10. 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 most recently, on August 29, 2011. Under the terms of the Stock Incentive Plan, as amended, the Company is authorized to issue options to purchase up to 1,125,000 shares of the Company's common 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, 2011, the Company had 273,228 shares available for future stock option grants under the Stock Incentive Plan.

The purpose of the Stock 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 Stock Incentive Plan authorizes the grant of stock options (incentive and non-statutory), stock appreciation rights and restricted stock. As of December 31, 2011 and 2010, the Company had not awarded any stock appreciation rights under the Stock Incentive Plan. As of December 31, 2010 the Company had not awarded any restricted stock under the Stock Incentive Plan.

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

Oragenics, Inc.

Notes to Financial Statements (continued)

December 31, 2011 and 2010

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2011 and 2010:

 

		2011				2010
Expected dividend yield			0%				0%
Weighted-average expected volatility			145%-146%				146%
Weighted-average risk-free interest rate			2.03%-2.48%				3.15%
Expected life of options			10 years				10 years

Total compensation cost related to stock options was $1,140,324 and $667,222 for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011, there was $758,978 of unrecognized compensation costs related to stock options , which is expected to be recognized over a weighted average period of 8.16 years.

The following table represents stock option activity as of and for the two years ended December 31, 2011:

 

								Weighted
						Option		Average
		Number of				Price Per		Exercise
		Options				Share		Price
Outstanding at December 31, 2009			385,967			$5.40 -17.00		$	17.00
Forfeited			(44,262	)		5.40 -14.00			6.77
Granted			41,132			4.00 -14.00			9.23
Exercised			(3,000	)		8.00			8.00
Outstanding at December 31, 2010			379,837			$5.40 -17.00		$	7.86
Forfeited			(151,164	)		5.40 -14.80			6.50
Granted			496,500			1.50 -5.00			3.50
Exercised			—
Outstanding at December 31, 2011			725,173			$1.50 – 17.00		$	4.85
Exercisable at December 31, 2011			323,537			$4.00 – 17.00		$	6.76

The total grant date fair value of options vested during the years ended December 31, 2011 and 2010 was approximately $1,085,445 and $305,650, respectively.

Restricted Stock Awards

On March 11, 2011, our Board of Directors and Compensation Committee awarded 10,000 shares of restricted common stock to each of Mr. Brian Bohunicky, our former Chief Financial Officer and to Mr. Robert Koski, our director at a grant date fair value of $3.60 per share. The restricted stock awards were pursuant to the Company's Stock Incentive Plan. Half of the awarded shares vest in six (6) months and the other half on the anniversary date of the award. The Company recorded compensation expense of $65,341 for the year ended December 31, 2011. Compensation expense related to restricted stock awards is a non-cash expense and is included in selling, general and administrative expenses in the accompanying statement of operations. At December 31, 2011, 10,000 shares of restricted common stock are non-vested. At December 31, 2011, there was $6,659 of total unrecognized compensation expense related to non-vested restricted common stock that is expected to be recognized over a period of three months.

Long-Term Performance -Based Incentive Program

Executive LTPB Program

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 LTPB Program") to be administered under the Company's Stock Incentive Plan. The Executive LTPB 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 LTPB 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 LTPB 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 LTPB 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 LTPB Program with respect to the satisfaction of the performance goals during the performance period.

The Executive LTPB 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.

Non-Employee Director Compensation Program

Simultaneously with the approval of the Executive LTPB 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. 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 long term incentive plan is comparable in all respects to the Executive LTPB Program for the designated executive officers and employee participants, including the Performance Goals.

Retention Awards.

The Executive LTPB Program and similar component to the Non-Employee Director Compensation 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 under the Stock Incentive Plan.