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SEC Filings
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Section 16 Filings Only
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def14a.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14C INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment
No. __ )
Filed
by
the Registrant x
Filed
by
a Party other than the Registrant ¨
Check
the
appropriate box:
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x
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Preliminary
Proxy Statement
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¨
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Confidential,
for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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¨
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Definitive
Proxy Statement
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¨
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Definitive
Additional Materials
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¨
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Soliciting
Material Pursuant to §240.14a-12
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LAPOLLA
INDUSTRIES, INC.
(Name
of Registrant as Specified in its Charter)
Payment
of Filing Fee (Check the appropriate box):
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x
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No
fee required.
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¨
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Fee
computed on table
below per Exchange
Act Rules 14a-6(i)(1)
and
0-11.
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(1)
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Title
of each class
of securities
to which transaction
applies:
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(2)
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Aggregate
number of securities
to which transaction
applies:
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(3)
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Per
unit price or
other underlying
value of transaction
computed pursuant
to
Exchange Act
Rule 0-11 (set
forth the amount
on which the
filing fee is
calculated and
state how it
was determined):
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(4)
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Proposed
maximum aggregate
value of transaction:
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(5)
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Total
fee paid:
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¨
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Fee
paid previously
with preliminary
materials.
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¨
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Check
box if any part
of the fee is
offset as provided
by Exchange Act
Rule
0-11(a)(2) and
identify the
filing for which
the offsetting
fee was paid
previously. Identify
the previous
filing by registration
statement number,
or the Form or
Schedule and
the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration
Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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LAPOLLA
INDUSTRIES, INC.
Intercontinental
Business Park
15402
Vantage Parkway East, Suite 322
Houston,
Texas 77032
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
AND
PROXY
STATEMENT
Meeting
Date
May
22, 2007
YOUR
VOTE IS IMPORTANT!
Please
sign and promptly return your Proxy
in
the
enclosed envelope or vote your
shares
by
telephone or using the Internet.
April
__,
2007
Dear
Stockholder:
You
are
cordially invited to attend our 2007 Annual Meeting of Stockholders to be held
at The Kamson Corporation, 270 Sylvan Avenue, Englewood Cliffs, New Jersey
07632, on Tuesday, May 22, 2007 at 9:00 AM, local time. We hope you will be
present to hear management's report to stockholders.
The
attached Notice of Annual Meeting of Stockholders and Proxy Statement describe
the matters to be acted upon. If you plan to attend the Annual
Meeting in person, please mark the designated box on the enclosed proxy
card. Alternatively, if you utilize the telephone or Internet voting
system, please indicate your plans to attend the Annual Meeting when prompted
to
do so by the system. If you are a stockholder of record, you should
bring the bottom half of the enclosed proxy card as your admission card and
present the card upon entering the Annual Meeting. If you are
planning to attend the Annual Meeting and your shares are held in street name
(by a bank or broker, for example), you should ask the record owner for a legal
proxy or bring your most recent account statement to the Annual Meeting so
that
we can verify your ownership of LaPolla Common Stock. Please note,
however, that if your shares are held in street name and you do not bring a
legal proxy from the record owner, you will be able to attend the Annual
Meeting, but you will not be able to vote at the Annual Meeting.
Whether
or not you plan to attend the Annual Meeting personally, and regardless of
the
number of shares you own, it is important that your shares be represented at
the
meeting. Accordingly, we urge you to complete the enclosed proxy card
and return it to our vote tabulators promptly in the prepaid postage envelope
provided, or to promptly use the telephone or Internet voting system. If you
do
attend the Annual Meeting and wish to vote in person, you may withdraw your
proxy at that time.
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LAPOLLA
INDUSTRIES, INC.
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Douglas
J. Kramer
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CEO
and President
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Houston,
Texas
LAPOLLA
INDUSTRIES, INC.
Intercontinental
Business Park
15402
Vantage Parkway East, Suite 322
Houston,
Texas 77032
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held May 22, 2007
The
board
of directors of LaPolla Industries, Inc. (“LaPolla”, the “Company”, “we”, “our”
or “us”) is soliciting proxies to be used at the 2007 Annual Meeting of
Stockholders, to be held at The Kamson Corporation, 270 Sylvan Avenue, Englewood
Cliffs, New Jersey 07632 on Tuesday, May 22, 2007 at 9:00 a.m., local time,
and
at any continuation, adjournment or postponement thereof. This proxy statement,
the enclosed form of proxy and our 2006 Annual Report to Stockholders are being
mailed to our stockholders on or about April 30, 2007. We are holding
the meeting to:
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1.
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Elect
a board of directors to hold office until the next annual meeting
of
stockholders or until their respective successors have been elected
or
appointed;
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2.
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Ratify
and approve amendments to the Equity Incentive
Plan;
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3.
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Approve
an amendment to our Restated Certificate of Incorporation increasing
our
authorized common stock capitalization limit from 65 Million to 70
Million
shares; and
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4.
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Transact
any other business that may properly come before the
meeting.
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If
you
were the record owner of LaPolla Common Stock at the close of business on
Wednesday, April 18, 2007, you may attend and vote at the meeting. If you cannot
attend the meeting, you may vote by telephone or by using the Internet as
instructed on the enclosed proxy card or by mailing the proxy card in the
enclosed postage-paid envelope. Any stockholder attending the meeting may vote
in person, even if you have already returned a proxy card. A list of
stockholders eligible to vote at the meeting will be available for review during
our regular business hours at our headquarters in Houston, Texas for the ten
days prior to the meeting for any purpose related to the meeting.
We
look
forward to seeing you at the meeting.
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By
Order of the Board of Directors
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Michael
T. Adams
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Corporate
Secretary
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April
__,
2007
Houston,
Texas
As
promptly as possible, please vote by telephone or by using the Internet as
instructed on the enclosed proxy card or complete, sign and date the proxy
card
and return it in the enclosed postage-paid envelope.
Proxy
Statement
for
Annual
Meeting of Stockholders
To
Be Held May 22, 2007
TABLE
OF CONTENTS
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LAPOLLA
INDUSTRIES, INC.
Intercontinental
Business Park
15402
Vantage Parkway East, Suite 322
Houston,
Texas 77032
INFORMATION
CONCERNING SOLICITATION AND VOTING
Our
Board
of Directors is soliciting proxies for the 2007 Annual Meeting of Stockholders
to be held May 22, 2007. This proxy statement contains important
information for you to consider when deciding how to vote on the matters brought
before the meeting. Please read it
carefully. Voting materials, which include the proxy
statement, proxy card and 2006 Annual Report, will be mailed to stockholders
on
or about April 30, 2007. The meeting is to be held at The Kamson Corporation
is
located at 270 Sylvan Avenue, Englewood Cliffs, New Jersey 07632. LaPolla will
bear the expense of soliciting proxies. We will reimburse banks, brokers and
other custodians, nominees and fiduciaries for reasonable charges and expenses
incurred in forwarding soliciting materials to their clients.
Questions
and Answers
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Q:
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Who
may vote at the meeting?
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A:
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The
Board set April 18, 2007, as the record date for the meeting. If
you owned
our common stock at the close of business on April 18, 2007, you
may
attend and vote at the meeting. Each stockholder is entitled to vote
for
each share of common stock on all matters to be voted on. There were
53,586,251 shares of our common stock outstanding on April 18,
2007.
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Q:
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What
is the quorum requirement for the
meeting?
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A:
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A
majority of LaPolla’s outstanding shares as of the record date must be
present at the meeting in order to hold the meeting and conduct business.
This is called a quorum. Shares are counted as present at the meeting
if
you are present and entitled to vote in person at the meeting or
have
properly submitted a proxy card or voted by telephone or by using
the
Internet. If you abstain from voting on any or all proposals, your
shares
are still counted as present and entitled to vote. Each proposal
identifies the votes needed to approve or ratify the proposed
action.
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Q:
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What
proposals will be voted on at the
meeting?
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A:
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The
Board proposals scheduled to be voted on at the meeting are election
of
our board of directors, ratification and approval of amendments to
our
Equity Incentive Plan, and approval of an amendment to our restated
certificate of incorporation to increase our authorized common stock
capitalization limit. We will also consider other business that properly
comes before the meeting.
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Q:
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How
may I vote my shares in person at the
meeting?
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A:
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If
your shares are registered directly in your name with our transfer
agent,
Continental Stock Transfer & Trust Company, you are considered, with
respect to those shares, the shareowner of record, and the proxy
materials
and proxy card are being sent directly to you by LaPolla. As the
shareowner of record, you have the right to vote in person at the
meeting.
If your shares are held in a brokerage account or by another nominee,
you
are considered the beneficial owner of shares held in street name,
and the
proxy materials are being forwarded to you together with a voting
instruction card. As the beneficial owner, you are also invited to
attend
the Annual Meeting. Since you are a beneficial owner and not the
shareowner of record, you may not vote these shares in person at
the
meeting unless you obtain a “legal proxy” from the broker, trustee or
nominee that holds your shares in its name, giving you the right
to vote
the shares at the meeting.
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Q:
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How
can I vote my shares without attending the
meeting?
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A:
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Whether
you hold shares directly as a registered shareowner of record or
beneficially in street name, you may vote without attending the meeting.
You may vote by granting a proxy or, for shares held in street name,
by
submitting voting instructions to your stockholder or nominee. In
most
cases, you will be able to do this by telephone, by using the Internet
or
by mail. Please refer to the summary instructions included with your
proxy
materials and on your proxy card. For shares held in street name,
the
voting instruction card will be included by your stockbroker or nominee.
If you have telephone or Internet access, you may submit your proxy
by
following the instructions with your proxy materials and on your
proxy
card. You may submit your proxy by mail by signing your proxy card
or, for
shares held in street name, by following the voting instruction card
included by your stockbroker or nominee and mailing it in the enclosed,
postage-paid envelope. If you provide specific voting instructions,
your
shares will be voted as you have
instructed.
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Q:
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How
can I change my vote after I return my proxy
card?
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A:
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Provided
you are the shareowner of record or have a legal proxy from your
nominee,
you may revoke your proxy and change your vote at any time before
the
final vote at the meeting. You may do this by signing and submitting
a new
proxy card with a later date, voting by telephone or by using the
Internet
(your latest telephone or Internet proxy is counted) or by attending
the
meeting and voting in person. Attending the meeting will not revoke
your
proxy unless you specifically request
it.
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Q:
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Where
can I find the voting results of the
meeting?
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A:
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The
preliminary voting results will be announced at the meeting. The
final
results will be published in our second quarter report on Form 10-Q
for
2007.
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Confidentiality
We
maintain a policy that all proxies, ballots,
and voting materials that identify your vote be kept confidential, except in
the
following circumstances: (i) to allow the election inspector appointed for
our
Annual Meeting to certify the results of the vote; (ii) as necessary to meet
applicable legal requirements, including the pursuit or defense of a judicial
action; (iii) where we conclude in good faith that a bona fide dispute exists
as
to the authenticity of one or more proxies, ballots, or votes, or as to the
accuracy of the tabulation of such proxies, ballots, or votes; (iv) where a
stockholder expressly requests disclosure or has made a written comment on
a
proxy card; (v) where contacting stockholders by us is necessary to obtain
a
quorum, the names of stockholders who have or have not voted (but not how they
voted) may be disclosed to us by the election inspector appointed for the Annual
Meeting; (vi) aggregate vote totals may be disclosed to us from time to time
and
publicly announced at the meeting of stockholders at which they are relevant;
and (vii) in the event of any solicitation of proxies with respect to any of
our
securities by a person other than us of which solicitation we have actual
notice.
ELECTION
OF DIRECTORS
General
We
currently have six members on our Board of Directors. At each annual meeting,
the directors elected by stockholders to succeed directors are elected for
a one
year term to expire at the next annual meeting after their election and until
their successors are duly elected and qualified. Our board appoints directors
to
fill vacancies on our board, as they occur, as well as newly created
directorships, in each instance upon the recommendation of our Corporate
Governance Committee. Newly-appointed directors hold office until the next
election by our stockholders. Our Bylaws permit us to maintain up to a maximum
of seven (7) members on our Board of Directors. Proxy holders will vote for
the
nominees listed below. The accompanying proxy will be voted for the nominees
to
serve as directors unless you indicate to the contrary on the proxy card.
Abstentions have no effect on the vote. Upon the recommendation of our Corporate
Governance Committee, our board of directors has nominated each of the following
to be elected to serve as a director until the next annual meeting of
stockholders in 2008. Each of the nominees listed below, except for Mr. Howard
L. Brown, is currently a director of LaPolla who was previously elected by
stockholders or appointed by the Board of Directors after the annual meeting
of
stockholders in 2006 and has consented to serve on the Board of Directors until
the annual meeting of Stockholders to be held in 2008.
Information
About Nominees
Set
forth
below are descriptions of the backgrounds of each incumbent and other nominees,
their ages, and their principal occupations for at least the past five
years and their public-company directorships as of the record date. There
are no
familial relationships among any of our directors or among any of our directors
and executive officers.
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Richard
J. Kurtz
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Director since November 23, 1998
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Chairman
of the Board
Mr.
Kurtz has been chief executive officer of the Kamson Corporation,
a
privately held corporation, for the past 30 years. The Kamson
Corporation
has its principal executive offices located in Englewood Cliffs,
New
Jersey and currently owns and operates eighty one (81) investment
properties in the Northeastern U.S. Mr. Kurtz is a graduate
of the
University of Miami and a member of its President's Club. Mr.
Kurtz is
also a member of the Board of Directors of International Fight
League,
Inc. (f/k/a Paligent, Inc.), a publicly traded company on the
NASD O-T-C
bulletin board. Most notably, the Chamber of Commerce in Englewood
Cliffs
and the Boy Scouts of America chose him Man of the Year. Mr.
Kurtz resides
in Alpine, New Jersey and is currently vice president and a
member of the
Board of Directors for the Jewish Community Center on the Palisades
in
Tenafly, New Jersey. He is also an elected member of the Board
of Trustees
and Foundation Board for the Englewood Hospital and Medical
Center of New
Jersey and the Board of Governors for the Jewish Home and Rehabilitation
Center.
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Lt.
Gen. Arthur J. Gregg (US Army (Ret.)
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Director
since February 21, 2000
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Lt.
Gen. Gregg has more than fifty six years of distinguished professional
experience. His record of performance repeatedly demonstrates
the ability
to lead organizations to success. As a result of his extensive
military
and executive experience, he has considerable contacts and
respect within
federal government agencies and private industry. Lt. Gen.
Gregg continues
an active schedule as a member of several corporate and academic
boards.
He chairs three of these boards. His education includes Harvard
University, John F. Kennedy School of Government Concentrated
Executive
Program in National Security; Saint Benedict College Atchison,
Kansas,
Bachelor of Science in Business Administration (Summa cum Laude);
Army War
College, Carlisle Barracks, Pennsylvania, One-year graduate
level college;
Command and General Staff College, Fort Leavenworth, Kansas,
One-year
graduate level college.
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Jay
C. Nadel
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Director
since January 16, 2007
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Mr.
Nadel is chairman of the board of Englewood Hospital and Medical
Center
since September 2006. In addition to being an independent consultant
since
2004, Mr. Nadel is an employee of Sloan Securities since January
2006. As
a CPA and senior financial services executive, Mr. Nadel has
extensive
business management and operations experience. From 2002 to
2004, he was
executive vice president of Bank of New York’s Clearing Services where he
oversaw strategic planning; 1986 to 2001, a partner in the
investment firm
of Weiss, Peck & Greer/Robeco, where he was chairman of the operations
committee and managing director of the firm’s Clearing Services Division;
and 1980 to 1986, he was a manager at KPMG Peat Marwick, New
York, where
he provided audit services. Mr. Nadel is a Certified Public
Accountant
since 1980 and has a Bachelor of Science from the University
of
Maryland.
