9. Stock Compensation Plan

The Company originally adopted the Oragenics, Inc. 2002 Stock Option and Incentive Plan (the “Stock Incentive Plan”) on September 17, 2002. The Stock Incentive Plan was amended to increase the available shares in May 2004, May 2006, April 2008, October 2009, and on August 29, 2011. On October 23, 2012, the Stock Incentive plan was amended and restated as our 2012 Equity Incentive Plan (the “2012 Incentive Plan”). The 2012 Incentive Plan, as amended and restated has authorized 4,000,000 shares for issuance. To date, 1,627,462 shares have been issued under the 2012 Incentive Plan. As a result of such issuances as of December 31, 2013 there is currently an aggregate of 2,772,538 shares available for issuance under the 2012 Incentive Plan, of which 633,840 shares are covered by outstanding option awards and 1,738,698 shares are available for future awards under the 2012 Incentive Plan.

The purpose of the 2012 Incentive Plan is to advance the interests of the Company by affording certain employees and directors of the Company and key consultants and advisors an opportunity to acquire or increase their proprietary interests in the Company. The 2012 Incentive Plan authorizes the grant of stock options (incentive and non-statutory), stock appreciation rights and restricted stock. Options are granted at the fair market value of the Company’s stock on the date of grant. Options generally vest over a period of two to three years from their respective grant dates and expire 10 years from the date of grant. As of December 31, 2013 and 2012, the Company had not awarded any stock appreciation rights under the 2012 Incentive Plan.

Recipients of stock awards under our 2012 Incentive Plan become the owner of record of the stock immediately upon grant, which may be subject to certain restrictions. The balance of unvested restricted stock will be forfeited and automatically transferred back to us at no cost upon the termination of the recipient’s employment. Upon vesting of restricted stock or in connection with our LTIP awards which vest immediately, the recipient has the option to settle minimum withholding taxes by electing to have us withhold otherwise deliverable shares having a fair market value equal to the required tax obligations (“net-settlement”). The net-settlement shares are then immediately cancelled and retired and reduce the shares available for issuance under the Company’s 2012 Incentive Plan. The number of shares withheld to cover tax payments was 197,923 in fiscal 2013 and 92,494 in fiscal 2012; tax payments made were $631,743 and $224,324, respectively.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant. The assumptions employed in the calculation of the fair value of share-based compensation expense were calculated as follows for all years presented:

 

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Expected dividend yield — based on the Company’s historical dividend yield.

 

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Expected volatility — based on the Company’s historical market price at consistent points in a period equal to the expected life of the options.

 

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Risk-free interest rate — based on the US Treasury yield curve in effect at the time of grant.

 

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Expected life of options — based on the Company’s historical life of options exercised, giving consideration to the contractual

 

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terms of the grants, vesting schedules and expectations of future employee behavior.

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the Years Ended December 31, 2013 and 2012:

 

		2013		2012
Expected dividend yield		0%		0%
Weighted-average expected volatility		159% - 166%		161%
Weighted-average risk-free interest rate		1.86% - 2.80%		1.96%
Expected life of options		10 years		2-10 years

Total compensation cost related to stock options was $191,202 and $229,502 for the years ended December 31, 2013 and 2012, respectively. As of December 31, 2013, there was $180,844 of unrecognized compensation costs related to stock options, which is expected to be recognized over a weighted average period of 6.1 years.

The following table represents stock option activity as of and for the two years ended December 31, 2013:

 

		Number of Options				Option Price Per Share				Weighted Average Exercise Price
Outstanding at December 31, 2011			725,173			$	1.50 -17.00			$	4.85
Forfeited			(164,750	)			1.50 -14.00				3.42
Granted			100,000				1.20				1.20
Exercised			—				—				—
Outstanding at December 31, 2012			660,423			$	1.20 -17.00			$	4.70
Forfeited			(56,050	)			1.20 - 5.40				2.19
Granted			61,000				2.75 - 3.55				3.13
Exercised			(31,533	)			1.20 - 1.50				1.26
Outstanding at December 31, 2013			633,840			$	1.20 -17.00			$	4.88
Exercisable at December 31, 2013			497,157			$	1.20 -17.00			$	5.47

The total grant date fair value of options vested during the Years Ended December 31, 2013 and 2012 was approximately $166,512 and $547,562, respectively.

