Quarterly report pursuant to Section 13 or 15(d)

Stock Based Compensation

v2.4.0.8
Stock Based Compensation
9 Months Ended
Jun. 29, 2014
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]  
Stock Based Compensation

Note 6-Stock Based Compensation

 

On March 26, 2009, the Board of Directors adopted the 2009 Stock Option Plan providing for the issuance of up to 6,000,000 shares to Optex Systems Holdings officers, directors, employees and to independent contractors who provide services to Optex Systems Holdings. In 2011, the Board of Directors amended the 2009 Stock Option Plan to increase the number of issuable shares from 6,000,000 to 50,000,000.

 

Options granted under the 2009 Stock Option Plan vest as determined by the Board of Directors of Optex Systems Holdings or a committee set up to act as a compensation committee of the Board of Directors and terminate after the earliest of the following events: (i) expiration of the option as provided in the option agreement, (ii) 90 days following the date of termination of the employee, or (iii) ten years from the date of grant (five years from the date of grant for incentive options granted to an employee who owns more than 10% of the total combined voting power of all classes of Optex Systems Holdings stock at the date of grant).  In some instances, granted stock options are immediately exercisable into restricted shares of common stock, which vest in accordance with the original terms of the related options. Optex Systems Holdings recognizes compensation expense ratably over the requisite service period.

 

The option price of each share of common stock is determined by the Board of Directors or a committee set up to act as a compensation committee, provided that with respect to incentive stock options, the option price per share will in all cases be equal to or greater than 100% of the fair value of a share of common stock on the date of the grant, except an incentive option granted under the 2009 Stock Option Plan to a shareholder that owns more than 10% of the total combined voting power of all classes of Optex Systems Holdings’ stock, will have an exercise price of not less than 110% of the fair value of a share of common stock on the date of grant. No participant may be granted incentive stock options, which would result in shares with an aggregate fair value of more than $100,000 first becoming exercisable in one calendar year.

 

On December 19, 2013, the Board of Directors of Optex Systems Holdings, Inc. authorized an amendment to its Stock Option Plan to increase the number of issuable shares from 50,000,000 to 75,000,000 and authorized the grant of 20,000,000 options to three board members and a grant of 5,000,000 to an Optex Systems Holdings officer. The options have an exercise price of $0.01 per share with each grant to vest 25% per year over four years for each year with which the grantee is still employed by or serving as a director of Optex Systems Holdings, Inc. (with all unvested options automatically expiring on the date of termination of employment by or service as a director of Optex Systems Holdings, Inc.) and all unvested options immediately vesting upon a change of control due to a merger or acquisition of the Company.

 

Optex Systems Holdings recorded compensation costs for options and shares granted under the plan amounting to for $29 thousand and $76 thousand, for the three and nine months ended June 29, 2014, and $33 thousand and $119 thousand for the three and nine months ended June 30, 2013, respectively. A deduction is not allowed for income tax purposes until nonqualified options are exercised. The amount of this deduction will be the difference between the fair value of Optex Systems Holdings’ common stock and the exercise price at the date of exercise. For the nine months ended June 29, 2014 and June 30, 2013, the estimated deferred tax assets related to option compensation costs were $26 thousand and $40 thousand, respectively. These tax effects have been included in the financial statements.  No tax deduction is allowed for incentive stock options. Accordingly no deferred tax asset is recorded for GAAP expense related to these options.

 

Optex Systems Holdings records its stock based compensation expense in accordance with ASC 718-10, “Compensation – Stock Compensation”. In estimating the value of stock options issued, management has valued the options at their date of grant utilizing the Black-Scholes-Merton option pricing model.  For options issued on December 19, 2013, the fair value of the underlying shares was determined based on the closing price of Optex Systems Holdings’ publicly-traded shares as of December 19, 2013.  Further, Optex Systems Holdings used an expected volatility of 354.4% which was calculated using the historical Optex Systems Holdings stock prices over the prior 36 month trading period. Estimation of these equity instruments’ fair value is affected by our stock price, as well as assumptions regarding subjective and complex variables such as employee exercise behavior and our expected stock price volatility over the term of the award. As our assumptions are based on historical information, judgment is required to determine if historical trends are fair indicators of future outcomes.

 

The risk-free interest rates used of 1.1% to 2.3% were determined based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options of 4.5 to 7 years depending on the date of the grant and expected life of the options.  The expected life of options used was based on the contractual life of the option grant.  Optex Systems Holdings determined the expected dividend rate based on the assumption and expectation that earnings generated from operations are not expected to be adequate to allow for the payment of dividends in the near future and the assumption that Optex Systems Holdings does not presently have any intention of paying cash dividends on its common stock.