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Augustus
J. Larson
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Director
since January 16, 2007
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Mr.
Larson is president of Larson Capital, LLC, a commercial real
estate
finance and investment company in Far Hills, New Jersey. He
founded Larson
Capital, LLC in 2004. From 2001 to 2003, Mr. Larson was managing
director
of PW Funding and directed its commercial and multi-family
real estate
loan production in the metro New Jersey and New York markets.
Prior to
2001, He was a managing director and principal of Larson Financial
Resources, a commercial mortgage banking firm. Mr. Larson,
along with his
partners, founded Larson Financial Resources in 1985, which
was
subsequently sold to PW Funding in 2000. At Larson Financial
Resources, He
was responsible for all commercial and multi-family real estate
finance
activities along with borrower and lender relations. Mr. Larson
has a
Bachelor of Arts from Colgate University in New York. He is
also a
certified mortgage banker and an active member in numerous
professional
and charitable organizations.
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Douglas
J. Kramer
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Director
since January 16, 2007
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CEO
and President
Mr.
Kramer joined the Company in January 2005 as president and
chief operating
officer and was named Chief Executive Officer and President
in July 2006.
Mr. Kramer has 18 years Industry Experience including his most
recent
position as vice president of the Construction Products Division
for Foam
Enterprises, LLC, a wholly-owned subsidiary of the BASF Corporation,
where
he was employed from 1997 to 2004. Mr. Kramer has a background
in Liberal
Arts from Penn State University and the University of
Texas.
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Michael
T. Adams
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Director
since December 20, 2004
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CGO,
EVP and Secretary
Mr.
Adams joined and was instrumental in the Company reestablishing
operations
in January 1997. He was named Chief Governance Officer,
Executive Vice President, and Corporate Secretary in July 2006.
During his
term with LaPolla, Mr. Adams has served as president and interim
chief
executive officer from 2003 to 2005, executive vice president
and
corporate secretary from 1999 to 2003, and held various officer
positions
in the Company’s former subsidiaries since starting in 1997. He has
Bachelor and Master of Science degrees in business administration,
as well
as a Juris Doctor degree, from Nova Southeastern University
located in
Fort Lauderdale, Florida.
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Howard
L. Brown
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Nominee
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Mr.
Brown was retained in January 2007 as an advisor/consultant
to the Board
of Directors to oversee the deployment of LaPolla’s business intelligence
solutions. He has over 34 years experience in sales, distribution,
financial forecasting and planning, mergers and acquisitions
and quality
assurance. Prior thereto, he was chairman and chief executive
officer of
Allied Office Products, headquartered in Clifton, New Jersey,
the
country's largest independent dealer of office products and
services,
which was sold to Office Depot in 2006. Allied, prior to
the sale, had
grown annual sales to more than $300 Million from over 30
acquisitions
beginning in 1998. Mr. Brown is a graduate of Syracuse University
and a
member of the Board of Holy Name Hospital in Teaneck, New
York. He is very involved in
philanthropy.
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Required
Vote For Adoption
Under
Delaware Law the affirmative vote of a plurality of the outstanding shares
of
our common stock is required for the election of each director under
Proposal 1. Abstentions or broker non-votes as to the
election of directors will not affect election of the candidates receiving
the
plurality of votes.
THE
BOARD
RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THE SEVEN NAMED DIRECTOR
NOMINEES.
Although
it is anticipated that each nominee will be able to serve as a director,
should
any nominee become unavailable to serve, the shares of our common stock
represented by the proxies will be voted for such other person or persons
as may
be designated by our board. As of the date of this proxy statement, our board
is
not aware of any nominee who is unable or will decline to serve as a
director.
RATIFY
AND APPROVE AMENDMENTS TO EQUITY INCENTIVE PLAN
Introduction
Our
Board
adopted the Equity Incentive Plan (the “Equity Plan”) as a means to attract and
retain the services of experienced and knowledgeable executive officers and
key
employees to the Company and to increase the proprietary interests of the
Company’s executive officers and key employees in the Company. On July 12, 2005,
four stockholders owning greater than a majority of the outstanding shares
of
common stock approved the proposed Equity Plan by action taken by written
consent without a meeting in accordance with Delaware General Corporation Law
(“Delaware Law”) which approval became effective on or about August 25, 2005
pursuant to mailing of an Information Statement to all
stockholders.
The
Board
believes that we must offer a competitive equity incentive program if we are
to
continue to successfully attract, motivate and retain the most qualified
executives officer, non-employee director and consultant candidates for the
Company for all aspects of our business.
Amendments
The
Board
has approved amendments to the Equity Plan, subject to ratification and approval
by the Company’s stockholders. The amendments to the Equity Plan were originally
ratified and approved by the Chairman of the Board as the majority stockholder
through a written consent dated January 23, 2007 as permitted under Section
228
of Delaware Law, however, we were unable to get the required SEC Schedule
14C
Information Statement prepared and distributed to all stockholders within
the
required 60 days after the date of the written consent and the written consent
expired due to concomitant business requirements. We have added this Proposal
2
to ratify and approve the amendments to our Equity Plan at the 2007 Annual
Meeting instead of preparing and executing a second written consent to save
money. The proposed amendments will modify the Equity Plan to: (1) increase
the
maximum aggregate number of shares of common stock reserved for issuance
under
the Equity Plan from 3.25 Million to 6 Million shares; and (2) include directors
and consultants as persons eligible for awards under the Equity
Plan.
We
previously compensated directors under the Director Compensation Plan (“Director
Plan”), which automatically terminated after the last annual meeting of
stockholders in accordance with its terms, and are adding provisions in the
Equity Plan for director compensation instead of extending the Director Plan.
In
order to attract, motivate and retain two new (Mr. Nadel and Mr. Larson), two
existing (Mr. Kurtz and Mr. Gregg), and one potential (Mr. Brown) non-employee
directors, we granted certain options on January 16, 2007 under the Equity
Plan,
subject to ratification and approval by stockholders. Mr. Brown’s options were
originally granted to him in his capacity as an advisor/consultant to the Board
of Directors. These grants will become effective upon approval of the amendments
to the Equity Plan.
As
of
January 16, 2007, there were only approximately 543,820 shares of common
stock remaining available for option and stock awards under the Equity Plan.
Presuming that the proposed amendments to the Equity Plan are ratified and
approved by the Company’s stockholders on the date of the 2007 Annual Meeting, a
total of 2,310,000 stock options granted to our non-employee directors and
a
consultant under the Equity Plan will be effectively ratified. In
light of historical usage and expected future grants, we anticipate the number
of shares of common stock, as increased, available for awards under the Equity
Plan will be adequate to meet our foreseeable requirements.
A
description of the principal features of the Equity Plan, as proposed to be
amended, are set forth below. This summary description is qualified by and
subject to the actual provisions of the amendments to the Equity Plan attached
in Appendix A to this proxy statement.
The
purpose of the Equity Plan, as amended, is to additionally enable the Company
to
attract and retain the services of experienced and knowledgeable non-employee
directors and key consultants and to align further their interests with those
of
the stockholders of the Company by providing for or increasing the proprietary
interests of the non-employee directors and consultants in the Company. The
Equity Plan provides for grants of nonqualified stock options and stock bonuses.
As of January 16, 2007, the Company had four non-employee directors and three
consultants eligible to participate in the Equity Plan.
Stock
Available For Issuance Under the Director Plan
The
shares of common stock to be delivered under the Equity Plan are made available,
at the discretion of the Board, either from authorized but unissued shares
of
common stock or from reacquired shares of common stock or any combination
thereof. Prior to amending the Equity Plan, the total number of shares of
common
stock that may be issued pursuant to awards under the Equity Plan may not
exceed
3.25 Million. The terms of the Equity Plan restrict the maximum number of
shares
of stock that may be issued pursuant to stock bonuses to 1 Million shares
and
stock options per person per year to 2 Million shares. The proposed amendment
to
the Equity Plan will increase the total number of shares of common stock
that
may be issued pursuant to awards under the Equity Plan to 6 Million shares.
If,
on or before termination of the Equity Plan, an option for any reason expires
or
otherwise terminates, in whole or in part, without having been exercised
in
full, or if any shares of common stock subject to an award have been reacquired
by the Company pursuant to the restrictions imposed on such shares, such
option
or shares, as the case may be, are no longer charged against the maximum
number
of shares of common stock that may be issued under the Equity Plan. The number
and kind of shares issuable under the Equity Plan, the number and kind of
shares
subject to outstanding awards, the grant or exercise price with respect to
any
award, and the repurchase price, if any, with respect to any award, will
be
appropriately and proportionately adjusted to reflect mergers, consolidations,
sales or exchanges of all or substantially all of the properties of the Company,
reorganizations, recapitalizations, reclassifications, stock dividends, stock
splits, reverse stock splits, spin-offs or other distributions with respect
to
such shares of common stock (or any stock or securities received with respect
to
such common stock).
On
January 16, 2007, the closing market price of the common stock of the Company
was $.60 per share.
Administration,
Amendment and Termination
The
Equity Plan is administered by the Compensation Committee or other committee
of
the Board duly appointed to administer the Equity Plan and having such powers
as
specified by the Board, which consists of at least two directors, each of
whom
is a "non-employee director" within the meaning of Rule 16b-3 under the Exchange
Act and an "outside director" for purposes of Section 162(m) of the Code
(“Administrator”). Subject to the provisions of the Equity Plan, the
Administrator determines in its discretion the persons to whom and the times
at
which awards are granted, the types and sizes of such awards, and all of
their
terms and conditions. The Administrator, subject to certain limitations required
by Section 162(m) and the express language in the Equity Plan that prohibits
repricing, may amend, modify, extend, cancel or renew any award, waive any
restrictions or conditions applicable to any award, and accelerate, continue,
extend or defer the vesting of any award. The Administrator may establish
rules
and policies for administration of the Equity Plan and adopt one or more
forms
of agreement to evidence awards made under the Equity Plan. The Administrator
interprets the Equity Plan and any agreement used under the Equity Plan,
and all
determinations of the Administrator will be final and binding on all persons
having an interest in the Equity Plan or any award issued under the Equity
Plan.
The Equity Plan continues in effect until its termination by the Administrator
or the date on which all shares available for issuance under the plan have
been
issued and all restrictions on such shares under the terms of the plan and
agreements evidencing awards granted have lapsed. The Administrator may
terminate or amend the plan at any time, provided that without stockholder
approval the plan cannot be amended to increase the share reserve, change
classes of persons eligible to receive incentive stock options or effect
any
other change that would require stockholder approval under any applicable
law.
No termination or amendment may affect any outstanding award unless expressly
provided by Administrator, and, in any event, may not adversely affect an
outstanding award without the consent of the participant unless necessary
to
comply with any applicable law.
Under
the
proposed amendment to the Equity Plan, non-employee directors and consultants
may be granted options to purchase shares of common stock of the Company.
Subject to appropriate adjustment in the event of any change in our capital
structure, we may not grant to any one non-employee director or consultant
in
any fiscal year options which cover in the aggregate more than 2,000,000
shares. Each option granted under the Equity Plan must be evidenced
by a written agreement between us and the optionee specifying the number
of
shares subject to the option and the other terms and conditions of the option,
consistent with the requirements of the Equity Plan. The exercise price of
each
nonstatutory stock option may not be less than the fair market value of a
share
of our common stock on the date of grant. Options become vested and exercisable
at such times or upon such events and subject to such terms, conditions,
performance criteria or restrictions as specified by the Administrator. The
maximum term of any nonstatutory option granted under the Equity Plan is
eight
years. Subject to the term of the option, an option generally will remain
exercisable for three months following the optionee's termination of service,
except that if service terminates as a result of the optionee's death or
disability, the option generally will remain exercisable for twelve months,
or
if service is terminated for cause, the option will terminate immediately
or as
otherwise provided by the Administrator. Nonstatutory stock options granted
under the Equity Plan may be assigned or transferred to the extent permitted
by
the Administrator and set forth in the option agreement.
Under
the
proposed amendment to the Equity Plan, non-employee directors and consultants
may be granted stock bonuses upon such conditions as the Administrator
determines. No monetary payment is required for receipt of shares pursuant
to a
stock bonus, the consideration for which is services rendered by participant,
except the consideration must be in the form of cash or past services rendered
having a value not less than par value of the shares acquired. Stock Bonuses
may
be granted subject to such restrictions for such periods as determined by
the
Administrator and set forth in a written agreement between us and participant,
and shares acquired pursuant to the award may not be sold or otherwise
transferred or pledged until the restrictions lapse or are terminated.
Restrictions may lapse in full or in installments on the basis of the
participant's continued service or other factors. Unless otherwise provided,
a
participant forfeits any shares acquired under a Stock Bonus as to which
restrictions have not lapsed prior to termination of service. Participants
holding restricted stock have the right to vote shares and receive all dividends
and other distributions, except that any dividends or other distributions
in
shares are subject to the same restrictions on transferability as the original
award.
In
the
event of a “change in control” of the Company, the surviving, continuing,
successor or purchasing entity or its parent may, without the consent of
any
participant, either assume all outstanding options or substitute substantially
equivalent options or rights for its stock. If outstanding options are not
assumed or replaced, then all unexercised and unvested portions of such
outstanding awards will become immediately exercisable and vest in full.
Any
stock options which are not assumed in connection with a Change in Control
or
exercised prior to a Change in Control will terminate effective as of the
Change
in Control. In addition, the Administrator may provide in any stock bonus
agreement for acceleration of vesting of an award effective as of the Change
in
Control. A “change in control” for this purpose occurs if an Ownership Change
Event or series of related Ownership Change Events (collectively, a
"Transaction") in which the stockholders of the Company immediately
before the Transaction do not retain immediately after the Transaction, direct
or indirect beneficial ownership of more than 50% of the total combined voting
power of the outstanding voting securities of the Company or, in the case
of an
Ownership Change Event, the entity to which the assets of the Company were
transferred. An "Ownership Change Event" will be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange by the stockholders of the
Company of all or substantially all of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange or transfer to one or
more
subsidiaries of the Company); or (iv) a liquidation or dissolution of the
Company. The sole exception to Change in Control and Ownership Change Event
is
any Change in Control that may result from the death or incapacity of Richard
J.
Kurtz wherein his interest is transferred to his heirs only. In such
event, no Change in Control or Ownership Change Event will be deemed to have
occurred.
U.S. Federal
Income Tax Consequences
The
following is a brief description of the U.S. federal income tax treatment
that will generally apply to option grants and stock bonuses made under the
Equity Plan, based on U.S. federal income tax laws in effect on the date of
this proxy statement. Non-employee directors and consultants who participate
in
the Equity Plan are advised to consult with their own tax advisors for
particular federal, as well as state and local, income and any other tax
advice.