Long-Term Performance-Based Incentive Program-Executives

On November 14, 2011, the Compensation Committee of our Board of Directors as well as our Board of Directors approved a long-term performance-based incentive program (the “Executive LTIP Program”) to be administered under the Company’s Stock Incentive Plan. The Executive LTIP Program is an incentive program designed to motivate the participants, including the Company’s CEO to achieve the Company’s financial and other performance objectives and to reward them if, and when, those objectives are met. The Company believed it was in the best interest of the Company to: (i) develop a culture of achievement and performance; (ii) align the incentive structure to the long term goals of the Company; (iii) promote retention; (iv) promote achievement of targeted results; (v) use equity proactively and as an appropriate incentive; and (vi) employ variable compensation based upon performance goals.

The Executive LTIP Program provides for the award of shares of common stock as a bonus to designated executive officers and employees of the Company. The shares will be issued to participants during the term of the Executive LTIP Program, subject to the satisfaction of applicable performance goals (as described below). Participants are eligible to receive a bonus payable in shares of common stock if they continue to be employed by the Company through the first to occur of either of the following: (i) the Company’s achievement, on or before December 31, 2013 (the “Termination Date”), of the various “Performance Goals” set forth below, or (ii) the effective date of a “Change in Control” of the Company that occurs at any time following the date of this Agreement and on or before the Termination Date.

The performance periods for the Executive LTIP Program run from January 1, 2012 through December 31, 2013. Future Awards will be credited to participants, up to target levels, to the extent that the performance goals are satisfied, as determined by the Compensation Committee. Upon the occurrence of a “Performance Vesting Date” with respect to a “Performance Goal,” a participant will be entitled to receive a number of shares of Common Stock determined by multiplying (1) the award percentage (each, an “Award Percentage”) corresponding to that particular Performance Goal as set forth in their award agreement by (2) the total number of outstanding shares of Common Stock, determined on a non-fully diluted basis, as of that particular applicable Performance Vesting Date. For purposes of an award, the “Performance Vesting Date” with respect to a Performance Goal shall be the day on which the Compensation Committee of the Company’s Board of Directors certifies and determines, in its reasonable discretion, that the applicable Performance Goal has been achieved. Participants are required to remain employees of the Company through the date on which the Compensation Committee makes a final determination under the Executive LTIP Program with respect to the satisfaction of the performance goals during the performance period.

The Executive LTIP Program provides for awards upon the Company achieving any of the following performance goals: (i) achievement of Company fiscal year sales equal or greater than $10,000,000; (ii) achievement of Company fiscal year sales equal or greater than $20,000,000; (iii) achievement by the Company of cash flow positive in any fiscal quarter; (iv) achievement by the Company of earnings per share in any fiscal year equal or greater than $0.02 per share of Company stock; (v) Achievement of price per share of Company stock equal to $10.00; (vi) Achievement of price per share of Company stock equal to $20.00; (vii) licensing of any science technology which results in upfront cash receipt of $2M; or (viii) capital raise by the Company of $5,000,000 in both fiscal years or a $10,000,000 in a single raise.

 

Long-Term Performance-Based Incentive Program- Non-Employee Directors

Simultaneously with the approval of the Executive LTIP Program, the Compensation Committee also approved a change in the Company’s director compensation program to add a similar long-term performance based incentive compensation component for the non-employee directors (the “Non-Employee Director LTIP Program”). These changes were considered by the Compensation Committee to be in the best interest of the Company and necessary to attract and retain highly qualified directors to serve on the Company’s board. The full board also ratified and approved the changes to the director compensation program. The Non-Employee Director LTIP Program is comparable in all respects to the Executive LTIP Program for the designated executive officers and employee participants, including the performance goals.

Retention Awards.

Upon the initial adoption of the Executive LTIP Program and similar component to the Non-Employee Director LTIP Program included immediate retention awards to be made to the designated participants and non-employee directors, which were payable in shares of common stock of the Company, as a retention award (the “Retention Awards”). The Company issued an aggregate of 93,600 shares as Retention Awards in 2011 under the Stock Incentive Plan.

Amendments to Long-Term Incentive Programs

On February 11, 2013 the Compensation Committee of our Board of Directors as well as our Board of Directors approved an amendment to both the Executive LTIP Program and Non-Employee Director LTIP Program administered under the Company’s 2012 Incentive Plan. The amendments consist of (i) an extension of the termination date in the individual award agreements from December 31, 2013 to December 31, 2014; and (ii) the addition of four new performance goals. The specific additional performance goals added for the participating executive officers and non-employee directors were as follows: (i) successful filing and acceptance by the FDA of an IND on first lantibiotic candidate; (ii) first dose of a lantibiotic administered to a patient under a Company sponsored clinical study; (iii) capital raise by the Company of $12,000,000 or more in a single year; and (iv) broaden Intrexon relationship to include new area outside of lantibiotics as evidenced by a Board approved amended or new collaboration agreement that includes a new therapeutic area.