STOCKHOLDERS' EQUITY

Preferred Stock

The Company is authorized to issue up to 15,000,000 shares of preferred stock at $1.00 par value. At December 31, 2015, no shares of preferred stock have been issued; however, 2,000,000 shares of Series A Junior Participating Preferred Stock have been reserved for issuance in connection with the Company’s Shareholder Rights Plan. Additional series of preferred stock may be designated and the related rights and preferences fixed by action of the Board of Directors.

Shareholder Rights Plan

In May 2008, the Board of Directors approved a shareholder rights plan and declared a dividend of one preferred share purchase right for each outstanding share of common stock. Each right represents the right to purchase one-hundredth of a share of Preferred Stock, at an exercise price of $100, subject to adjustment. The rights are only exercisable ten days after a person or group acquires, or commences a tender or exchange offer to acquire, beneficial ownership of 15% or more of the Company’s outstanding common stock.

Subject to the terms of the shareholder rights plan and the discretion of the Board of Directors, each right would entitle the holder to purchase a number of additional shares of common stock of LP having a total market value of twice the exercise price of each right. The rights expire in June 2018, but can be redeemed by action of the Board of Directors prior to that time at $0.01 per right.

Warrants

During 2009, LP issued warrants to purchase 18,395,963 shares of LP common stock at an exercise price of $1.39 per share subject to mandatory cashless exercise provisions. During the years ended December 31, 2015 and December 31, 2014, warrant exercises resulted in the issuances of 134,906 and 799,488 shares. At December 31, 2015, the remaining outstanding warrants were exercisable to purchase approximately 411,579 shares. The warrants (at date of grant) were valued based upon Black-Scholes option pricing model using expected stock price volatility of 53%; no expected dividends; risk-free interest rate of 2.6%; and an expected life of 8 years, which resulted in a fair value per share of $0.72.

Common Stock Plan

LP has a stock-based compensation plan under which stock option, SSARs, incentive shares, restricted stock and performance shares awards are granted. At December 31, 2015, 4.2 million shares were available under the current plan for these awards. In 2015, 2014 and 2013, LP recognized compensation expense related to these awards of $9.3 million, $9.4 million and $8.8 million. LP received cash from stock option exercises of $0.7 million for the year ended December 31, 2015. LP paid $6.1 million, $1.5 million and $12.1 million associated with taxes related to the net share settlement of equity awards for the years ended December 31, 2015, 2014 and 2013.

LP recognizes these compensation costs, net of an estimated forfeiture rate and recognizes the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three years. LP estimated the forfeiture rate for 2015, 2014 and 2013 based on its historical experience during the preceding three years.

Stock Settled Stock Appreciation Rights

LP grants SSARs to key employees. On exercise, LP generally issues these shares from treasury. The SSARs are granted at market price at the date of grant. SSARs become exercisable over three years and expire ten years after the date of grant. Prior to 2013, LP granted stock options to its Board of Directors. These options vested over a three year period. As of December 31, 2015, there were 0.2 million options outstanding. The following table sets out the weighted average assumptions used to estimate the fair value of the SSARs granted using the Black-Scholes option-pricing model:



	2015			2014			2013
Expected stock price volatility	54		%	57		%	69		%
Expected dividend yield	—		%	—		%	—		%
Risk-free interest rate	1.5		%	1.5		%	0.9		%
Expected life of options (in years)	6.0 years			5.0 years			5.0 years
Weighted average fair value of options and SSARs granted	$	8.80		$	9.03		$	11.68

Expected Stock Price Volatility: The fair values of stock-based payments were valued using the Black-Scholes valuation method with a volatility factor based on LP’s historical stock prices.

Expected Dividend Yield: The Black-Scholes valuation model calls for a single expected dividend yield as an input. This is determined based upon current annual dividend as of the date of grant compared to the grant price.

Risk-Free Interest Rate: LP bases the risk-free interest rate used in the Black-Scholes valuation method on U.S. Treasury issues with an equivalent term. Where the expected term of LP’s stock-based awards do not correspond with the terms for which interest rates are quoted, LP performed a straight-line interpolation to determine the rate from the available maturities.

Expected Life of SSARS: Expected life represents the period that LP’s stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

Estimated Pre-vesting Forfeitures: When estimating forfeitures, LP considers voluntary termination behavior as well as workforce reduction programs.

The following table summarizes stock options and SSARs outstanding as of December 31, 2015 as well as activity during the three year period then ended.



Share amounts in thousands	Options/ SSARs		Weighted Average Exercise Price		Weighted Average Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Options / SSARS outstanding at January 1, 2013	8,475		$	12.88
Options granted	343		$	20.49
Options / SSARS exercised	(1,861	)	$	9.06
Options / SSARS canceled	(20	)	$	22.23
Options / SSARS outstanding at December 31, 2013	6,937		$	14.26
Options granted	494		$	18.09
Options / SSARS exercised	(43	)	$	9.92
Options / SSARS canceled	(384	)	$	21.14
Options / SSARS outstanding at December 31, 2014	7,004		$	14.19
Options granted	378		$	17.04
Options / SSARS exercised	(1,334	)	$	10.76
Options / SSARS canceled	(309	)	$	25.83
Options / SSARS outstanding at December 31, 2015	5,739		$	14.54	4.2	$	29.8
Vested and expected to vest at December 31, 2015⁽¹⁾	5,714		$	14.54	4.2	$	29.8
Options / SSARS exercisable at December 31, 2015	4,987		$	14.04	3.6	$	29.5

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⁽¹⁾	Options or SSARS expected to vest based upon historical forfeiture rate

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between LP’s closing stock price on the last trading day of 2015 and the exercise price, multiplied by the number of in-the-money options and SSARs) that would have been received by the holders had all holders exercised their awards on December 31, 2015. This amount changes based on the market value of LP’s stock as reported by the New York Stock Exchange.