The grant of a nonstatutory stock option generally is not a taxable event
for
the optionee. Upon exercise of the option, the optionee will generally recognize
ordinary income in an amount equal to the excess of the fair market value
of the
stock acquired upon exercise (determined as of the date of the exercise)
over
the exercise price of such option, and the Company will be entitled to a
tax
deduction equal to such amount. Unless a recipient makes an election
under Section 83(b) of the Internal Revenue Code of 1986, as amended
(the “Code”), within 30 days after receiving the stock bonus award,
the recipient generally will not be taxed on the receipt of the stock until
the
restrictions on the stock expire or are removed. When the restrictions expire
or
are removed, the recipient recognizes ordinary income (and the Company is
entitled to a deduction) in an amount equal to the fair market value of the
stock at that time. If, however, the recipient makes a timely Section 83(b)
election, he or she will recognize ordinary income (and the Company will
be
entitled to a deduction) equal to the fair market value of the stock on the
date
of receipt (determined without regard to vesting restrictions). A non-employee
director or consultant director who makes a Section 83(b) election
will ordinarily not be entitled to recognize any loss thereafter attributable
to
the shares as a result of forfeiture.
Amended
Director Plan Benefits
The
following table sets forth the awards that will become effective to non-employee
directors and a consultant (which is a nominee to become a non-employee
director) under the Equity Plan if the Company’s stockholders approve the
proposed amendments to the Director Plan.
NEW
PLAN BENEFITS
Equity
Incentive Plan
|
Name
and Position
|
|
Common
Stock Underlying Options Granted (#)
(1)
|
|
|
Exercise
or Base Price Per Share ($/Sh) (2)
|
|
Expiration
Date
|
|
Grant
Date Fair Value of Common Stock Underlying
Options Granted ($)(3)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Richard
J. Kurtz, Chairman of the Board
|
|
|
1,000,000 |
(4)(i) |
|
|
.60
|
|
1/15/2014
|
|
|
599,290
|
|
|
Arthur
J. Gregg, Director
|
|
225,000
|
(4)(ii) |
|
|
.60
|
|
1/15/2012
|
|
|
134,292
|
|
|
Jay
C. Nadel, Director
|
|
450,000
|
(4)(iii) |
|
|
.60
|
|
1/15/2012
|
|
|
268,587
|
|
|
Augustus
J. Larson, Director
|
|
135,000
|
(4)(iv) |
|
|
.60
|
|
1/15/2012
|
|
|
80,577
|
|
|
Howard
L. Brown (Nominee)
|
|
|
500,000 |
(4)(v) |
|
|
.60
|
|
1/15/2012
|
|
|
297,365
|
|
|
Non-Employee
Director Group
|
|
|
2,310,000
|
|
|
|
.60
|
|
1/15/2012
|
|
|
1,380,111
|
|
|
(1)
|
These
options were granted on January 16, 2007 subject to ratification
and
approval of amendments to Equity Plan by stockholders and American
Stock
Exchange.
|
|
(2)
|
The
price reflects the closing price of our common stock as traded on
the
American Stock Exchange on January 16,
2007.
|
|
(3)
|
The
dollar value of the options shown represents the grant date fair
value
calculated using a lattice-based option valuation model, as prescribed
under Financial Accounting Standard No.123R (“SFAS 123R”). The actual
value, if any, a director may realize will depend on the excess of
the
stock price over the exercise price on the date the option is exercised.
There is no assurance the value realized by a director will be at
or near
the value estimated by the lattice-based model. The following assumptions
were used in the lattice-based model: For all directors, including
nominee, market price of stock, $.60; exercise price of option, $.60;
expected stock volatility, 269.54%; and dividend yield, -0-%; for
Mr.
Kurtz, risk-free interest rate, 4.636% (based on 7-year treasury
bond
rate); and expected life, 7years; for Mr. Gregg, Mr. Nadel, Mr. Larson,
and Mr. Brown (advisor/consultant option portion only), risk-free
interest
rate, 4.193% (based on 5-year treasury bond rate); and expected life,
5years; and For Mr. Brown (director option portion only), risk-free
interest rate, 4.343% (based on estimated 4.7-year treasury bond
rate);
and expected life, 4.7years.
|
|
(4)
|
The
vesting conditions and exercise restrictions of these options are
as
follows:
|
|
|
(i)
|
For
Mr. Kurtz, 200,000 Options are eligible to vest at the end of each
year of
his continuous service as a member of the Board and Chairman of the
Board
for the next 5 years and exercisable at the rate of 50% each year
only
after all of the nonstatutory 1,000,000 Options
vest.
|
|
|
(ii)
|
For
Mr. Gregg, 75,000 Options are eligible to vest at the end of each
year of
his continuous service as a member of the Board, Chairperson of the
Compensation Committee, and a member of certain Standing Committees
for
the next 3 years and exercisable at the rate of 33⅓% each year after
vested.
|
|
|
(iii)
|
For
Mr. Nadel, 150,000 Options are eligible to vest at the end of each
year of
his continuous service as a member of the Board, Chairperson of the
Audit
Committee, and a member of certain Standing Committees for the next
3
years and exercisable at the rate of 33⅓% each year after
vested.
|
|
|
(iv)
|
For
Mr. Larson, 45,000 Options are eligible to vest at the end of each
year of
his continuous service as a member of the Board and certain Standing
Committees for the next 3 years and exercisable at the rate of 33⅓% each
year after vested.
|
|
|
(v)
|
For
Mr. Brown, who is currently an advisor/consultant to the Board,
250,000
Options are eligible to vest at the end of each year of service
subject to
his meeting certain performance criteria and exercisable at the
rate of
50% each year only after all 500,000 Options vest. However, should
Mr.
Brown be elected to the Board, his advisor/consultant role will
automatically terminate and the aforementioned vesting and exercise
criteria will change to: 86,300 Options will automatically vest
but will
only be exercisable after the end of two years, while 137,900 Options
are
eligible to vest each on January 15, 2008, 2009, and 2010, respectively,
based on his continuous service as a member of the Board and Chairperson
of the Executive Committee for the next 2.67 years and exercisable
at the
rate of 33⅓% each year after
vested.
|
Although
we believe the Equity Plan is in the best interests of our stockholders in
order
to attract and retain qualified key employees, directors and consultants since
the Equity Plan authorizes the grant of options to purchase up to 6 Million
shares of common stock, the future grant and exercise of the options would
tend
to dilute the percentage ownership of stockholders. Furthermore, the nature
of
the options is such that the options would be exercised at a time that we likely
would be able to derive a higher price for our shares than the exercise
price.
Required
Vote For Adoption
Under
Delaware Law the affirmative vote of a majority of the outstanding shares of
our
common stock is required for approval of Proposal 2,
which: (1) increases the maximum aggregate number of shares of common stock
available for issuance from 3.25 Million shares to 6 Million shares; and (2)
includes directors and consultants as persons eligible for awards. Once given
effect, a majority vote of the Company's common stock at a properly called
meeting at which a quorum is present will be required to repeal or modify the
amendment.
THE
BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
RATIFYING
AND APPROVING THE AMENDMENTS TO THE EQUITY INCENTIVE PLAN.
APPROVAL
OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION
The
Board
has determined that it is in the Company’s best interest and in the best
interest of the Company’s stockholders to further amend the Company’s Restated
Certificate of Incorporation (as amended, the “Certificate of Incorporation”) to
increase the total number of authorized shares of Common Stock from 65 Million
to 70 Million shares. The Board unanimously approved the proposed amendment
to
the Certificate of Incorporation, in substantially the form attached hereto
in
Appendix B (the “Amendment”), declared it to be advisable and hereby
seeks the approval of the Amendment by the Company’s stockholders. If
the Amendment is approved by the Company’s stockholders, the Amendment will
become effective upon the filing of a certificate of amendment with the Delaware
Secretary of State, which filing is expected to occur promptly after the
2007
Annual Meeting.
Purpose
of the Amendment
The
purpose of the additional authorized shares of common stock is to benefit the
Company by providing flexibility to the Board of Directors, without requiring
further action or authorization by the stockholders (except as may be required
by applicable law or stock exchange requirements) to issue additional shares
of
common stock from time to time to respond to business needs and opportunities
as
they arise. These needs, opportunities and purposes might include, for example
raising capital through the sale of common stock, acquiring other companies,
businesses or products in exchange for shares of common stock, attracting and
retaining employees by issuing additional shares under equity plans, and other
transactions and corporate purposes that the Board deems are in the Company’s
best interest. The additional authorized shares would enable the Company to
act
quickly in response to opportunities that may arise for these types of
transactions, in most cases without the necessity of obtaining further
stockholder approval before such issuances could proceed, except as provided
under Delaware law or under the rules of the American Stock Exchange. As of
the
date of this Proxy Statement the Company has no current plans, arrangements
or
understandings regarding the additional shares that would be authorized pursuant
to this proposal. However, the Company reviews and evaluates potential capital
raising activities, transactions and other corporate actions on an on-going
basis to determine if such actions would be in the best interests of the Company
and its stockholders.
Possible
Effects of the Amendment
Increasing
the number of authorized shares of common stock will not have any immediate
effect on the rights of current stockholders. If the Board determines that
an
issuance of shares of the Company's common stock is in the best interests of
the
Company and its stockholders, the issuance of additional shares could have
the
effect of diluting the earnings per share or the book value per share of the
outstanding shares of common stock. To the extent that any additional authorized
shares of common stock are issued in the future, they may decrease existing
stockholders’ percentage equity ownership and, depending on the price at which
they are issued, could be dilutive to the voting rights of existing stockholders
and have a negative effect on the market price of the common stock. Current
stockholders have no preemptive or similar rights, which means, current
stockholders do not have a prior right to purchase any new issue of common
stock
in order to maintain their proportionate ownership thereof. However, the
increase in the number of authorized shares of common stock, when and if issued,
will not in any way change the inherent rights of existing or future common
stockholders. If and when issued, each share of additional authorized
common stock will continue to entitle the holder to one vote per share on
matters to be voted upon by the stockholders, not entitle the holder to any
cumulative voting, cumulative dividends, preemptive, subscription or redemption
rights, entitle the holder to receive dividends from available funds, if and
when declared by our Board of Directors, and entitle the holder to share ratably
in assets legally available for distribution to shareholders in the event of
our
liquidation, dissolution or winding up of operations. The Company has not
proposed the increase in the number of authorized shares of common stock with
the intention of using the additional authorized shares for anti-takeover
purposes, but the Company would be able to use the additional shares to oppose
a
hostile takeover attempt or delay or prevent changes in control or management
of
the Company. For example, without further stockholder approval, the Board could
sell shares of common stock in a private transaction to purchasers who would
oppose a takeover or favor the current Board. Stockholders should be aware
that
approval of this proposal could facilitate future efforts by the Company to
oppose changes in control of the Company and perpetuate the Company’s
management, including transactions in which the stockholders might otherwise
receive a premium for their shares over then current market prices. The Company
could also use the additional shares of common stock for potential strategic
transactions including acquisitions, strategic partnerships, and joint ventures,
although the Company has no present plans to do so. The Company cannot provide
assurances that any such transactions will be consummated on favorable terms
or
at all, that they will enhance stockholder value or that they will not adversely
affect the Company’s business or the trading price of the common stock. Any such
transactions may require the Company to incur non-recurring or other charges
and
may pose significant integration challenges and/or management and business
disruptions, any of which could materially and adversely affect the Company’s
business and financial results.
Required
Vote For Adoption
Under
Delaware Law the affirmative vote of a majority of the outstanding shares of
our
common stock is required for the approval of Proposal
3, the proposed amendment to our Restated Certificate of
Incorporation, which increases the authorized shares of common stock available
for issuance. Once given effect, a majority vote of the Company's common
stock at a properly called meeting at which a quorum is present will be required
to repeal or modify the amendment.
THE
BOARD
RECOMMENDS THAT YOU VOTE FOR
APPROVING
THE AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION.
The
Board
has adopted written charters for its four standing committees and policies
for
director selection and stockholder communications with the Board. Stockholders
can access our corporate governance materials at
http://www.lapollaindustries.com.
Independence
of Directors
Our
Board
of Directors is required to meet certain criteria for independence set forth
under applicable securities laws, including the Securities Exchange Act of
1934,
as amended, applicable rules and regulations of the SEC and applicable rules
and
regulations of the American Stock Exchange (“AMEX”). The AMEX Listed Company
Guide and corresponding listing standards provide that, in order to be
considered independent, our board must determine that a director does not
have a
relationship that would materially interfere with the exercise of independent
judgment in carrying out the responsibilities of a
director. Additionally, directors serving on audit committees must
also comply with more stringent requirements. The Board of Directors has
reviewed the relationships between each of its members and the Company. Based
on
its review, the Board has affirmatively determined that Mr. Kurtz, Mr. Kramer,
and Mr. Adams are not, and Lt. Gen. Gregg (Ret), Mr. Nadel, and Mr. Larson
are,
“independent” within the independence standards set forth in Section 121A of the
AMEX Company Guide at this time. The director nominee Mr. Brown is currently
acting under an advisory/consultancy role with the Board of Directors and
receiving stock option related compensation
(SeeProposal 2 for more
detailed information) as part of that relationship. When and if Mr. Brown
is
elected as a member of the Board at the Annual Meeting, his advisor/consultant
role will automatically terminate, a certain amount of his stock options
as
originally granted will vest in connection with his prior services, and new
vesting and exercise criteria will be established for the remaining unvested
portion of his options which will thereafter be related solely to his new
role
as a member of the Board of Directors and Chairperson of the Executive
Committee. As a result of the foregoing, Mr. Brown will be considered an
“independent” director notwithstanding his prior advisor/consultant role based
on the value attributable to his prior stock option compensation being less
than
$60,000.
Meetings
of the Board of Directors
The
Board
held 6 meetings, and its four standing Committees collectively held a total
of 9
meetings, in 2006. Of the meetings held during the 2006 year, each director
attended 100% of the meetings of the Board and Committees on which such director
serves. We have standing Audit, Compensation, Corporate Governance (which
handles our director nomination function), and Executive Committees. We require
all members of the Board to attend our annual meetings. All of our Board members
attended last year’s annual meeting. It should be noted that
directors discharge their responsibilities throughout the year not only at
Board
and Committee meetings, but through personal meetings and other communications,
including considerable telephone contact with the Chairman of the Board and
others regarding matters of interest and concern to us. The following 2006
Membership Roster table sets forth the four standing Committees of the Board,
the members of each Committee during 2006 and the number of meetings held by
the
Board and the Committees:
|
Name
|
|
Board
|
|
Audit
|
|
Compensation
|
|
Governance
|
|
Executive
|
|
|
Mr.
Kurtz
|
|
X
|
(1)
|
—
|
|
—
|
|
—
|
|
X
|
(1)
|
|
Lt.
Gen. Gregg (Ret)
|
|
X
|
|
X
|
|
X
|
(1)
|
X
|
|
X
|
|
|
Mr.
Cohen (2)
|
|
X
|
|
X
|
(1)
|
X
|
|
X
|
|
X
|
|
|
Mr.
Adams
|
|
X
|
|
—
|
|
—
|
|
X
|
(1)
|
X
|
|
|
Number
of meetings held in 2006
|
|
6
|
|
4
|
|
4
|
|
1
|
|
0
|
|
|
(2)
|
Mr.
Cohen passed away January 11, 2007 and Mr. Nadel
was appointed as his
successor as Chairperson of the Audit
Committee.
|
Audit
Committee
The
Audit Committee’s role encompasses the oversight of our financial,
accounting and reporting processes, our system of internal accounting and
financial controls and our compliance with related legal and regulatory
requirements, the appointment, engagement, termination and oversight of our
independent registered public accounting firm, including conducting a review
of
their independence, reviewing and approving the planned scope of our annual
audit, overseeing the independent registered public accounting firm’s audit
work, reviewing and pre-approving any audit and non-audit services that may
be
performed by them, reviewing with management and our independent registered
public accounting firm the adequacy of our internal financial controls,
reviewing our critical accounting policies and the application of accounting
principles, establishing procedures, as required under applicable law, for
the
receipt, retention and treatment of complaints received by us regarding
accounting, internal accounting controls or auditing matters and the
confidential treatment and anonymous submission by employees of concerns
regarding questionable accounting or auditing matters, and meeting to review
LaPolla’s annual audited financial statements and quarterly financial statements
with management and the independent registered public accounting firm.
