DEF: Trio Petroleum Corp. Seeks Share Reduction and Expanded Equity Plan Approvals at 2025 Annual Meeting

Trio Petroleum Corp. is convening its 2025 Annual Meeting to vote on key proposals including a significant reduction in authorized common stock, a substantial increase in its equity incentive plan, and the re-election of two Class II directors.

Summary

• The 2025 Annual Meeting of Stockholders for Trio Petroleum Corp. will be held virtually on July 30, 2025, at 11:00 a.m. Eastern Time.
• Stockholders will vote on the re-election of two Class II directors, William J. Hunter and James H. Blake, for three-year terms expiring at the 2028 Annual Meeting.
• A proposal to amend the Certificate of Incorporation will reduce the number of authorized shares of common stock from 500,000,000 to 150,000,000 shares, which is expected to save an estimated $109,000 annually in Delaware franchise taxes.
• Amendments to the 2022 Equity Incentive Plan are proposed to increase the shares reserved for issuance from 500,000 to 2,500,000 shares and to increase the maximum number of shares for incentive stock options (ISOs) from 500,000 to 2,500,000 shares, representing approximately 33% of the 7,522,499 shares outstanding as of June 2, 2025.
• An 'evergreen' provision is proposed for the 2022 Plan, which would add shares annually (the lesser of 5% of outstanding shares on October 31st or an amount determined by the Board) through November 1, 2031.
• Stockholders will also ratify the appointment of Bush & Associates CPA LLC as the independent registered public accounting firm for the fiscal year ending October 31, 2025, following the termination of the previous auditor due to an SEC order.

Sentiment

Score: 6

Explanation: The document outlines necessary corporate governance actions and proactive measures to manage share structure and incentivize talent. While the proposed equity plan increase is substantial and could lead to dilution, it's presented as essential for growth and retention. The auditor change, while prompted by external regulatory action against the previous firm, is a positive step for compliance. The ongoing need for capital raises and related party transactions introduce some caution, but overall, the tone is forward-looking and focused on operational continuity and growth.

Positives

• The proposed reduction in authorized common stock from 500,000,000 to 150,000,000 shares is estimated to result in annual savings of $109,000 in Delaware franchise taxes.
• The increase in shares reserved for the 2022 Equity Incentive Plan is intended to enhance the company's ability to attract, retain, motivate, and reward employees, directors, and consultants, linking their incentives to long-term stockholder value creation.
• The addition of an 'evergreen' provision to the equity plan aims to ensure a continuous supply of shares for future awards, supporting ongoing talent retention and attraction efforts.
• The ratification of Bush & Associates CPA LLC as the new independent auditor indicates a move towards improved financial oversight and compliance, especially after the previous auditor was disqualified by an SEC order.

Negatives

• The proposed increase in shares reserved for the 2022 Equity Incentive Plan from 500,000 to 2,500,000 shares, and the evergreen provision, could lead to significant future dilution for existing stockholders.
• The company's previous independent registered public accounting firm, BF Borgers CPA PC, was terminated due to an SEC order, which may raise concerns about past financial reporting quality.
• The company did not close the acquisition of the Union Avenue Field from Trio LLC due to a disagreement on terms, indicating a failed strategic transaction.
• The company faces a deadline of February 10, 2025, to pay an additional $1,775,000 to exercise an option for a 17.75% working interest in the Asphalt Ridge Leases, or risk forfeiture.

Risks

• Dilution Risk: The proposed increase in shares for the 2022 Equity Incentive Plan (from 500,000 to 2,500,000 shares, representing approximately 33% of current outstanding shares) and the evergreen provision (adding up to 5% of outstanding shares annually) pose a significant risk of future dilution to existing stockholders' voting rights, earnings per share, and book value per share.
• Operational Funding Risk: The document states that the reduction in authorized shares is 'sufficient to satisfy all outstanding equity awards and rights to obtain shares of our common stock as well as support our ongoing efforts to raise capital to fund the Company's operations for the foreseeable future,' implying a continued reliance on capital raises which could further dilute shareholders.
• Related Party Transaction Risk: The company engages in related party transactions with Trio LLC and Lafayette Energy Corp (LEC), both of which have current or former members of Trio Petroleum's management involved, which inherently carries a risk of conflicts of interest despite the formation of special committees.
• Auditor Change Risk: The termination of BF Borgers CPA PC as independent auditor due to an SEC order raises concerns about the quality of past audits and potential financial reporting issues, even though a new auditor has been appointed.
• Forfeiture Risk (Asphalt Ridge Option): The company risks forfeiting the option to acquire an additional 17.75% working interest in the Asphalt Ridge Leases if it does not pay an additional $1,775,000 by February 10, 2025.
• Retention Risk: If the proposed increases to the 2022 Equity Incentive Plan are not approved, the company's ability to attract and retain highly qualified employees and directors could be hampered.

