LAPOLLA
INDUSTRIES, INC.
NOTES
TO FINANCIAL STATEMENTS
(continued)
Note
17. Share–Based Payment Arrangements.
The
Company reports share-based compensation arrangements under SFAS 123R using a
lattice-based option valuation model to calculate compensation expense over the
requisite service period of grants. At December 31, 2008, the Company had one
share-based compensation plan, the Equity Incentive Plan, as amended (“Equity
Plan”), in effect, and certain warrants issued during 2007 and 2008 outstanding.
The Company’s Director Compensation Plan (“Director Plan”) and Non-Plan Stock
Options (“Non-Plan Options”), as described below, expired. Compensation cost
charged against income for all compensation and incentive plans for 2008 and
2007 was $900,620 and $1,186,595, respectively.
Equity
Incentive Plan
The
Company’s Equity Plan, which is shareholder-approved, permits the grant of share
options and shares to eligible participants for up to 10,000,000 shares of
common stock. The purpose of the Equity Plan is to advance the interests of the
Company and its stockholders by providing an incentive to attract, retain and
reward employees, directors and consultants performing services for the Company
and by motivating such persons to contribute to the growth and profitability of
the Company. The Equity Plan provides, among other things, financial performance
measures upon which specific performance goals applicable to certain awards
would be based and limits on the numbers of shares or compensation that could be
made subject to certain awards. Option awards are generally granted with an
exercise price equal to the market price of the Company’s stock at the date of
grant. Share options and shares may provide for accelerated vesting
if there is a change in control.
The fair
value of each stock option is estimated on the date of grant using a
lattice-based valuation model that uses the assumptions noted in the following
table. Because lattice-based valuation models incorporate ranges of assumptions
for inputs, those ranges are disclosed. Expected volatilities are based on the
historical volatility of the Company’s common stock. The Company uses historical
data to estimate option exercise and employee termination within the valuation
model. The expected term of options granted is derived from the output of the
valuation model and represents the periods that options granted are expected to
be outstanding; the range given below results from certain groups of employees
exhibiting different behavior. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
|
|
|
2008
|
|
|
2007
|
|
|
Expected
Volatility
|
|
|
220.65
% - 232.48 |
% |
|
|
236.25
% - 269.54 |
% |
|
Weighted-Average
Volatility
|
|
|
222.80 |
% |
|
|
252.68 |
% |
|
Expected
Dividends
|
|
|
— |
|
|
|
— |
|
|
Expected
Term (in years)
|
|
|
2.69
– 4.87 |
|
|
|
4.7
- 7 |
|
|
Risk
Free Rate
|
|
|
2.48
% - 3.38 |
% |
|
|
4.05
% - 4.64 |
% |
As of
December 31, 2008, total compensation cost related to non-vested stock
options was $1,929,936, which is expected to be recognized over the 48 month
period after December 31, 2008 (15.6 months on a weighted-average
basis).
Stock
option activity under the Company’s Equity Plan as of the years ended December
31, is summarized below:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
of
|
|
|
Average
|
|
|
Number
of
|
|
|
Average
|
|
|
Options
|
|
Options
|
|
|
Exercise
Price
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Outstanding-Beginning
of Year
|
|
|
5,763,000 |
|
|
$ |
0.60 |
|
|
|
2,706,180 |
|
|
$ |
0.67 |
|
|
Granted
|
|
|
3,030,500 |
|
|
|
0.73 |
|
|
|
3,060,000 |
|
|
|
0.54 |
|
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Canceled,
Expired or Forfeited
|
|
|
(1,503,167 |
) |
|
|
0.55 |
|
|
|
(3,180 |
) |
|
|
0.95 |
|
|
Outstanding-End
of Year
|
|
|
7,290,333 |
|
|
|
0.66 |
|
|
|
5,763,000 |
|
|
|
0.60 |
|
|
Exercisable-End
of Year
|
|
|
984,997 |
|
|
$ |
0.52 |
|
|
|
445,500 |
|
|
$ |
0.50 |
|
The
weighted-average grant-date fair value of options granted during 2008 and 2007
was $.72 and $.54, respectively. There were 2,709,667 options available for
grant at December 31, 2008. See Equity
Plan, Warrants, and Non Plan Options Summary for range of exercise
prices.