See“Report of the Audit Committee” on page 22 of
this proxy statement. Each member of our Audit Committee meets the independence
criteria prescribed by applicable law and SEC rules for audit committee
membership and is an “independent director” within the meaning of applicable
AMEX listing standards. In addition, each Audit Committee member meets the
AMEX’s financial knowledge requirements. Moreover, Mr. Nadel is our “audit
committee financial expert” as such term is described in Item 407(d)(5)(ii)
of Regulation S-K promulgated by the SEC. The Audit Committee operates
pursuant to a written charter, which complies with applicable provisions of
Sarbanes-Oxley Act of 2002 and related rules of the SEC and AMEX. A copy of
the
Audit Committee charter is available on our website at
http://lapollaindustries.com/pdf/charter_audit.pdf.
Compensation
Committee
The
Compensation Committee sets and administers the policies governing the
annual compensation of executive officers and other officers, including cash
compensation and equity incentive programs, and reviews and establishes annually
the compensation of the CEO and President. See“Report
of the Compensation Committee” contained in this proxy statement. The
Compensation Committee also reviews and approves equity-based compensation
grants to our non-officer employees and assists the Board in management
development and succession plans. The members of the Compensation Committee
are
all independent directors within the meaning of applicable AMEX listing
standards. The Compensation Committee operates pursuant to a written charter,
a
copy of which can be found on our website at
http://lapollaindustries.com/pdf/charter_compensation.pdf.
Corporate
Governance Committee
The
Corporate Governance Committee’s primary purpose is to evaluate
candidates for membership on the Board and make recommendations to the Board
regarding candidates, composition of the Board and its Committees, functioning
of the Board as an entity, corporate governance principles, performance of
the
Board and each Committee, and enforce the Code of Business Ethics and Conduct.
The AMEX Company Guide, Section 804, requires that Board of Director nominations
must be either selected, or recommended for the Board's selection, by a
Committee comprised solely of independent directors or by a majority of the
independent directors. In our case, the Corporate Governance
Committee handles the director nomination function, in addition to other
corporate governance matters as briefly described above, and only two of the
three members meet the criteria for independence set forth in Section 121A
of
the AMEX Company Guide. In order to satisfy the applicable provisions
of the AMEX Company Guide, we have elected to rely on the “controlled company”
exception, which makes Section 804 inapplicable to us. We based our
determination on the fact that the Chairman of the Board owns more than 50%
of
our common stock. The Corporate Governance Committee operates
pursuant to a written charter, a copy of which can be found on our website
at
http://lapollaindustries.com/pdf/charter_governance.pdf. In carrying out
its function to nominate candidates for election to the Board, the Committee
considers the mix of skills, experience, character, commitment, and diversity
of
background, all in the context of the requirements of the Board at that point
in
time. The identification, evaluation and selection of potential director
nominees, including nominees recommended by our stockholders, is made using
the
qualitative standards and procedure described below, without regard to whether
a
stockholder, non-management director, chief executive officer, other executive
officer, third-party search firm or other interested party or entity,
recommended the candidate.
Qualitative
Standards
|
|
·
|
Directors
should be of the highest ethical character and share the values of
the
Company;
|
|
|
·
|
Directors
should have reputations that are consistent with the image and reputation
of the Company;
|
|
|
·
|
Directors
should be highly accomplished in their respective
fields;
|
|
|
·
|
Directors
should be independent of any particular constituency and able to
represent
all stockholders of the Company;
|
|
|
·
|
Directors
should have the ability to exercise sound business
judgment;
|
|
|
·
|
Directors
should be selected such that the Board of Directors is a diverse
body;
|
|
|
·
|
Directors
should be leaders affiliated or formerly affiliated with major
organizations; and
|
|
|
·
|
Directors
should have relevant expertise and
experience.
|
Procedure
|
|
·
|
The
Chairman of the Board, any other member of the Board, CEO and President,
any other executive officer, other interested party, a stockholder
or a
group of stockholders identifies the need to add a new member to
the Board
of Directors with specific criteria or to fill a vacancy on the
Board;
|
|
|
·
|
The
Governance Committee initiates a search, working with support staff
and
seeking input from members of the Board and senior management, and
considering stockholder or other interested party, and if applicable,
third-party search firm
recommendations;
|
|
|
·
|
The
Governance Committee accepts for consideration suggested qualified
director candidates that submit a letter to the Corporate Governance
Committee of the Board of Directors, c/o LaPolla Industries, Inc.,
Attn: Corporate Secretary, 15402 Vantage Parkway East, Suite 322,
Houston,
Texas 77032, which acknowledges their interest in being considered
for a
position on the Company’s Board of Directors (such letter may be marked
confidential in the discretion of the director candidate(s)), which
includes appropriate biographical information and a brief description
of
his or her qualifications;
|
|
|
·
|
If
the Governance Committee receives, by a date not less than the 120th
calendar day
before the date of the Company’s proxy statement released to stockholders
in connection with the previous year’s annual meeting, a recommended
director candidate(s) (nominee) from a stockholder that beneficially
owned
more than 5% of the Company’s voting common stock for at least one year as
of the date the recommendation was made, or from a group of stockholders
that beneficially owned, in the aggregate, more than 5% of the Company’s
voting common stock, with each of the securities used to calculate
that
ownership held for at least one year as of the date the recommendation
was
made, the Company will identify the director candidate(s) and the
stockholder(s) or group of stockholders that recommended the director
candidate(s) and disclose whether the Governance Committee chose
to
nominate the director candidate(s); provided, however, that no such
identification or disclosure will be made without the written consent
of
both the stockholder or group of stockholders and the director
candidate(s);
|
|
|
·
|
The
initial slate of candidates that satisfy specific criteria and otherwise
qualify for membership on the Board are identified and presented
to the
Chairperson of the Governance Committee, or in the Chairperson’s absence,
any member of the Governance Committee delegated to initially review
director candidates;
|
|
|
·
|
The
appropriate Governance Committee member makes an initial determination
in
his or her independent business judgment as to the qualification
and fit
of such director candidate(s) and whether there is a need for additional
directors to join the Board at that
time;
|
|
|
·
|
If
the reviewing Governance Committee member determines that it is
appropriate to proceed, the Chairman of the Board, CEO and President,
and
members of the Governance Committee interview prospective director
candidate(s);
|
|
|
·
|
The
Governance Committee provides informal progress updates to the
Board;
|
|
|
·
|
The
Corporate Governance Committee meets to consider and approve the
final
director candidate(s);
|
|
|
·
|
If
approved by the Governance Committee, the Governance Committee seeks
Board
approval of the director candidate(s), which considers all recommendations
of the Governance Committee;
|
|
|
·
|
If
the Board approves the director candidate(s), depending on the particular
circumstance, the director candidate(s) is either appointed to the
Board
or included as a nominee for election at the next annual meeting
of
stockholders; and
|
|
|
·
|
If
the Board disapproves the director candidate(s), the director candidate(s)
is notified of such determination.
|
Non-management
directors meet periodically in outside sessions without management.
“Non-management” directors are all of our board members who are not our officers
and include directors, if any, who are not “independent” by virtue of the
existence of a material relationship with us. Lt. Gen. Gregg (Ret), a
non-management director, presides over the outside sessions.
Communicating
with the Board of Directors
Any
of
our stockholders who desire to contact the current director presiding over
the
outside sessions or the other members of the Board of Directors may do so
by
writing to: LaPolla Industries, Inc.’s Board of Directors, c/o Corporate
Secretary, Intercontinental Business Park, 15402 Vantage Parkway East, Suite
322, Houston, Texas 77032. Communications received will be distributed by
our
Corporate Secretary to the director presiding over outside sessions or such
other member or members of the Board of Directors as appropriate, depending
on
the facts and circumstances outlined in the communication
received.
CODE
OF BUSINESS ETHICS AND CONDUCT
We
adopted a Code of Business Ethics and Conduct applicable to all officers,
directors and employees as defined by applicable rules of the SEC and AMEX,
which is publicly available at
http://lapollaindustries.com/pdf/codeofethics.pdf. If we make amendments
to this code other than technical, administrative, or other non-substantive
amendments, or grant any waivers from a provision of the code, we will disclose
the nature of the amendment or waiver, its effective date and to whom it applies
on our website.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security
Ownership of Certain Beneficial Owners and Management
The
following tables present information concerning the beneficial ownership of
our
shares of common stock as of the record date, April 18, 2007, by each person
we
know to be the beneficial owner of 5% or more of our outstanding shares of
common stock, each of our directors, including one nominee, each of our current
(and a former) executive officers and all of our directors, nominee, and
executive officers as a group. Beneficial ownership is determined under the
rules of the SEC and generally includes voting or investment power over
securities. Except in cases where community property laws apply or as indicated
in the footnotes to the tables, we believe that each stockholder identified
in
the table possesses sole voting and investment power over all shares of common
stock shown as beneficially owned by the stockholder. Shares of common stock
subject to vesting or options that are currently exercisable or exercisable
within 60 days of April 18, 2007 and unvested shares of restricted stock, are
considered outstanding and beneficially owned by the person granted the shares
or holding the options for the purpose of computing the percentage ownership
of
that person but are not treated as outstanding for the purpose of computing
the
percentage ownership of any other person.
|
Beneficial
Owner
|
|
Shares
of Common Stock Owned
|
|
|
Rights
to Acquire Shares of Common Stock (1)
|
|
|
Unvested
Shares of Restricted Stock (2)
|
|
|
Total
Shares of Common Stock Beneficially Owned
|
|
|
Percent
of Class (3)
|
|
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
J. Kurtz, Chairman of the Board
|
|
|
33,489,548
|
|
|
|
—
|
|
|
|
45,447
|
|
|
|
33,534,995
|
|
|
|
58.106 |
% |
|
Nine
Duck Pond Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpine,
New Jersey 07620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lt.
Gen. Arthur J. Gregg, US Army (Ret)
|
|
|
50,500
|
|
|
|
—
|
|
|
|
12,000
|
|
|
|
62,500
|
|
|
|
.108 |
% |
|
Jay
C. Nadel
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Augustus
J. Larson
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Douglas
J. Kramer (4)
|
|
|
—
|
|
|
|
60,000
|
|
|
|
—
|
|
|
|
60,000
|
|
|
|
.104 |
% |
|
Michael
T. Adams (4)
|
|
|
1,191,376
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
1,201,376
|
|
|
|
2.082 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard
L. Brown
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
A. Campbell, CFO and Treasurer
|
|
|
550
|
|
|
|
—
|
|
|
|
—
|
|
|
|
550
|
|
|
|
.001 |
% |
|
C.
David Stearnes (5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors, nominee, and executive officers listed above
as a
group
|
|
|
34,731,974
|
|
|
|
70,000
|
|
|
|
57,447
|
|
|
|
34,859,421
|
|
|
|
60.401 |
% |
(1)
Represents common stock which the person has the right to acquire within
60 days
after April 18, 2007. For current executive officers - Mr. Kramer and Mr.
Adams
each have 480,000 and 80,000 vested stock options, of which 60,000 and 10,000
are exercisable, respectively; and for our nominee – Mr. Brown, if elected, will
have 86,300 vested stock options, none of which are exercisable, within 60
days
of April 18, 2007. See also Compensation of Directors
and Executive Officers, Equity Incentive Plan and Potential
Payments Upon Termination or Change-in-Control for more
information.
(2)
Represents unvested shares of restricted common stock issued but held by
the
Company until earned and vested at the next annual meeting of stockholders
scheduled for May 22, 2007. See also Compensation of
Directors and Executive Officers, Former Director Compensation Plan for
more information.
(3)
Based on 53,713,698 shares of our common stock outstanding at April 18, 2007
(Includes those shares in the “Rights to Acquire Shares of Common Stock” and
“Unvested Shares of Restricted Stock” columns).
(4)
Mr. Kramer is also our CEO and President and Mr. Adams is also our CGO, EVP
and
Corporate Secretary.
(5)
Mr. Stearnes resigned as CFO and Corporate Treasurer on February 1,
2006.
Stockholders
Holding 5% or More
Except
as
set forth in the above and below tables, our management knows of no person
who
is the beneficial owner of more than 5% of our issued and outstanding common
stock.
|
Name
and Address of Beneficial Owners (1)
|
|
Shares
of Common Stock Owned
|
|
|
Rights
to Acquire Shares of Common Stock (2)
|
|
|
Total
Shares of Common Stock Beneficially Owned
|
|
|
Percent
of Class (3)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
ComVest
Capital LLC
|
|
|
—
|
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
|
|
6.931 |
% |
|
ComVest
Capital Management LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ComVest
Group Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
S. Falk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
North Clematis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
Palm Beach, Florida 33401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Based on the information provided pursuant to a joint statement on a Schedule
13G filed with SEC on February 26, 2007, the name of the Reporting Person is
ComVest Capital LLC, a Delaware limited liability company ("ComVest"). ComVest
is a private investment company. The managing member of ComVest is ComVest
Capital Management LLC, a Delaware limited liability company ("Management"),
the
managing member of which is ComVest Group Holdings, LLC, a Delaware limited
liability company ("CGH"). Michael Falk ("Falk") is the Chairman and principal
member of CGH. Falk is a citizen of the United States of America. The group
of
beneficial owners share the same principal business address provided in this
table.
(2)
LaPolla entered into a Revolving Credit and Term Loan Agreement with ComVest
Capital, LLC, on February 21, 2007 (the “Credit Facility”). Under the terms of
the Credit Facility, ComVest has agreed to loan up to $3,500,000 under a
revolving credit note and $2,000,000 to the Company under a convertible term
note. In connection with the establishment of the Credit Facility, the Company:
(a) entered into a Convertible Term Note of even date (the “Convertible Note”)
and contemporaneously with closing received $2,000,000. The Convertible Note
bears interest at the rate of 10% per annum, principle payments of $66,666.67
commence on September 30, 2007 and end on February 28, 2010, and is convertible
optionally by ComVest at any time or mandatorily by LaPolla subject to
satisfaction of certain conditions into common stock at the rate of $.80 per
share (or 2,500,000 shares if converted prior to commencement of principal
payments); and (b) issued three tranches of warrants to ComVest to purchase
an
aggregate of 1,500,000 shares of LaPolla common stock at a price per share
calculated based on the closing stock price over the last 20 days prior to
the
date of closing. The exercise prices for the 3 tranches of warrants are as
follows (a) tranche 1 (110% of average closing price) = $0.68; (b) tranche
2
(125% of average closing price) = $0.77; and (c) tranche 3 (150% of average
closing price) = $0.93.
