shown as Option Awards includes the additional fair value of the new options over the original grant.

All granted options 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, 2016, 2015 and 2014 and changes during the years ended December 31, 2016, 2015 and 2014 is as follows:

	2016				2015				2014
	Options		Weighted-Average Exercise Price		Options		Weighted-Average Exercise Price		Options		Weighted-Average Exercise Price
Outstanding at beginning of the year		2,881,750	$	5.07		2,684,500	$	4.67		2,647,500	$	4.01
Issued		838,500		9.79		294,750		8.28		368,500		9.15
Forfeited or rescinded		(331,400)		8.62		(32,500)		4.47		(177,500)		5.62
Exercised		(26,500)		4.41		(65,000)		3.46		(154,000)		2.90

Outstanding at end of year		3,362,350	$	5.90		2,881,750	$	5.07		2,684,500	$	4.67

Exercisable at end of year		1,722,850	$	4.01		1,214,000	$	3.85		728,000	$	3.22

Weighted average fair value of
options granted during the year			$	9.72			$	6.55			$	7.55

The Company uses the Black-Scholes option pricing model to calculate the fair-value of each option grant. The expected volatility is based on the historical price volatility of the Company’s common stock. We elected to use the simplified method for estimating the expected term as allowed by generally accepted accounting principles for options granted during the years ended December 31, 2016, 2015 and 2014. Under the simplified method, the expected term is equal to the midpoint between the vesting period and the contractual term of the stock option. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options. The dividend yield represents the Company’s anticipated cash dividend over the expected life of the stock options. The following are the Black-Scholes weighted-average assumptions used for options granted during the periods ended December 31, 2016, 2015 and 2014:

	Risk free interest rate			Expected life (years)		Dividend yield		Volatility

April 11, 2014		1.58	%		6.5		-		114	%
September 25, 2014		1.75	%		6.5		-		108	%
October 13, 2014		1.45	%		6.5		-		107	%
November 18, 2014		1.66	%		6.5		-		106	%
December 1, 2014		1.52	%		6.5		-		108	%

April 1, 2015		1.32	%		6.5		-		103	%
December 9, 2015		1.64	%		6.5		-		100	%

January 13, 2016		1.51	%		6.5		-		100	%
May 3, 2016		1.25	%		6.5		-		99	%
December 13, 2016		1.92	%		6.5		-		96	%

As of December 31, 2016, there was $7,246,547 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 2.8 years. The aggregate intrinsic value of options vested and expected to vest at December 31, 2016 was $23,872,914. The aggregate intrinsic value of options exercisable at December 31, 2016 was $15,477,634. The year end intrinsic values are based on a December 31, 2016 closing price of $12.99.

Options exercised of 26,500 in 2016, 65,000 in 2015 and 154,000 in 2014 had an aggregate intrinsic value on the date of exercise of $65,089, $476,642 and $2,159,330, respectively.

The following table summarizes information related to the Company’s stock options outstanding at December 31, 2016:

		Options Outstanding
				Weighted- Average
				Remaining
		Number		Contractual Life		Number
Exercise price		Outstanding		(in years)		Exercisable
	2.00		694,100		4.92		694,100
	4.50		1,340,000		5.99		810,000
	5.50		25,000		6.20		15,000
	7.50		29,000		6.48		17,000
	10.00		90,000		6.96		54,000
	14.54		20,000		7.73		8,000
	8.00		285,000		7.92		114,000
	10.89		3,750		8.25		750
	8.25		50,000		8.94		10,000
	5.25		228,000		9.03		-
	6.42		15,000		9.34		-
	11.75		582,500		9.95		-

			3,362,350		6.93		1,722,850

Any excess tax benefits from the exercise of stock options will not be recognized in paid-in capital until the Company is in a current tax paying position. Presently, the company has a net loss and therefore not yet subject to income taxes. Accordingly, no excess tax benefits have been recognized for the years ended December 31, 2016, 2015 or 2014.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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