Future Outlook

Trio Petroleum Corp. aims to support ongoing efforts to raise capital and fund its operations for the foreseeable future. The proposed amendments to the 2022 Equity Incentive Plan, including the significant increase in reserved shares and the evergreen provision, are deemed essential for the company's continued success in attracting, retaining, motivating, and rewarding employees, directors, and consultants. The company anticipates working with Heavy Sweet Oil LLC to fund further well development in the Asphalt Ridge asset based on their proportionate ownership.

Management Comments

• "Our employees are our most valuable assets."
• "The Board believes that grants of stock options, restricted stock units, performance-based restricted stock units and other equity awards under the 2022 Plan help create long-term equity participation in the Company and thereby assist us in attracting, retaining, motivating and rewarding employees, directors, and consultants."
• "The Board also believes that long-term equity compensation is essential to link executive pay to long-term stockholder value creation."
• "Without these increases, we will be limited, in the future, as to the number of shares of common stock we will have available for the granting of additional awards, including ISOs, to employees, which could make it difficult for us to retain our current employees and to also attract new highly qualified employees."
• "Our ability to attract and retain qualified directors to serve on our Board is also contingent on our ability to provide them with compensation in the form of equity which is comparable with the equity compensation provided to directors of other public companies in our industry."
• "The Board has determined that it is in the best interests of us and our stockholders that these amendments to the 2022 Plan be approved."
• "We believe strongly that evergreen proposal is essential to our continued success and therefore is in the best interests of the Company and our stockholders, since it allows us to annually maintain a sufficient number of shares of common stock issuable under the 2022 Plan, which is necessary for us to be able to provide our employees with sufficient award grants under the 2022 Plan to incentivize them to work with the Company and to maintain their services."

Industry Context

This proxy statement primarily addresses internal corporate governance and compensation matters for Trio Petroleum Corp., an oil and gas company with interests in the South Salinas Project, McCool Ranch Oil Field, and Asphalt Ridge Asset. The company's emphasis on expanding its equity incentive plan highlights a common industry challenge of attracting and retaining specialized talent in the competitive energy sector, where long-term incentives are crucial. The need for ongoing capital raises is typical for exploration and production companies in the capital-intensive oil and gas industry.

Comparison to Industry Standards

• The proposed increase in the 2022 Equity Incentive Plan to 2,500,000 shares, representing approximately 33% of current outstanding shares, is a relatively high percentage compared to typical equity incentive pools in many industries, which often range from 10-20%. However, for smaller, growth-oriented companies in capital-intensive sectors like oil and gas, larger pools may be sought to attract and retain talent without significant cash compensation.
• The company aims to provide equity compensation 'comparable with the equity compensation provided to directors of other public companies in our industry,' but the document does not provide specific comparable companies or benchmarks to assess this claim.
• The termination of the previous auditor, BF Borgers CPA PC, due to an SEC order is a significant event that deviates from standard corporate governance practices for public companies. The appointment of Bush & Associates CPA LLC is a necessary step to align with industry standards for audit quality and regulatory compliance.

Management Changes

Corporate Governance

Legal Proceedings

• The company's former independent registered public accounting firm, BF Borgers CPA PC, was terminated in May 2024 as a result of an order by the Securities and Exchange Commission (SEC Order), indicating regulatory action against the auditing firm itself.