(3)
Based on 53,713,698 shares of our common stock outstanding at April 18,
2007.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table summarizes information about our common stock that may be issued
upon vesting and the exercise of options and warrants under all of our equity
compensation plans, as of December 31, 2006:
Equity
Compensation Plan Information
|
Plan
Category
|
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights(a)
|
|
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights(b)
|
|
|
Number
of Securities Remaining Available for Future Issuance Under
Equity
Compensation Plans (excluding Securities Reflected in Column
(a))(c)
|
|
|
Equity
Compensation Plans
|
|
|
|
|
|
|
|
|
|
|
Approved
by Security Holders (1)
|
|
|
2,706,180
|
|
|
$ |
.67
|
|
|
|
613,267
|
|
|
Equity
Compensation Plans Not
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved
by Security Holders (2)
|
|
|
50,000
|
|
|
$ |
.70
|
|
|
|
—
|
|
|
Total
|
|
|
2,756,180
|
|
|
$ |
.67
|
|
|
|
613,267
|
|
(1) Includes
shares of our
common stock issuable under our (a) Equity Incentive Plan and (b) Director
Compensation Plan. For a description of
these plans,
refer
to Note
20 –
Share-Based Payment Arrangements, Equity Incentive
Plan and Director
Compensation
Plan, of our
Notes to Consolidated Financial Statements included in our annual report on
Form
10-K for the year ended December 31, 2006. See
also Proposal
2.
(2) Includes
restricted options
(“Non Plan”) that were granted by the Company from time to time for special
circumstances in the past. As of March 19, 2007, these Non Plan options expired
according to their terms and the Company has no intention of granting any non
security holder approved Non Plan options in the future. Refer
also
to Note
20 –
Share-Based Payment Arrangements, Predecessor Stock
Option
Plans, of our
Notes to Consolidated Financial Statements included in our annual report on
Form
10-K for the year ended December 31, 2006.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors and persons who own more than 10% of a registered class
of
our common stock or other equity securities, to file with the SEC certain
reports of ownership and changes in ownership of our securities. Executive
officers, directors, and stockholders who hold more than 10% of our outstanding
common stock are required by the SEC to furnish us with copies of all required
forms filed under Section 16(a). We prepare Section 16(a) forms on behalf of
our
officers and directors based on the information provided by them. Based solely
on our review of the copies of such forms furnished to us and the written
representations from certain of the reporting persons that no other reports
were
required, we believe that during the fiscal year ended December 31, 2006,
all executive officers, directors and greater than ten-percent beneficial owners
complied with the reporting requirements of Section 16(a).
COMPENSATION
OF DIRECTORS AND EXECUTIVE
OFFICERS
Compensation
Discussion and Analysis
This
Compensation Discussion and Analysis section discusses the compensation policies
and programs for our named executive officers, which consist of our Chief
Executive Officer and President (Mr. Kramer), Chief Governance Officer and
Executive Vice President (Mr. Adams), and Chief Financial Officer (Mr.
Campbell). The Compensation Committee administers the compensation policies
and
programs for our named executive officers, as well as the equity-based incentive
compensation plans in which those persons participate.
The
Compensation Committee’s philosophy is to provide a compensation package that
attracts, motivates and retains executive talent, and delivers rewards for
superior performance as well as consequences for underperformance. The
objectives of the Compensation Committee’s compensation practices are to (a)
provide a total compensation program that is competitive in the industries
in
which we compete for executive talent; (b) place a significant portion of
executive compensation at risk by linking such compensation to the achievement
of corporate financial performance objectives and individual objectives;
(c)
provide long-term incentive compensation that focuses executives’ efforts on
building stockholder value by aligning their interests with our
stockholders; and (d) provide incentives that promote executive
retention. In designing and administering our executive compensation
programs, we attempt to strike an appropriate balance among these elements,
as
discussed below.
The
major
compensation elements for our named executive officers are base salary, annual
bonuses, awards, insurance benefits and perquisites. Each of these elements
is
an integral part of and supports our overall compensation objectives. Base
salaries (other than increases), insurance benefits and perquisites form
stable
parts of our named executive officers’ compensation packages that are not
necessarily dependent on our performance during a particular year. We set
these
compensation elements at competitive levels so that we are able to attract,
motivate and retain highly qualified executive officers. Consistent with
our
performance-based philosophy, we reserve the largest potential compensation
for
performance- and incentive-based awards. These awards include annual and
long-term awards that are based on our financial performance and provide
compensation in the form of stock bonuses and stock options to provide
incentives that are tied to both our short-term and long-term performance.
Our
performance-based annual bonuses reward short-term and long-term performance,
while our stock options reward long-term performance and align the interests
of
management with our stockholders. We additionally provide for retention of
certain named executive officers through transaction bonuses in case of a
change
in control.
Compensation
Committee Determination of Compensation Awards
The
Compensation Committee has primary authority for determining the compensation
awards to be made to our executive officers. The Compensation Committee annually
determines the total compensation levels for our executive officers by
considering several factors, including each executive officer’s role and
responsibilities, how the executive officer is performing against those
responsibilities, and our performance.
Components
of Compensation
Base
salaries provide our executive officers with a degree of financial certainty
and
stability. In order to attract and retain highly qualified executives, we
provide base salaries based on individual negotiations and general competitive
hiring practices. Salaries are usually set by agreement with the named executive
officers but also periodically reviewed in the case of executive promotions
or
other significant changes in responsibilities. The named executive officers
received an average salary increase of 8% from fiscal year 2005 to fiscal
year
2006. No formulaic base salary increases are provided to the named executive
officers. Mr. Adams’ and Mr. Campbell’s base salaries increased 23% and 48%,
respectively, based on an increase in each of their respective responsibilities.
Mr. Adams received an increase in his base salary in connection with his
appointment to the newly created executive officer position of Chief Governance
Officer, which is in addition to his Executive Vice President and Corporate
Secretary positions, and Mr. Campbell received a gradual increase in his
base
salary based on his promotion from Controller to Chief Financial Officer
and
Corporate Treasurer (Mr. Campbell replaced our prior Chief Financial Officer
in
February 2006).
The
primary purpose of our annual bonus, payable in cash or stock bonuses, is
to
motivate our named executive officers to meet or exceed our company-wide
short-term performance objectives. The named executive officers are each
eligible for annual bonus consideration designed to reward the named executive
officers for their contributions to individual and corporate objectives.
Annual
bonuses are generally paid in February of the year following the performance
period. For 2006, the Compensation Committee set profitability as the initial
threshold with the expectation of setting additional criteria based upon
individual performance or circumstances. The Company did not achieve
profitability as expected in 2006. Other than the automatic $5,000 year end
bonus paid to Mr. Campbell as agreed in connection with his promotion to
Chief
Financial Officer, no annual bonuses were paid for 2006.
Long-term
Incentive Awards — Stock Options
Our
named
executive officers are eligible to participate in our Equity Incentive Plan.
In
addition to our named executive officers, our employees are eligible to receive
stock option grants under our Equity Incentive Plan throughout the fiscal
year
in connection with certain events, such as a new hire, retention of an employee,
integration of acquisitions or the achievement of certain individual performance
objectives. Such grants provide an incentive for our executives and other
employees to increase our market value, as represented by our market price,
as
well as serving as a method for motivating and retaining our executives.
The
Compensation Committee believes that an award of stock options more closely
aligns the interests of the recipient with those of our stockholders because
the
recipient will only realize a return on the option if our stock price increases
over the term of the option. The exercise price of our option grants under
the
Equity Incentive Plan is equal to 100% of the closing price of our stock
on the
American Stock Exchange on the grant date.
Stock
options granted to Mr. Kramer and Mr. Adams under our Equity Incentive Plan
during 2005 have a term of 6 years, with vesting occurring subject each of
them causing the Company to meet certain sales growth and gross margin
thresholds and, once vested, are exercisable over a declining four year period
based on a 25% and 75% formula in order to provide an incentive for continued
employment. Vesting and exercisability of their options are accelerated in
the
event of termination due to death, permanent disability, or a change in
control.
For
2006,
the Compensation Committee determined that our named executive officers,
namely
Mr. Kramer and Mr. Adams, did not meet the dual criteria set for vesting
of
certain stock options. We granted Mr. Kramer and Mr. Adams each 2,000,000
and
400,000 stock options, respectively, under the Equity Incentive Plan in 2005,
which options vest in certain increments based on meeting certain performance
objectives (e.g. sales goals and gross margin). Mr. Kramer and Mr. Adams
met the
$18 Million, $24 Million and $30 Million sales goal thresholds but did not
meet
the 25% gross margin threshold for the 2006 year; and therefore, no stock
options vested for either of them for 2006. During 2006, one new employee
received an option grant primarily to attract, motivate and ensure the
achievement of certain manufacturing plant milestones.
Perquisites
and Other Benefits
We
also
provide other benefits to our named executive officers that are not tied
to any
formal individual or company performance criteria and are intended to be
part of
a competitive overall compensation program. For 2006, these benefits included
payment of term life insurance premium and leased automobile for Mr. Kramer
and
automobile allowance for Mr. Adams. We offer medical plans, dental plans,
vision
plans and disability insurance plans, for which executives are charged the
same
rates as all other employees, if participating.
We
have
provided a transaction bonus for Mr. Kramer and Mr. Adams in their employment
agreements which only activates upon consummation of a change in control.
SeeSeverance and Change in Control
Arrangements below for more information.
Severance
and Change of Control Arrangements
We
ordinarily enter into employment agreements with our named executive officers
and occasionally key employees which provide for specific terms of employment.
Accordingly, the employment of any employee without an employment agreement
may
be terminated at any time. We provide certain benefits to our named executive
officers upon certain qualifying terminations and in connection with
terminations under certain circumstances following a change of control, which
benefits are designed to retain our named executive officers and provide
continuity of management in the event of an actual or threatened change of
control and to ensure that our named executive officers’ compensation and
benefits expectations would be satisfied in such event. A description of
the
material terms of our change of control agreements can be found beginning
on
page 19 of this proxy statement under “Potential Payments Upon Termination
or Change-in-Control.”
Policy
on Deductibility of Compensation
Section 162(m)
of the Internal Revenue Code of 1986, as amended, limits the tax deductibility
by a company of annual compensation in excess of $1,000,000 paid to our Chief
Executive Officer and any of our four other most highly compensated executive
officers. However, performance-based compensation that has been approved
by
stockholders is excluded from the $1,000,000 limit if, among other requirements,
the compensation is payable only upon attainment of pre-established, objective
performance goals and our board of directors committee that establishes such
goals consists only of “outside directors.” Additionally, stock options will
qualify for the performance-based exception where, among other requirements,
the
exercise price of the option is not less than the fair market value of the
stock
on the date of grant, and the plan includes a per-executive limitation on
the
number of shares for which options may be granted during a specified period.
Our
stock option grants under our Equity Incentive Plan are intended to meet
the
criteria of Section 162(m) of the Internal Revenue Code. All members of the
Compensation Committee qualify as outside directors. The Compensation Committee
considers the anticipated tax treatment to us and our executive officers
when
reviewing executive compensation and our compensation programs. The
deductibility of some types of compensation payments can depend upon the
timing
of an executive’s vesting or exercise of previously granted rights.
Sections 280G and 4999 of the Internal Revenue Code impose certain adverse
tax consequences on compensation treated as excess parachute payments. An
executive is treated as having received excess parachute payments for purposes
of Sections 280G and 4999 of the Internal Revenue Code if he or she
receives compensatory payments or benefits that are contingent on a change
in
the ownership or control of a corporation, and the aggregate amount of such
contingent compensatory payments and benefits equal or exceeds three times
the
executive’s base amount. If the executive’s aggregate contingent compensatory
payments and benefits equal or exceed three times the executive’s base amount,
the portion of the payments and benefits in excess of one times the base
amount
are treated as excess parachute payments. Treasury Regulations define the
events
that constitute a change in ownership or control of a corporation for purposes
of Sections 280G and 4999 of the Internal Revenue Code and the executives
subject to Sections 280G and 4999 of the Internal Revenue Code. An
executive’s base amount generally is determined by averaging the executive’s
Form W-2 taxable compensation from the corporation for the five calendar
years preceding the calendar year in which the change in ownership or control
occurs. An executive’s excess parachute payments are subject to a 20% excise tax
under Section 4999 of the Internal Revenue Code, in addition to any
applicable federal income and employment taxes. Also, the corporation’s
compensation deduction in respect of the executive’s excess parachute payments
is disallowed under Section 280G of the Internal Revenue Code. If we were
to be subject to a change of control, certain amounts received by our executives
(for example, amounts attributable to the accelerated vesting of stock options)
could be excess parachute payments under Sections 280G and 4999 of the
Internal Revenue Code.
Tabular
Compensation Disclosure
The
following tables summarize our non-employee directors and named executive
officers compensation as follows:
|
1.
|
Director
Compensation Table. The Director Compensation Table
summarizes the compensation paid to our non-employee directors for
2006,
including cash compensation, and the cost to us of stock awards granted
to
our non-employee directors.
|
|
2.
|
Summary
Compensation Table. The Summary Compensation Table
summarizes the compensation earned by, or awarded or paid to, our
named
executive officers for 2006, including salary, the cost to us of
option
awards previously granted to our named executive officers, and all
other
compensation paid to our named executive officers, including
perquisites.
|
|
3.
|
Outstanding
Equity Awards at Fiscal Year-End Table. The Outstanding
Equity Awards at Fiscal Year-End Table summarizes the unvested stock
awards and all stock options held by our named executive officers
as of
December 31, 2006.
|
|
4.
|
Potential
Payments Upon Termination or Change-in-Control. The
Potential Payments Upon Termination or Change-in-Control discussion
and
table summarize payments and benefits that would be made to our named
executive officers and non-employee directors in the event of certain
employment terminations and/or a change of
control.
|
There
were no awards granted to, options exercised by or stock vested for any of
our
named executive officers during the fiscal year 2006 and the related tables
have
therefore been omitted from this proxy statement.
Non-Employee
Director Compensation
The
following table summarizes cash compensation paid, costs incurred during 2006
for stock awards granted in 2006 and prior years, as well as any other
compensation earned or paid during 2006, to our non-employee directors for
the
year ended December 31, 2006.
DIRECTOR
COMPENSATION TABLE
|
Name
|
|
Fees
Earned or Paid in Cash ($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Non-Equity
Incentive Plan Compensation Earnings ($)
|
|
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)
|
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
|
(a)
|
|
(b)(1)
|
|
|
(c)
(2)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
Richard
J. Kurtz
|
|
|
—
|
|
|
|
233,301
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
328,262 |
(3) |
|
|
561,563
|
|
|
Arthur
J. Gregg
|
|
|
10,000
|
|
|
|
12,563
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,563
|
|
|
Gilbert
M. Cohen (4)
|
|
|
7,750
|
|
|
|
12,563
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,313
|
|
|
(1)
|
Cash
retention fees were paid to Mr. Gregg and Mr. Cohen during
2006. For further details on cash retention fees,
see also Standard Compensation Arrangements
and Former Director Compensation Plan
below.
|
|
(2)
|
The
amounts show grant date fair value compensation cost recognized by
us in
fiscal year 2006 related to grants of restricted stock in fiscal
year 2006
and prior fiscal years, as prescribed under SFAS 123R. For a discussion
of
valuation assumptions, see Note 20 – Share-Based
Payment Arrangements, Former Director Compensation Plan, of
our Notes to Consolidated Financial Statements included in our annual
report on Form 10-K for the year ended December 31, 2006. For Mr.
Kurtz,
(a) $183,960 attributable to the fourth and last equal increment
of
292,000 shares of restricted common stock issued to him pursuant
to a one
time grant of 1,168,000 shares approved by stockholders on May 28,
2002,
which vested on May 29, 2006; (b) $33,120 attributable to the 48,000
shares of restricted common stock automatically granted and issued
to him
upon election at the annual meeting of stockholders held on June
29, 2005,
which shares vested on the date of the annual meeting of stockholders
held
on July 12, 2006; and (c) $16,221 attributable to the unvested 45,447
shares of restricted common stock automatically granted and issued
to him
(but held in the custody of the Company until they are earned and
vested)
upon election at the annual meeting of stockholders held on July
12, 2006,
which shares are scheduled to vest on the date of the annual meeting
of
stockholders to be held on May 22, 2007; and For Mr. Gregg and Mr.