As of December 31, 2015, there was $3.7 million of total unrecognized compensation costs related to stock options and SSARs. These costs are expected to be recognized over a weighted-average period of 1.27 years. LP recognized $3.6 million, $3.8 million and 3.4 million in compensation expense associated with these awards for the years ended December 31, 2015, 2014 and 2013.

Incentive Share Awards

LP has granted incentive share stock awards (restricted stock units) to certain key employees and directors. The awards entitle the participant to receive a specified number of shares of LP common stock at no cost to the participant. Awards granted under this plan vest three years from the date of grant. The market value of these grants approximates the fair value. LP recorded compensation expense related to these awards in 2015, 2014 and 2013 of $3.5 million, $3.0 million and $2.7 million. As of December 31, 2015, there was $4.2 million of total unrecognized compensation cost related to unvested incentive share awards. This expense will be recognized over a weighted-average period of 1.2 years.

The following table summarizes incentive share awards outstanding as of December 31, 2015 as well as activity during the three-year period then ended.



	Shares		Weighted Average Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Incentive share awards outstanding at January 1, 2013	960,388
Incentive shares awards granted	166,474
Incentive share awards vested	(350,107	)
Incentive share awards canceled	(24,160	)
Incentive share awards outstanding at December 31, 2013	752,595
Incentive shares awards granted	123,982
Incentive share awards vested	(253,834	)
Incentive share awards canceled	(29,130	)
Incentive share awards outstanding at December 31, 2014	593,613
Incentive shares awards granted	252,629
Incentive share awards vested	(285,495	)
Incentive share awards canceled	(24,765	)
Incentive share awards outstanding at December 31, 2015	535,982		1.3	$	9.7
Vested and expected to vest at December 31, 2015⁽¹⁾	503,552		1.3	$	9.1
Incentive share awards exercisable at December 31, 2015	—		—	—

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⁽¹⁾	Incentive shares expected to vest based upon historical forfeitures rate

Restricted Stock

LP grants restricted stock to certain senior executive employees. The shares vest three years from the date of grant. During the vesting period, the participants have voting rights and receive dividends, but the shares may not be sold, assigned, transferred, pledged or otherwise encumbered. Additionally, granted but unvested shares are forfeited upon termination of employment. The fair value of the restricted shares on the date of the grant is amortized ratably over the vesting period which is generally three years. As of December 31, 2015, there was $1.7 million of total unrecognized compensation costs related to restricted stock. This expense will be recognized over the next 1.2 years.

The following table summarizes restricted stock awards outstanding as of December 31, 2015 as well as activity during the three year period then ended.



	Number of Shares		Weighted Average Grant Date Fair Value
Restricted stock awards outstanding at January 1, 2013	625,049		$	8.46
Restricted stock awards granted	108,174		20.49
Restrictions lapsing	(221,138	)	7.37
Restricted stock awards canceled	—		—
Restricted stock awards at December 31, 2013	512,085		11.48
Restricted stock awards granted	122,649		17.93
Restrictions lapsing	(170,567	)	9.54
Restricted stock awards canceled	(11,021	)	12.35
Restricted stock awards at December 31, 2014	453,146		13.93
Restricted stock awards granted	69,744		17.04
Restrictions lapsing	(225,645	)	8.71
Restricted stock awards canceled	(14,544	)	19.29
Restricted stock awards at December 31, 2015	282,701		$	18.59

LP recorded compensation expense related to these awards in 2015, 2014 and 2013 of $1.7 million, $2.1 million, and $2.1 million.

Performance Share Awards

In connection with Mr. Stevens' appointment to Chief Executive Officer on May 4, 2012, he was awarded 300,000 performance shares. This award was granted pursuant to the terms of LP's 1997 Incentive Stock Award Plan. If pre-determined market-based performance goals are met, shares of LP's stock will be issued to Mr. Stevens based upon a pre-determined vesting schedule based upon the required service periods. The fair market value of this award was determined based on the fair value as of the date of grant times the number of shares adjusted for the weighted probability of the attainment of certain performance goals. LP recorded compensation expense related to these awards of $0.4 million in 2015. As of December 31, 2015, the performance target for 200,000 performance shares was met. As of December 31, 2015, there was $0.1 million of total unrecognized compensation expense related to this award. This expense will be recognized over the next 0.4 years.

In 2015, LP awarded performance shares to certain senior key employees. These performance shares are earned based upon LP attaining specified revenue growth rates associated with its SmartSide products as compared to the prior year and LP's overall revenue growth as compared to a predetermined peer group, in each case for 2015. The performance period is measured over 2015 with a subsequent two year vesting period. The Company issued 78,182 restricted stock units during 2015 with an aggregate value of $1.7 million. As of December 31, 2015, the Company deemed it improbable that the specified performance metrics would be achieved sufficient to earn any portion of the performance-based restricted stock units. As a result, $0.5 million of previously recorded stock-based compensation expense related to these performance-based restricted stock units was reversed.

Phantom Stock

During 2011 and 2012, LP made annual grants of phantom stock units to its directors. Subsequent to the approval of the 2013 Omnibus Plan in May 2013, phantom stock units are no longer granted to directors. The awards are considered liability awards. The director does not receive rights of a shareholder, nor is any stock transferred. The units will be paid in cash at the end of the five-year vesting period. The value of one unit is based on the market value of one share of common stock on the vesting date. The cost of the grants is recognized over the vesting period and is included in stock-based compensation expense. As of December 31, 2015, phantom stock units covering 66,339 shares were outstanding under this program. Based upon the closing stock price at December 31, 2015, these shares equate to a cash payment of $1.2 million.