Lumber Liquidators 2009 Annual Report Download - page 58

Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements—(Continued)
(amounts in thousands, except share data and per share amounts)
Overview
The Company has an equity incentive plan for employees, non-employee directors and other service providers, the
Lumber Liquidators Holdings, Inc. 2007 Equity Compensation Plan (the “2007 Plan”), from which it grants stock options
and restricted stock awards. The total number of shares of common stock authorized for issuance under the 2007 Plan is
4.3 million. As of December 31, 2009, 1.6 million shares of common stock were available for future grants. Stock options
granted under the 2007 Plan expire no later than ten years from the date of grant and the exercise price shall not be less than
the fair market value of the shares on the date of grant. Vesting periods are assigned to stock options and restricted stock
awards on a grant by grant basis at the discretion of the Board of Directors. The Company issues new shares of common
stock upon exercise of stock options and vesting of restricted stock awards.
In November 2008, the Company adopted the Lumber Liquidators Holdings, Inc. Outside Directors Deferral Plan (the
“Deferral Plan”) under which each of the Company’s non-employee directors has the opportunity to annually elect to defer
certain fees until his departure from the Board of Directors. A non-employee director may elect to defer up to 100% of his
fees and have such fees invested in deferred stock units. Deferred stock units must be settled in common stock upon the
director’s departure from the Board. There were no deferred stock units outstanding in 2009.
The Variable Plan
The Company was party to a stock-based agreement between the Founder and his brother, a former regional manager,
accounted for as a variable performance plan (the “Variable Plan”) in accordance with FASB ASC 718. The Variable Plan
awarded the Founder’s brother the right to an ownership percentage of common stock (the “Variable Right”), contributed by
the Founder. Until the IPO in November 2007, the Company recorded periodic stock-based compensation expense based on
the best estimate of the ultimate value of the shares of common stock to be transferred from the Founder to his brother, and
due to a certain cash settlement provision, the Company maintained a liability equal to the cumulative stock compensation
expense. In conjunction with the IPO in November 2007, the Variable Right fully vested and became exercisable, and all
cash settlement provisions terminated.
In accordance with the terms of the Variable Plan, the Company calculated that 853,853 shares of common stock had
vested (the “Vested Shares”) and were exercisable under the Variable Right. Cumulative stock-based compensation expense
related to the Variable Plan was determined utilizing the Vested Shares and the $11 per share IPO price to adjust the stock
compensation liability and in the fourth quarter of 2007, the stock compensation liability was reclassified to additional capital
in accordance with FASB ASC 718. The brother filed a demand for arbitration on December 7, 2007 related to the Vested
Shares, and stock-based compensation expense for 2007 included an accrual of $2,960 as the Company’s best estimate of the
ultimate value to be transferred from the Founder to his brother via settlement or arbitration.
The Variable Right was exercised on February 1, 2008. In December 2008, an arbitrator determined that the brother was
entitled only to the Vested Shares, and the Company reversed the accrual of stock-based compensation expense related to the
Variable Plan, which reduced 2008 stock-based compensation expense by $2,960, with an offset to additional capital.
The Regional Manager Plan
The Company maintains a stock unit plan for regional store management, the 2006 Stock Unit Plan for Regional
Managers (the “2006 Regional Plan”). In 2006, certain Regional Managers were granted a total of 85,000 stock units vesting
over approximately a five year period with the Founder contributing the 85,000 shares of common stock necessary to provide
for the exercise of the stock units. No additional grants of stock units are available under the 2006 Regional Plan. The stock
units would have expired without value unless a trigger event, as defined, occurred. The IPO was a trigger event, and the
Company recorded $258 of stock-based compensation expense in the fourth quarter of 2007. Through December 2009,
68,000 stock units had vested and the Founder had transferred the corresponding shares of common stock. Pursuant to the
provisions of the 2006 Regional Plan, the Company purchased 15,270 shares of common stock from the Regional Managers
at the fair market value on the vest dates for a total of $233, to cover applicable federal and state withholding taxes. The
remaining $129 of stock-based compensation expense is expected to be recognized over the next year.
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