Cohen,
(a) each $8,280 attributable to the 12,000 shares of restricted common
stock automatically granted and issued to each of them upon election
at
the annual meeting of stockholders held on June 29, 2005, which vested
on
the date of the annual meeting of stockholders held on July 12, 2006;
and
(b) each $4,283 attributable to each of the 12,000 shares of restricted
common stock automatically granted and issued to each of them (but
held in
the custody of the Company until they are earned and vested) upon
election
at the annual meeting of stockholders held on July 12, 2006, which
shares
are scheduled to vest on the date of the annual meeting of stockholders
to
be held on May 22, 2007. See also Footnote 4
below.
|
|
(3)
|
The
amount shown consists of: (a) $153,000 in accrued interest relating
to
short term loans advanced to the Company which loans and related
interest
were converted into Series D Preferred Stock; and (b) $175,262 in
accrued
dividends relating to Series D Preferred
Stock.
|
|
(4)
|
Mr.
Cohen passed away January 11, 2007 and the 12,000 shares of restricted
common stock vested pursuant to the former Director Plan at that
time.
|
Standard
Compensation Arrangements
All
directors are required to attend the Annual Meeting of Stockholders. Each
director who is not an employee is reimbursed for actual expenses incurred
in
attending Annual Stockholder, Board and Committee meetings. Cash
retention fees were paid to Mr. Gregg and Mr. Cohen from July 13, 2006 through
January 16, 2007 on a quarterly basis for serving continuously on the
Board. At December 31, 2006, we paid $17,750 in retention fees for
the 2006 year, of which $10,000 was for Lt. Gen. Gregg, US Army (Ret.) and
$7,750 was for Mr. Cohen. See
alsoFormer Director Compensation Plan below.
Former
Director Compensation Plan
The
Company’s former Director Compensation Plan, which was established and approved
by stockholders on May 28, 2002, permitted the grant of up to 1,600,000 shares
of restricted common stock to non-employee directors only for Board service
fees
and cash as retention fees (“Director Plan”). Each non-employee director who was
then serving as a member of the Board was automatically granted an award
consisting of a number of shares of restricted common stock of the Company
equal
to: 48,000 for the Chairman of the Board; and 12,000 for other non-employee
directors, upon initial election to the Board for a one year term (or a lesser
amount prorated monthly if the initial election was for a shorter period).
In addition to the automatic grant of shares to non-employee directors described
above, a one-time grant on May 28, 2002 of 1,168,000 post split shares of
restricted stock was approved for the Chairman of the Board, which recognized
his personal cost for substantially funding the Company and acting as Chairman
of the Board without adequate compensation over a three-year period prior to
the
date of the grant. This one-time grant vested at the end of each year at the
rate of 25% per year after the date of grant. The Company does not consider
the
shares of restricted common stock granted and issued under the Director Plan
as
outstanding at the time of grant due to vesting restrictions. The shares of
restricted common stock when granted are issued by the Company with a second
restriction and held in the custody of the Company until such time that they
are
earned and vested. The compensation cost that has been charged against income
for the Director Plan was $258,427 for December 31, 2006. Prior to adoption
of
SFAS 123R in 2005 compensation expense was recognized under the Director Plan
only on the date when the shares were earned and vested. Cash retention fees
were payable on a quarterly basis of $4,000, $7,000 and $10,000 per year for
serving continuously on the Board for one, two and three or more years,
respectively up to the termination of the Director Plan on July 13,
2006.
The
Director Plan was automatically terminated the day after the fourth anniversary
of the annual meeting of stockholders in which it was approved, or July 13,
2006. Prior to its termination, at the fourth annual meeting of stockholders
held on July 12, 2006, there were a total of 69,447 shares of restricted common
stock automatically granted to non-employee directors upon election to the
board, of which 45,447 were issued to Mr. Kurtz as Chairman, and 12,000 each
to
Mr. Gregg and Mr. Cohen. There were not enough shares available in the Director
Plan to issue the Chairman his full 48,000 shares at the last stockholders
meeting due to the Director Plan’s maximum share limitation being met, so the
Chairman agreed to the lesser amount to help the Company. The Director Plan
was
thereafter terminated as intended on July 13, 2006. The non-discretionary
automatic grants of restricted common stock made prior to the termination of
the
Director Plan were not affected by the termination of the Director Plan and
such
grants are scheduled to be fully earned and vested at the 2007 Annual Meeting.
A
summary of awards activity under the Director Plan and changes during the year
then ended are presented below:
| |
|
2006
|
|
|
Awards
|
|
Shares
|
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding-Beginning
of Year
|
|
|
364,000
|
|
|
$ |
74,460
|
|
|
Granted
|
|
|
69,447
|
|
|
|
44,002
|
|
|
Vested
|
|
|
(364,000 |
) |
|
|
233,640
|
|
|
Canceled,
Expired or Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding-End
of Year
|
|
|
69,447
|
|
|
$ |
44,002
|
|
As
of
December 31, 2006, total compensation cost related to restricted shares of
common stock not yet recognized was $19,214, which is expected to be recognized
over the five month period after December 31, 2006 (4.3 months on a
weighted-average basis).
Director
Compensation under Equity Incentive Plan
On
January 16, 2007, the Board of Directors amended the Equity Incentive Plan
(“Equity Plan”) to, among other things, include Directors as eligible
participants and increase the maximum number of shares issuable thereunder,
and
granted certain stock option compensation with vesting and exercisability
restrictions, subject to approval of stockholders and the American Stock
Exchange. SeeProposal 2 for more
information.
Executive
Compensation
The
following table shows the compensation earned by, or awarded or paid to, each
of
our named executive officers for services rendered in all capacities to us
for
the year ended December 31, 2006.
SUMMARY
COMPENSATION TABLE
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
Douglas
J. Kramer
|
|
2006
|
|
|
350,000
|
|
|
|
—
|
|
|
|
—
|
|
|
CEO
and President
|
|
2005
|
|
|
282,454
|
|
|
|
50,000
|
|
|
|
—
|
|
| |
|
2004
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
John
A. Campbell
|
|
2006
|
|
|
93,750
|
|
|
|
5,000 |
(1) |
|
|
—
|
|
|
CFO
and Treasurer
|
|
2005
|
|
|
18,750
|
|
|
|
—
|
|
|
|
—
|
|
|
(Appointed
February 1, 2006)
|
|
2004
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
T. Adams
|
|
2006
|
|
|
121,792
|
|
|
|
—
|
|
|
|
—
|
|
|
CGO,
EVP and Secretary
|
|
2005
|
|
|
102,216
|
|
|
|
—
|
|
|
|
10,960
|
|
| |
|
2004
|
|
|
90,000
|
|
|
|
—
|
|
|
|
—
|
|
|
C.
David Stearnes
|
|
2006
|
|
|
8,750
|
|
|
|
—
|
|
|
|
—
|
|
|
Former
CFO and Treasurer
|
|
2005
|
|
|
39,375
|
|
|
|
5,000
|
|
|
|
—
|
|
|
(Resigned
February 1, 2006)
|
|
2004
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
Represents
a $5,000 year end bonus per
agreement.
|
|
Name
and Principal Position
|
|
Option
Awards ($)
|
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
|
Change
In Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
|
|
All
Other Compensation ($) (3)
|
|
|
Total
($)
|
|
|
(a)
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
Douglas
J. Kramer
|
|
|
93,738
|
(2) |
|
|
— |
|
|
|
—
|
|
|
|
17,134
|
|
|
|
460,872
|
|
|
CEO
and President
|
|
|
54,608
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,227
|
|
|
|
403,289
|
|
| |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
A. Campbell
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,869
|
|
|
|
112,619
|
|
|
CFO
and Treasurer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,750
|
|
|
(Appointed
February 1, 2006)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
T. Adams
|
|
|
15,623
|
(2) |
|
|
— |
|
|
|
—
|
|
|
|
13,208
|
|
|
|
150,623
|
|
|
CGO,
EVP and Secretary
|
|
|
9,101
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,133
|
|
|
|
148,410
|
|
| |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,471
|
|
|
|
107,471
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C.
David Stearnes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,702
|
|
|
|
49,077
|
|
|
Former
CFO and Treasurer
|
|
|
—
|
|
|
|
—
|
|
|
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—
|
|
|
|
—
|
|
|
|
—
|
|
|
(Resigned
February 1, 2006)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(2)
|
The
amounts shown are the amounts of compensation cost recognized by
us in
fiscal year 2006 related to the grants of stock options in fiscal
year
2005, as prescribed under SFAS 123R. For a discussion of valuation
assumptions, see Note 20 – Share-Based Payment
Arrangements, Equity Incentive Plan, of our Notes to
Consolidated Financial Statements included in our annual report on
Form
10-K for the year ended December 31, 2006. The table below shows
how much
of the overall amount of the compensation cost is attributable to
each
award.
|
|
(3)
|
For
2006, the amounts disclosed in this column consist of perquisites
valued
at an aggregate of $48,913, of which $2,893 was attributed to personal
use
of a Company provided leased vehicle to Mr. Kramer; $9,000 was for
a car
allowance for Mr. Adams; $13,301, $13,869, $4,208, and $4,151 was
for
health and dental insurance for Mr. Kramer, Mr. Campbell, Mr. Adams,
and
Mr. Stearnes, respectively; and $940 was for life insurance coverage
for
Mr. Kramer.
|
|
Named
Executive Officer
|
|
Grant
Date
|
|
Exercise
Price ($)
|
|
|
Number
of Shares of Stock Underlying Options Granted (#)
|
|
|
2006
Fiscal Year Compensation Costs ($)
|
|
|
Douglas
J. Kramer
|
|
7/12/2005
|
|
|
.67
|
|
|
|
2,000,000
|
|
|
|
93,738
|
|
|
Michael
T. Adams
|
|
7/12/2005
|
|
|
.67
|
|
|
|
400,000
|
|
|
|
15,623
|
|
Outstanding
Equity Awards
The
following table sets forth summary information regarding the outstanding equity
awards held by each of our named executive officers at December 31,
2006.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
Option
Awards
|
Name
|
|
Number
of Securities Underlying Unexercised Options (#) (1)
(2)
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying
Unexercised
Unearned Options (#)
|
|
|
Option
Exercise Price ($)
|
|
Option
Expiration Date
|
| |
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
(f)
|
|
Douglas
J. Kramer
|
|
|
60,000
|
|
|
|
420,000
|
|
|
|
1,520,000
|
|
|
|
.67
|
|
7/11/2011
|
|
Michael
T. Adams
|
|
|
10,000
|
|
|
|
70,000
|
|
|
|
320,000
|
|
|
|
.67
|
|
7/11/2011
|
|
(1)
|
Mr.
Kramer and Mr. Adams each have 480,000 and 80,000 vested stock options,
of
which 60,000 and 10,000 are exercisable, respectively.
See Footnote 2
below.
|
|
(2)
|
On
July 12, 2005, we granted Mr. Kramer 2,000,000 options and Mr. Adams
400,000 options, which are subject to certain vesting criteria and
exercisability restrictions as
follows:
|
|
|
(a)
|
Vesting
of these options is subject to the following sales goals (in millions
-
‘M’) and gross profit margin (‘GPM’) performance criteria: For Mr. Kramer,
480,000, 340,000, 340,000, 340,000 and 500,000 options, respectively,
and
Mr. Adams, 80,000 options, will vest for sales goals thresholds of
$12 M,
$18 M, $24 M, $30 M and $40 M, respectively, met by the Company for
a
fiscal year, on a non-repetitive basis (e.g., once a sales goal threshold
has been met during any fiscal year, that same sales goal threshold
is not
eligible to be used again to vest additional options for any other
fiscal
year), with a 25% gross profit
margin.
|
|
|
(b)
|
Exercisability
of vested options is based on a 25% and 75% formula over declining
annual
periods beginning on January 28, 2005 for Mr. Kramer and February
1, 2005
for Mr. Adams, and ending on January 31,
2009.
|
|
|
(c)
|
The
determination of whether or not a particular sales goal threshold
and
gross profit margin, including any adjustments thereto, if any, is
met for
a given year is made by the Compensation Committee based on the
independent annual audited financial statements of the Company, as
approved by the Audit Committee, and ratification and approval of
such
determination by the Board of Directors. The gross profit margin
requirement may be decreased or waived entirely for an acquisition
or
merger or otherwise adjusted as determined by the Compensation
Committee.
|
We
did
not have any outstanding stock awards held by our named executive officers
at
December 31, 2006.
Potential
Payments Upon Termination or Change-in-Control
We
have
entered into long term employment agreements with certain named executive
officers that provide certain benefits in the event of termination due to
dismissal for other than cause, disability and death, or change in
control.
Termination
Under
these agreements, the entitlements are assuming: (a) dismissal for other than
cause, (i) an amount equal to 4 or 6 months annual base salary paid in equal
monthly installments, (ii) the product of (I) any Awards which each can show
that he reasonably would have received had he remained in such executive
capacity with us through the end of the calendar year or 4 or 6 months after
the
date of termination, whichever is greater, in which occurs his date of
termination, multiplied by (II) a fraction, the numerator of which is the number
of days in the calendar year in which the date of termination occurs through
the
date of termination and the denominator of which is 365, but only to the extent
not previously vested, exercised and/or paid, (iii) for 4 or 6 months following
the date of termination, we will continue to provide medical and dental benefits
to the executive only on the same basis as such benefits are provided during
such period to our other senior executive officers; provided, however, that
if
our welfare plans do not permit such coverage, we will provide each of them
the
medical benefits (with the same after tax effect) outside of such plans, and
(iv) to the extent not theretofore paid or provided, we will timely pay or
provide to them any other amounts or benefits which they are entitled to receive
through the date of termination under any plan, including accrued vacation
to
the extent unpaid; or (b) disability or death, (i) an amount equal to 4 or
6
months annual base salary.
“Cause”
is defined as any of the following reasons: (i) executive’s commission of any
act of fraud, embezzlement or dishonesty, (ii) executive’s unauthorized use or
disclosure of any confidential information or trade secrets of the Company,
(iii) any intentional misconduct or violation of the Company’s Code of Business
Ethics and Conduct by executive which has a materially adverse effect upon
the
Company’s business or reputation, (iv) executive’s continued failure to perform
the major duties, functions and responsibilities of executive’s position after
written notice from the Company identifying the deficiencies in executive’s
performance and a reasonable cure period of not less than thirty (30) days
or
(v) a material breach of executive’s fiduciary duties as an officer of the
Company.
Change
in Control
If
we or
any successor terminates these agreements at any time during the respective
employment periods following a Change in Control: each of the named executive
officers (i) will be entitled to an amount equal to the Salary which would
otherwise be payable over the remaining term of each of their agreements in
one
lump sum; and (ii) any outstanding Awards (including substituted shares of
the
acquiring or surviving Company in the case of a merger or acquisition) held
by
them or other benefits under any Company plan or program, which have not vested
in accordance with their terms, will become fully vested and exercisable at
the
time of such termination. We have also provided a transaction bonus equal to
3½
% or 1½ % in the agreements which activate upon consummation of a change in
control.