Related Party Transactions

• **Trio LLC**: Stanford Eschner (Vice Chairman, Director) and Steven Rowlee (former COO) are part of Trio LLC's management/ownership. Trio LLC personnel were salaried employees of TPET until December 31, 2024, and are also employees/part owners of Trio LLC. Terence B. Eschner (former President) consults for Trio LLC. Trio LLC operates the South Salinas Project and McCool Ranch Oil Field.
• **South Salinas Project Purchase**: On September 14, 2021, TPET acquired Trio LLC's approximate 82.75% working interest for $4 million and 245,000 common shares.
• **Fourth Amendment to South Salinas Purchase**: On December 22, 2022, TPET acquired an additional approximate 3% working interest from Trio LLC for $60,529.40 and paid a $150,000 option fee for other assets.
• **Union Avenue Field Acquisition**: An agreement to acquire up to 100% working interest from Trio LLC (20% direct, 80% facilitated) was not closed due to disagreement on terms.
• **McCool Ranch Oil Field Purchase**: In October 2023, TPET entered an agreement with Trio LLC for a 21.918315% working interest. An initial payment of $100,000 was made, with an additional $400,000 due. TPET has paid approximately $284,000 for restarting production and recorded a $116,000 liability to Trio LLC as of October 31, 2024.
• **Lafayette Energy Corp (LEC)**: Michael Peterson (former CEO, director), Frank C. Ingriselli (former CEO, Vice Chairman, director), and Gregory L. Overholtzer (CFO) are employed by LEC. TPET and LEC both have interests in the Asphalt Ridge Asset.
• **Asphalt Ridge Option Agreement**: On November 10, 2023, TPET entered an option agreement with Heavy Sweet Oil LLC (HSO) to purchase up to a 20% working interest. LEC also has a similar option for a 30% interest. TPET has the right to acquire LEC's unexercised portion for $3,000,000 cash. TPET exercised for a 2.25% working interest and has until February 10, 2025, to pay $1,775,000 for the remaining 17.75% working interest.
• **Loan from Michael L. Peterson**: On March 26, 2024, the Company borrowed $125,000 from its former CEO, Michael L. Peterson. As additional consideration, the vesting of 50,000 restricted shares awarded to Mr. Peterson was accelerated. The loan was repaid on November 26, 2024.
• **Consulting Agreement with Michael L. Peterson**: From July 11, 2024, to October 11, 2024, Mr. Peterson received a cash consulting fee of $10,000 per month and was awarded 50,000 RSUs.
• **Consulting Agreement with Frank C. Ingriselli**: Through Global Venture Investments LLC, Mr. Ingriselli received a cash consulting fee of $10,000 per month from October 16, 2023, to December 31, 2023.
• Special committees of the board (one for Trio LLC transactions, one for LEC transactions) and the Audit Committee are responsible for evaluating and approving related party transactions.

Stakeholder Impact

• **Shareholders**: Face potential significant dilution from the proposed expansion of the equity incentive plan and evergreen provision, but could benefit from estimated $109,000 annual tax savings from the authorized share reduction. They have the opportunity to influence corporate governance through their votes on director elections, auditor ratification, and share structure changes.
• **Employees, Directors, and Consultants**: Stand to benefit significantly from the increased pool of shares available for equity awards, which is intended to enhance attraction, retention, and motivation, linking their compensation to the company's long-term value creation.
• **Management**: Gains increased flexibility in using equity as a compensation tool and benefits from the strategic adjustments to the share structure aimed at supporting ongoing capital raising efforts and operational funding.
• **Creditors**: The repayment of the Peterson Loan demonstrates the company's ability to meet its obligations. However, the ongoing need for capital raises suggests potential future reliance on debt or equity financing.
• **Regulatory Bodies**: The company is demonstrating compliance with SEC filing requirements and has addressed the issue with its former auditor by appointing a new firm, indicating responsiveness to regulatory oversight.

Next Steps

• Stockholders to vote on proposals at the Annual Meeting on July 30, 2025.
• If approved, the amendment to reduce authorized shares will become effective upon filing with the Delaware Secretary of State.
• If approved, the amendments to the 2022 Equity Incentive Plan will become effective.
• The company intends to file a registration statement on Form S-8 covering the additional shares issuable under the 2022 Plan if Proposal No. 3 is approved.
• The company has until February 10, 2025, to pay an additional $1,775,000 to exercise the option for the remaining 17.75% working interest in the Asphalt Ridge Leases.
• The company anticipates working with Heavy Sweet Oil LLC to fund further well development in the Asphalt Ridge asset based on their proportionate ownership.

Key Dates

Recommendation

Keywords

Trio Petroleum Corp, TPET, SEC filing, DEF 14A, Proxy Statement, Annual Meeting, Stockholder Vote, Authorized Shares, Common Stock, Share Reduction, Equity Incentive Plan, Stock Options, Restricted Stock Units, Dilution, Corporate Governance, Director Election, Auditor Ratification, Related Party Transactions, Oil and Gas, Energy, Exploration, Production, South Salinas Project, McCool Ranch Oil Field, Asphalt Ridge Asset, Executive Compensation, Capital Raise