 

Optex Systems Holdings has granted stock options to officers and employees as follows:

  

Date of   Shares     Exercise     Shares Outstanding     Expiration     Vesting  
Grant   Granted     Price     As of 6/29/14     Date     Date  
                                         
03/30/09     480,981     $ 0.15        480,981       03/29/2016       03/30/2010  
03/30/09     466,834     $ 0.15        466,834       03/29/2016       03/30/2011  
03/30/09     466,834     $ 0.15        466,834       03/29/2016       03/30/2012  
05/14/09     316,750     $ 0.15        269,500       05/13/2016       05/14/2010  
05/14/09     316,750     $ 0.15        269,500       05/13/2016       05/14/2011  
05/14/09     316,750     $ 0.15        269,500       05/13/2016       05/14/2012  
05/14/09     316,750     $ 0.15        269,500       05/13/2016       05/14/2013  
12/09/11     11,517,500     $ 0.01        8,855,000       12/08/2018       12/08/2012  
12/09/11     11,517,500     $ 0.01        8,855,000       12/08/2018       12/08/2013  
12/09/11     11,517,500     $ 0.01        8,855,000       12/08/2018       12/08/2014  
12/09/11     11,517,500     $ 0.01        8,855,000       12/08/2018       12/08/2015  
12/19/13     6,250,000     $ 0.01        6,250,000       12/18/2020       12/08/2014  
12/19/13     6,250,000     $ 0.01        6,250,000       12/18/2020       12/08/2015  
12/19/13     6,250,000     $ 0.01        6,250,000       12/18/2020       12/08/2016  
12/19/13     6,250,000     $ 0.01        6,250,000       12/18/2020       12/08/2017  
Total     73,751,649               62,912,649                  

 

The following table summarizes the status of Optex Systems Holdings’ aggregate stock options granted under the incentive stock option plan:

 

    Number     Weighted              
    of Shares     Average     Weighted     Aggregate  
    Remaining     Fair     Average     Value  
Subject to Exercise   Options     Value     Life (Years)     (Thousands)  
Outstanding as of September 30, 2012     48,477,649     $       4.56        
Granted – 2013         $              
Forfeited – 2013     (230,000 )   $              
Exercised – 2013         $              
Outstanding as of September 29, 2013     48,247,649     $       3.56        
Granted – 2014     25,000,000     $ 0.01       5.22     $ 200  
Forfeited – 2014     (5,335,000 )   $              
Exercised – 2014     (5,000,000 )   $ 0.01              
Outstanding as of June 29, 2014     62,912,649               3.66     $  
                                 
Exercisable as of September 29, 2013     17,700,149     $       2.75     $  
                                 
Exercisable as of June 29, 2014     20,322,649     $       2.00     $  

 

There were zero and 25,000,000 options granted in the three and nine months ended June 29, 2014, respectively.

 

The following table summarizes the status of Optex Systems Holdings’ aggregate non-vested shares granted under the 2009 Stock Option Plan:

 

    Number of 
Non-vested 
Shares 
Subject to 
Options
    Weighted-
Average 
Grant- 
Date 
Fair Value
 
Non-vested as of September 30, 2012     46,235,750     $ 0.01  
Non-vested granted — year ended September 29, 2013         $  
Vested — year ended September 29, 2013     (15,458,250 )   $ 0.01  
Forfeited — year ended September 29, 2013     (230,000 )   $ 0.01  
Non-vested as of September 29, 2013     30,547,500     $ 0.01  
Non-vested granted — nine months ended June 29, 2014     25,000,000     $ 0.01  
Vested — nine months ended June 29, 2014     (7,622,500 )   $ 0.01  
Forfeited — nine months ended June 29, 2014     (5,335,000 )   $  
Non-vested as of June 29, 2014     42,590,000     $ 0.01  

 

As of June 29, 2014, the unrecognized compensation cost for non-vested share based compensation arrangements granted under the plan was approximately $269 thousand.  These costs are expected to be recognized on a straight line basis through December 18, 2017.

 

Warrant Agreements: Optex Systems Holdings calculates the fair value of warrants issued with debt or preferred stock using the Black-Scholes-Merton valuation method. The total proceeds received in the sale of debt or preferred stock and related warrants are allocated among these financial instruments based on their relative fair values. The discount arising from assigning a portion of the total proceeds to the warrants issued is recognized as interest expense for debt from the date of issuance to the earlier of the maturity date of the debt or the conversion dates using the effective yield method.

 

As of June 29, 2014, Optex Systems Holdings had the following warrants outstanding:

 

    Grant Date   Warrants 
Granted
    Exercise 
Price
    Outstanding 
as of 
12/29/13
    Expiration 
Date
  Term  
Avidbank- Line of Credit   3/4/2010     1,000,000     $ 0.100       1,000,000     3/3/2016     6 years  
Total Warrants         1,000,000               1,000,000              

 

During the three and nine months ended June 29, 2014 and the three and nine months ended June 30, 2013, Optex Systems Holdings recorded zero interest expense related to the outstanding warrants. Interest expense related to outstanding warrants was fully amortized as of September 29, 2013. On March 29, 2014, 3,447,000 warrants related to the 3/30/2009 private placement expired unexercised.