A
“Change
in Control” is defined as an Ownership Change Event or series of related
Ownership Change Events (collectively, a "Transaction") in which the
stockholders of the Company immediately before the Transaction do not retain
immediately after the Transaction, direct or indirect beneficial ownership
of
more than 50% of the total combined voting power of the outstanding voting
securities of the Company or, in the case of an Ownership Change Event, the
entity to which the assets of the Company were transferred. An
"Ownership Change Event" will be deemed to have occurred if any of the
following occurs with respect to the Company: (i) the direct or indirect
sale or exchange by the stockholders of the Company of all or substantially
all
of the voting stock of the Company; (ii) a merger or consolidation in which
the Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange
or
transfer to one or more subsidiaries of the Company); or (iv) a liquidation
or dissolution of the Company. The sole exception to Change in Control and
Ownership Change Event is any Change in Control that may result from the death
or incapacity of Richard J. Kurtz wherein his interest is transferred to his
heirs only. In such event, no Change in Control or Ownership Change
Event will be deemed to have occurred.
Acceleration
of Benefits Under Certain Other Plans
Our
Equity Incentive Plan also contains provisions for the accelerated vesting
of
benefits to participating named executive officers in the event of a change
in
control (using the same definition of “Change in Control” described above).
Under our Equity Incentive Plan, in the event of a Change in Control, the
surviving, continuing, successor, or purchasing entity or parent thereof,
as the
case may be (the "Acquiror"), may, without the consent of any
participant, either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiror's stock. In the event the Acquiror elects
not to assume or substitute for outstanding Options in connection with a
Change
in Control, the Compensation Committee shall provide that any unexercised
and/or
unvested portions of outstanding Options shall be immediately exercisable
and
vested in full as of the date thirty (30) days prior to the date of the Change
in Control. The exercise and/or vesting of any Option shall be conditioned
upon
the consummation of the Change in Control. Any Options which are not assumed
by
the Acquiror in connection with the Change in Control nor exercised as of
the
time of consummation of the Change in Control shall terminate and cease to
be
outstanding effective as of the time of consummation of the Change in
Control.
In
accordance with the requirements of the SEC, the following table presents our
reasonable estimate of the benefits payable to our named executive officers
(1)
under our employment agreements assuming that dismissal for other than cause,
disability or death, or change in control occurred on December 29, 2006,
the last business day of fiscal year 2006; and (2) under our Equity
Incentive Plan assuming that a change of control occurred on December 29,
2006, the last business day of fiscal year 2006. Excluded from this table are
any values relating to the transaction bonuses under the employment agreements
(as described above) as such values are incalculable based on the highly
speculative nature of this particular benefit. Although we believe we have
made
reasonable estimates regarding the amounts payable, there can be no assurance
that in the event of a dismissal for other than cause, disability or death,
or
change in control, our named executive officers will receive the amounts
reflected below.
|
Name
|
|
Trigger
|
|
Salary
($)
|
|
|
Value
of Option Acceleration ($)
|
|
|
Continuation
of Employee Benefits ($)
|
|
|
Total
Value($)
|
|
|
Douglas
J. Kramer
|
|
Dismissal
Other Than for Cause
|
|
|
116,667 |
(1) |
|
|
— |
(4) |
|
|
8,134 |
(6) |
|
|
124,801
|
|
|
CEO
and President
|
|
Disability
or Death
|
|
|
116,667 |
(2) |
|
|
—
|
|
|
|
6,731 |
(7) |
|
|
123,398
|
|
| |
|
Change
in Control
|
|
|
729,167 |
(3) |
|
|
— |
(5) |
|
|
6,731 |
(7) |
|
|
735,898
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
T. Adams
|
|
Dismissal
Other Than for Cause
|
|
|
66,875 |
(1) |
|
|
— |
(4) |
|
|
7,248 |
(6) |
|
|
74,123
|
|
|
CGO,
EVP and Secretary
|
|
Disability
or Death
|
|
|
66,875 |
(2) |
|
|
—
|
|
|
|
5,144 |
(7) |
|
|
72,019
|
|
| |
|
Change
in Control
|
|
|
278,646 |
(3) |
|
|
— |
(5) |
|
|
5,144 |
(7) |
|
|
283,790
|
|
|
(1)
|
Represents
4 months for Mr. Kramer and 6 months for Mr. Adams of each of their
respective annual base salaries payable in equal monthly installments
by
the Company.
|
|
(2)
|
Represents
4 months for Mr. Kramer and 6 months for Mr. Adams of each of their
respective annual base salaries payable in one lump sum by the
Company.
|
|
(3)
|
Represents
the annual base salaries which would otherwise be payable over the
remaining terms of each of the respective employment agreements payable
in
one lump sum by the Company.
|
|
(4)
|
Represents
4 months for Mr. Kramer and 6 months for Mr. Adams of the aggregate
value
of the acceleration of vesting of each of their respective unvested
stock
options based on the spread between the closing price of our common
stock
on December 29, 2006, or $ .57 and the exercise price of the stock
options, or $ .67. Since the closing price of our common stock was
less
than the exercise price of the stock options, no value existed at
December
29, 2006.
|
|
(5)
|
Represents
the aggregate value of the acceleration of vesting of each of their
respective remaining unvested stock options based on the spread between
the closing price of our common stock on December 29, 2006, or $
.57 and
the exercise price of the stock options, or $ .67. Since the closing
price
of our common stock was less than the exercise price of the stock
options,
no value existed at December 29,
2006.
|
|
(6)
|
Represents
the aggregate value of (a) 4 months, or $1,403, for Mr. Kramer and
6
months, or $2,104, for Mr. Adams, for health and dental insurance,
payable
monthly; and (b) one week for Mr. Kramer, or $6,731 and two weeks
for Mr.
Adams, or $5,144, for unused accrued
vacation.
|
|
(7)
|
Represents
the aggregate value of one week for Mr. Kramer, or $6,731 and two
weeks
for Mr. Adams, or $5,144, for unused accrued
vacation.
|
REPORT
OF THE COMPENSATION
COMMITTEE
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis with management, and based on the review and discussions, the
Compensation Committee recommended to our Board of Directors that the
Compensation Discussion and Analysis be included in our 2006 Annual Report
on
Form 10-K and in this Proxy Statement for the 2007 Annual Meeting of
Stockholders.
|
|
COMPENSATION
COMMITTEE, |
| |
|
|
|
Lt.
Gen. Arthur J. Gregg, US Army (Ret), Chairpeerson |
|
|
Mr.
Jay C. Nadel |
|
|
Mr.
Augustus J. Larson |
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
No
member
of the Compensation Committee is a current or former officer or employee of
us
or any of our former subsidiaries. None of our current executive
officers served on the board of directors or compensation committee of any
entity that has one or more executive officers serving on our board of directors
or on the Compensation Committee.
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
Our
Board
of Directors reviews and discusses with management and our independent
registered public accounting firm any material related party transactions
involving terms that differ from those that would typically be negotiated with
independent parties. In connection with this requirement, related party
transactions (transactions involving our directors and executive officers or
their immediate family members) are disclosed to our board of directors. Other
than provided in this proxy statement, we are not aware of any transactions
between us and any stockholder owning five percent or greater of our outstanding
common stock. In addition, transactions involving our directors are disclosed
and reviewed by our Corporate Governance Committee in its assessment of our
directors’ independence. To the extent such transactions are ongoing business
relationships, the transactions are disclosed. The Board of Directors intends
to
approve only those related party transactions that are in the best interests
of
our stockholders.
(a) On
February 8, 2006, the Company executed a Promissory Note in favor of the
Chairman of the Board for $3,000,000, bearing interest at six percent (6%)
per
annum, with principal to be paid on December 31, 2007 (“Note Payable - Related
Party”). Prior to establishment of the Note Payable – Related Party Note, the
Company owed the Chairman $3,000,000 which was advanced during 2005 for working
capital and previously classified as Loans Payable – Related
Party. The Related Party Note memorialized the cancellation of the
demand nature of the $3,000,000 indebtedness owed by the Company to the Chairman
and established a repayment date and condition of prepayment in the event
the
Company achieves a financing. On September 29, 2006, the Chairman canceled
this
Note Payable – Related Party, along with accrued interest, in exchange for the
issuance of Series D Preferred Stock.
(b)
On March 20, 2006, the Company received a written commitment from the
Chairman of the Board to provide $1,500,000 for working capital to facilitate
growth and expansion of the Company. The funding took the form of a
demand loan bearing six percent (6%) interest per
annum. Notwithstanding the face amount of the written commitment, the
Chairman loaned the Company funds aggregating $1,750,000, net under this
commitment at December 31, 2006, which amount, along with accrued interest,
was
then canceled in exchange for the issuance of Series D Preferred
Stock.
(c)
On September 22, 2006, the Chairman and the Company converted its $3,000,000
unsecured line of credit with Wachovia Bank, N.A. into an unsecured three
year
note payable bearing interest at LIBOR plus 2.25%. The Chairman assumed sole
responsibility for this Note Payable – Other on September 27, 2006.
(d) On
September 27, 2006, the Chairman assumed sole responsibility for the three
year
unsecured Note Payable – Other established with Wachovia Bank, N.A. on September
22, 2006 bearing interest at LIBOR plus 2.25%. On September 29, 2006, the
Chairman canceled this Note Payable – Related Party, along with accrued
interest, in exchange for the issuance of Series D Preferred Stock.
(e) During
2006, an aggregate of 7,976 shares of Series D Preferred Stock, $1.00 par
value, with a stated value of $1,000 per share, accruing dividends at 10%
per
annum in arrears on a quarterly basis, were issued to the Chairman of the
Board
in exchange for the cancellation of indebtedness of $7,976,000, of which:
(i)
3,000 shares were for the cancellation of the $3,000,000 Promissory Note
executed on February 8, 2006 in favor of the Chairman of the Board
(See Item (a) above); (ii) 3,000 shares were for
the
cancellation of the $3,000,000 Note Payable – Other, which was assumed by the
Chairman of the Board (See Item (c) above); (iii)
1,750 shares were for the cancellation of $1,750,000 in short term loans
bearing
interest at 6% per annum, which were advanced to the Company by the Chairman
during 2006 for working capital (See Item (b) above);
(iv) 153 shares were for the cancellation of $153,000 in accrued interest
relating to the financings described in Items (e)(i), (ii) and (iii) up to
the
date of each respective cancellation; and (v) 73 shares were for the
cancellation of $73,000 in accrued dividends payable related to the Company’s
Series D Preferred Stock (See also Item (g)
below).
(f) During
2006, an aggregate of 364,000 shares of restricted common stock were vested
and earned by directors pursuant to the Director Plan, of which: (i) 292,000
shares that were issued to the Chairman of the Board, pursuant to a one time
grant of 1,168,000 shares approved by the shareholders on May 28, 2002, vested.
We did not consider this portion of the shares outstanding due to a vesting
provision and as such no value was ascribed to these shares by the Company
when
issued on May 28, 2002. The value ascribed to these shares on May 28, 2006
was
$183,960; and (ii) 72,000 shares that were automatically granted and issued
to
directors upon election at the shareholders meeting held on June 29, 2005,
vested on the date of the annual stockholders meeting held July 12, 2006.
We did
not consider these shares outstanding when issued due to a vesting provision
and
as such no value was ascribed to these shares at that time. These transactions
were valued and recorded at $49,680.
(g) During
2006, there were $175,262 in dividends accrued on Series D Preferred Stock
held
by the Chairman, of which $73,000 was paid in the form of Series D Preferred
Stock and $102,262 was offset by an overpayment made to Wachovia Bank in
connection with the Chairman’s assumption of the Note Payable – Other described
in Item (d) above.
(e) On
December 28, 2006, we sold 200 shares of Series D Preferred Stock, $1.00
par
value, with a stated value of $1,000 per share, accruing dividends at 10%
per
annum in arrears on a quarterly basis to Howard L. Brown for $200,000 in
cash.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
FEES
Baum
& Company, P.A., our independent registered public accounting firm, audited
our consolidated financial statements for the year ended December 31, 2006
and
2005. The Audit Committee of the Board of Directors selects the independent
registered public accounting firm. A representative of Baum & Company, P.A.
is expected to be present at the 2007 Annual Meeting, will have the opportunity
to make a statement if he or she desires to do so, and will be available to
respond to appropriate questions.
Aggregate
fees billed to us by Baum & Company, P.A. for the fiscal years ended
December 31,
|
Fee
Category
|
|
2006
|
|
|
2005
|
|
|
Audit
Fees (1)
|
|
$ |
90,000
|
|
|
$ |
127,289
|
|
|
Audit-Related
Fees (2)
|
|
|
—
|
|
|
|
24,252
|
|
|
Tax
Fees
|
|
|
—
|
|
|
|
—
|
|
|
All
Other Fees
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$ |
90,000
|
|
|
$ |
151,541
|
|
|
(1)
|
For
2006, represents the aggregate fees billed to us for professional
services
rendered for the audit of our annual consolidated financial statements
and
our internal controls over financial reporting and reviews of our
quarterly consolidated financial statements. For 2005, the amount
includes
additional fees billed for the audit of our former LaPolla Subsidiary
in
2005.
|
|
(2)
|
Represents
the aggregate fees billed to us for assurance and related services
that
are reasonably related to the performance of the audit and review
of our
consolidated financial statements that are not already reported in
Audit
Fees. These services include accounting consultations and attestation
services.
|
Policy
on Audit and Finance Committee Pre-Approval
The
policy of the Audit Committee is to pre-approve all audit and permissible
non-audit services to be performed by the independent registered public
accounting firm during the calendar year. The Audit Committee pre-approves
services by authorizing specific projects within the categories listed in the
table above. The Chairperson the Audit Committee addresses any
requests for pre-approval of services between Audit Committee meetings, and
the
Chairperson must report any pre-approval decisions to the Audit Committee at
its
next scheduled meeting. The policy prohibits retention of the independent
registered public accounting firm to perform the prohibited non-audit functions
defined in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of
the SEC, and also considers whether proposed services are compatible with the
independence of the independent registered public accounting firm. The aggregate
amount of services related to Audit Fees and Audit-Related
Fees provided by Baum & Company, P.A. were pre-approved by the Audit
Committee in accordance with the pre-approval policy described
above. There were no Tax Fees or All Other Fees
pre-approved or approved during the 2006 year.
Our
Audit
Committee issued the following report for inclusion in this proxy statement
in
connection with the 2007 Annual Meeting.
|
|
1.
|
The
Audit Committee has reviewed and discussed the audited consolidated
financial statements for the year ended December 31, 2006 with
management of LaPolla and with LaPolla’s independent registered public
accounting firm, Baum & Company,
P.A.
|
|
|
2.
|
The
Audit Committee has discussed those matters required by Statement
on
Auditing Standards No. 61 with Baum & Company,
P.A.
|
|
|
3.
|
The
Audit Committee has received the written disclosures and the letter
from
the independent registered public accounting firm required by Independence
Standards Board Standard No. 1, and has discussed with the
independent registered public accounting firm the auditor’s independence
from LaPolla and its management.
|
|
|
4.
|
After
the discussions referenced in paragraphs 1 through 3 above, the Audit
Committee recommended to our Board of Directors that the audited
consolidated financial statements for the year ended December 31,
2006 be included or incorporated by reference in the Annual Report
on
Form 10-K for that year for filing with the
SEC.
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AUDIT
COMMITTEE, |
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Mr.
Jay C. Nadel, Chairperson |
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Lt.
Gen. Arthur J. Gregg, US Army (Ret.) |
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Mr.
Augustus J. Larson
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The
Annual Report to Stockholders for the fiscal year ended December 31, 2006 (“2006
Annual Report”) accompanies the proxy materials being mailed to all
stockholders. Those documents are not a part of the proxy solicitation
materials. We will provide, without charge, additional copies of our 2006 Annual
Report on Form 10-K upon the receipt of a written request by any
stockholder.
Set
forth
below is a line graph comparing the yearly percentage change in the cumulative
total stockholder return on our common stock with the cumulative total return
of
the S&P 500 Stock Index and the AMEX Industrial Manufacturing Index for the
period beginning December 31, 2001 and ending December 31, 2006. The graph
assumes that all dividends have been reinvested. We did not declare any
dividends during the past five years.
Notwithstanding
anything to the contrary set forth in any of our previous or future filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of
1934, as amended, that might incorporate all or portions of our filings,
including this proxy statement, with the SEC, in whole or in part, the
Compensation Committee Report and Audit Committee Report contained in this
proxy
statement shall not be deemed to be incorporated by reference into any such
filing or deemed filed with the SEC under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended.
We
are
not aware of any other matters to be submitted for consideration at this
meeting. If any other matters are properly brought before the
meeting, the persons named in the enclosed proxy card will vote the shares
they
represent using their best judgment.
STOCKHOLDER
PROPOSALS TO BE PRESENTED AT NEXT
ANNUAL MEETING
Stockholder
proposals may be included in our proxy materials for an annual meeting so long
as they are provided to us on a timely basis and satisfy the other conditions
set forth in applicable SEC rules. For a stockholder proposal to be included
in
our proxy materials for the annual meeting to be held in 2008, we must receive
the proposal at our principal executive offices, addressed to the Corporate
Secretary, not later than January 26, 2008. In addition, stockholder
business that is not intended for inclusion in our proxy materials may be
brought before the annual meeting so long as we receive notice of the proposal
in compliance with the requirements set forth in our Corporate Governance
Committee charter, addressed to the Corporate Secretary at our principal
executive offices, not later than January 26, 2008.
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By
Order of the Board of Directors
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Michael
T. Adams
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Corporate
Secretary
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Houston,
Texas
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April
__, 2007
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THIS
FIRST AMENDMENT to the Equity Incentive Plan (the “Amendment”) is adopted by
LaPolla Industries, Inc., a Delaware corporation (the “Company), effective as of
January 16, 2007 (the “Effective Date”), subject to ratification and approval by
common stockholders of the Company.
A. The
Equity Incentive Plan (the “Plan”) was adopted by the Board of Directors of the
Company (the “Board”) and four stockholders owning greater than a majority of
the outstanding shares of common stock on July 12, 2005 by action taken by
written consent without a meeting in accordance with Delaware General
Corporation Law (“Delaware Law”) which approval became effective on or about
August 25, 2005 pursuant to the mailing of an Information Statement to all
stockholders.
B. The
Board amended the Plan on January 16, 2007, subject to stockholder ratification
and approval, to: (i) increase the maximum aggregate number of shares of
the Company’s common stock reserved for issuance under the Plan from 3.25
Million shares to 6 Million shares; and (ii) include directors and
consultants as persons eligible for awards under the Plan.
1.
Capitalized
terms used in this Amendment without definition shall have the respective
meanings ascribed thereto in the Plan.
2.
Effective
as of Effective Date, Section 2.1(b) of the Plan is hereby amended and
restated in its entirety to read as follows:
“(b)
"Award Agreement" means a written agreement between the Company and a
full time employee, director or consultant of the Company (a
“Participant”) setting forth the terms, conditions and restrictions of
the Award granted to the Participant. An Award Agreement may be an "Option
Agreement" or a "Stock Bonus Agreement.”
3.
Effective
as of Effective Date, Section 2.1(m) of the Plan is hereby amended and
restated in its entirety to read as follows:
“(m) "Service"
means a Participant's employment with the Company as an Employee, Director
or
Consultant. Unless otherwise determined by the Board, a Participant's Service
shall be deemed to have terminated if the Participant ceases to render service
to the Company. However, a Participant's Service shall not be deemed to have
terminated merely because of a change in the Company for which the Participant
renders such Service in such initial capacity, provided that there is no
interruption or termination of the Participant's Service. Furthermore, a
Participant's Service shall not be deemed to have terminated if the Participant
takes any bona fide leave of absence approved by the Company of ninety (90)
days
or less. In the event of a leave in excess of ninety (90) days, the
Participant's Service shall be deemed to terminate on the ninety-first (91st ) day of
the leave
unless the Participant's right to return to Service is guaranteed by statute
or
contract. Notwithstanding the foregoing, unless otherwise designated by the
Company or required by law, a leave of absence shall not be treated as Service
for purposes of determining vesting under the Participant's Award Agreement.
A
Participant's Service shall be deemed to have terminated either upon an actual
termination of Service. Subject to the foregoing, the Company, in its
discretion, shall determine whether the Participant's Service has terminated
and
the effective date of such termination.”
4. Effective
as of Effective Date, Section 4.1 of the Plan is hereby amended and
restated in its entirety to read as follows:
“4.1 Maximum
Number of Shares
Issuable. Subject to adjustment
as
provided in Section 4.2, the maximum aggregate number of shares of Stock
that may be issued under the Plan shall be 6,000,000, reduced at any time by
the
sum of (a) the number of shares subject to options granted pursuant to the
Predecessor Plan which remain outstanding at such time and (b) the number of
shares issued prior to such time and after the Effective Date of this Plan
upon
the exercise of options granted pursuant to the Predecessor Plan. Such shares
shall consist of authorized but unissued or reacquired shares of Stock or any
combination thereof. If an outstanding Award for any reason expires or is
terminated or canceled without having been exercised or settled in full, or
if
shares of Stock acquired pursuant to an Award subject to forfeiture or
repurchase are forfeited, the shares of Stock allocable to the terminated
portion of such Award or such forfeited or repurchased shares of Stock shall
again be available for issuance under the Plan.”
5. Effective
as of Effective Date, Section 5.1 of the Plan is hereby amended and
restated in its entirety to read as follows:
“5.1 Persons
Eligible for Awards. Awards may be granted to Employees, Directors and
Consultants of the Company.”
6. Effective
as of Effective Date, Section 5.4(b)(i) of the Plan is hereby amended and
restated in its entirety to read as follows:
“(i) Options.
Subject to adjustment as provided in Section 4.2, no employee, director or
consultant shall be granted within any fiscal year of the Company one or more
Options which in the aggregate are for more than two million (2,000,000) shares
of Stock.”
7.
Effective
as of Effective Date, Section 5.4(b)(ii) of the Plan is hereby amended and
restated in its entirety to read as follows:
“(ii) Stock
Bonuses. Subject to adjustment as provided in Section 4.2, no
employee, director or consultant shall be granted within any fiscal year of
the
Company one or more Stock Bonuses, subject to Vesting Conditions based on the
attainment of Performance Goals, for more than one hundred thousand (100,000)
shares of Stock..”
8.
Effective
as of Effective Date, Section 13.2 of the Plan is hereby amended and
restated in its entirety to read as follows:
“13.2 Rights
as Employee, Director or
Consultant. No person,
even though eligible pursuant to Section 5, shall have a right to be
selected as a Participant, or, having been so selected, to be selected again
as
a Participant. Nothing in the Plan or any Award granted under the Plan shall
confer on any Participant a right to remain an employee, director or consultant,
or interfere with or limit in any way any right of the Company to terminate
the
Participant's Service at any time. To the extent that an employee, director
or
consultant of any subsidiary of LaPolla Industries, Inc. receives an Award
under
the Plan, that Award can in no event be understood or interpreted to mean
that
LaPolla Industries, Inc. is the employee's, director’s or consultant’s employer
or that the employee, director or consultant has any relationship with LaPolla
Industries, Inc.”
9. Effective
as of Effective Date, the introductory paragraph of the form of Option Agreement
attached as Exhibit A to the Plan is hereby amended and restated in its
entirety to read as follows:
“THE
BOARD OF DIRECTORS of
LaPolla Industries, Inc. authorized and approved the Equity Incentive Plan
("Plan"). The Plan provides for the grant of Options to employees, directors
and
consultants of LaPolla Industries, Inc. (“Company”). Unless otherwise provided
herein all defined terms shall have the respective meanings ascribed to them
under the Plan.”
10. Effective
as of Effective Date, Paragraph 1 of the form of Option Agreement attached
as
Exhibit A to the Plan is hereby amended and restated in its entirety to
read as follows:
“1. Grant
of
Option. Pursuant to authority granted to it under the Plan, the
Administrator responsible for administering the Plan hereby grants to, as an
employee, director or consultant of the Company (“Optionee”) and as of, ("Grant
Date"), the following Option: . Each Option permits you to purchase one share
of
LaPolla Industries, Inc.’s common stock, $.01 par value per share
(“Shares”).”
11. Except
as
set forth herein, the Plan shall remain in full force and effect. All awards
granted prior to the Effective Date shall be governed by the Plan as in effect
prior to the Effective Date.
I
HEREBY CERTIFY that the foregoing
First Amendment to the Equity Incentive Plan was duly adopted by the Board
of
Directors of the Company on January 16, 2007 and approved by the
stockholders of the Company on
,
2007. Executed this
,
day of
,
2007.
APPENDIX
B
STATE
OF DELAWARE
CERTIFICATE
OF AMENDMENT OF
RESTATED
CERTIFICATE OF INCORPORATION OF
LAPOLLA
INDUSTRIES, INC.
LAPOLLA
INDUSTRIES, INC., a corporation
organized and existing under and by virtue of the General Corporation Law of
the
State of Delaware:
DOES
HEREBY CERTIFY:
FIRST: That
the Board of
Directors of LaPolla Industries, Inc. pursuant to a unanimous resolution duly
adopted a proposed amendment to the Restated Certificate of Incorporation,
as
amended from time to time, of said corporation, declaring said amendment to
be
advisable and for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED,
that the Restated Certificate
of Incorporation of this corporation be amended by changing the Article and
Section thereof numbered "FOURTH", Section "A", so that, as amended, said
Article's Section shall be and read as follows:
"FOURTH: Capital
Stock. A. The total number of shares of stock which the
Corporation shall have the authority to issue is Seventy Two Million
(72,000,000) shares of which Seventy Million (70,000,000) shall be common stock
of the par value of One Cent ($.01) per share (hereinafter called the "Common
Stock") and of which Two Million (2,000,000) shares shall be preferred stock
of
the par value of One Dollar ($1.00) per share (hereinafter called the "Preferred
Stock")."
SECOND: That
thereafter,
pursuant to resolution of its Board of Directors, an annual meeting of the
stockholders of said corporation was duly called and held upon notice in
accordance with Section 222 of the General Corporation Law of the State of
Delaware at which meeting the necessary number of shares as required by statute
were voted in favor of the amendment.
THIRD: That
said amendment
was duly adopted in accordance with the provision of Section 242 of the General
Corporation Law of the State of Delaware.
FOURTH: That
the capital of
said corporation shall not be reduced under or by reason of said
amendments.
IN
WITNESS WHEREOF, said LAPOLLA
INDUSTRIES, INC. has caused this certificate to be signed by an Authorized
Officer, this ___ day of May, 2007.
ADMISSION
TICKET
RETAIN
FOR ADMITTANCE
You
are cordially invited to attend the
2007
ANNUAL MEETING OF STOCKHOLDERS
LAPOLLA
INDUSTRIES, INC.
Tuesday,
May 22, 2007
9:00
AM
(Registration
begins at 8:30 AM)
The
Kamson Corporation
270
Sylvan Avenue
Englewood
Cliffs, New Jersey 07632
If
you plan to attend, please check the box on the proxy
card.
This
card is your admission ticket to the meeting and must be
presented
at the meeting registration area.
q
FOLD AND
DETACH HERE AND READ THE REVERSE SIDE q
PROXY
LAPOLLA
INDUSTRIES, INC.
CONFIDENTIAL
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned, revoking previous proxies, acknowledges receipt of the Notice
of
Annual Meeting of Stockholders and Proxy Statement dated April __, 2007, in
connection with the 2007 Annual Meeting of Stockholders of LaPolla Industries,
Inc. to be held at 9:00 AM on Tuesday, May 22, 2007, at The Kamson Corporation,
270 Sylvan Avenue, Englewood Cliffs, New Jersey 07632, and hereby appoints
DOUGLAS J. KRAMER and MICHAEL T. ADAMS, or either of them, proxy for the
undersigned, with power of substitution, to represent and vote all shares of
the
undersigned upon all matters properly coming before the 2007 Annual Meeting
or
any adjournments thereof. You may vote your shares by Internet, telephone or
by
mail. The proxies will vote on the proposals set forth in the Notice of Annual
Meeting of Stockholders and Proxy Statement as specified on this card (SEE
REVERSE SIDE) and are authorized to vote in their discretion as to any other
business that may come properly before the meeting.
INSTRUCTIONS:
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
(Continued,
and to be marked, dated and signed, on the other side)
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VOTE
BY TELEPHONE OR INTERNET
QUICK ×××
EASY ××× IMMEDIATE
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LAPOLLA
INDUSTRIES, INC.
Voting
by Telephone or Internet is Quick, Easy and
Immediate. As a LaPolla stockholder, you have the
option of voting your shares electronically through the Internet or on the
telephone, eliminating the need to return the proxy card. Your
electronic vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed, dated and returned the proxy card. Votes
submitted electronically over the Internet or by telephone must be received
by
11:59 PM, Eastern Time, on Monday, May 21, 2007.
To
Vote Your Proxy by Internet
www.proxyvote.com
Have
your
proxy card in hand when you access the above website. You will be
prompted to enter your 12-digit Control Number which is located below to
obtain
your records and create an electronic voting instruction form.
To
Vote Your Proxy by Telephone
1-800-690-6903
Use
any
touch-tone telephone to vote your proxy. You will be prompted to
enter your 12-digit Control Number which is located below and then follow
the
simple instructions the Vote Voice provides you.
To
Vote Your Proxy by Mail
Mark,
sign and date your proxy card and return it in the postage-paid envelope
we’ve
provided or return to LaPolla Industries, Inc., c/o Broadridge Financial
Solutions, 51 Mercedes Way, Edgewood, New York 11717.
q
FOLD AND
DETACH HERE AND READ THE REVERSE SIDE q
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Please
mark your votes like this
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x
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PROXY
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(except
as marked)
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o
VOTE WITHHELD
FROM ALL NOMINEES
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1. ELECTION
OF DIRECTORS:
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01 RICHARD
J. KURTZ
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02 LT.
GEN. ARTHUR J. GREGG, US ARMY (RET.)
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03 JAY
C. NADEL
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04 AUGUSTUS
J. LARSON
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05 DOUGLAS
J. KRAMER
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06 MICHAEL
T. ADAMS
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(Instructions:
To withhold authority to vote for any individual nominee, strike a line
through
that nominee’s name in the list above)
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2. RATIFY
AND APPROVE AMENDMENTS TO EQUITY INCENTIVE PLAN:
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o FOR
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o AGAINST
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o ABSTAIN
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3. APPROVE
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION:
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o FOR
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o AGAINST
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o ABSTAIN
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INSTRUCTIONS:
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
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Please
check the box if you wish to have your vote disclosed
to the
Company. The Company’s Confidential Voting Policy is described
in the Proxy Statement accompanying this Proxy.
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o
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Please
check the box if you plan to attend the 2007 Annual
Meeting.
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o
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COMPANY
ID:
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PROXY
NUMBER:
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ACCOUNT
NUMBER:
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NOTE: Please
sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by
authorized person.
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Prior SEC Filings are through the
SEC EDGAR SERVICE.
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