Note 5 - Commitments and Contingencies

Leases

Optex Systems Holdings leases its office and manufacturing facilities for Optex Systems, Inc, in located at 1420 Presidential Drive, Richardson, Texas under a non-cancellable operating lease expiring March 31, 2021, in addition to maintaining several non-cancellable operating leases for office and manufacturing equipment.

The terms of the office and manufacturing facilities lease are as follows:

The current monthly base lease for the Richardson facility is $21.2 thousand per month plus an additional $7.2 thousand per month for common area maintenance charges “CAM” which are adjusted annually, for a total monthly rental expense $28.4 thousand.

On November 3, 2014, in conjunction with the acquisition of AOC, Optex Systems assumed the obligations of L-3 pursuant to an “Assignment to Lease and Consent of Landlord Agreement” (the “Agreement”), dated as of October 30, 2014, between L-3, as tenant, Optex Systems, as assignee, and CABOT II TX1W04, LP, as landlord, with respect to certain Leases dated as of August 27, 1996 covering Premises located at 9839 and 9827 Chartwell Drive, respectively, Dallas, Texas (the “Premises”), as amended by First Amendments dated May 14, 2001, Second Amendments dated January 9, 2004, Third Amendments dated February 21, 2005 and the Fourth Amendment dated March 13, 2009 (such Leases as so amended being referred to as the “Lease”).

The leased facility under the Applied Optics lease assumption consists of approximately 56,633 square feet of space at the premises, with a monthly rent expense of $30.4 thousand which includes a fixed base monthly lease of approximately $23.8 thousand plus an additional $6.6 thousand per month for annually adjusted CAM charges. The term of the lease expires September 30, 2016, and there are four renewal options available to the tenant, each with a renewal term duration of five years. Approximately 12,000 square feet covered under the Applied Optics lease, is subleased under a separate Memorandum of Understanding dated October 27, 2014, to L-3 Communications Mobile Vision Inc. The sublease term is for November, 2014 through September, 2016. The monthly rental on the sublease is $5.1 thousand for base rent, plus $2.8 thousand per month for CAM and utility costs. The sublease is treated as a reduction in the company facilities rental and CAM expenses on in the statement of operations.

Total facilities rental and CAM expenses for both facility lease agreements as of the three months ended December 28, 2014 was $104.4 thousand and included only one month of expenses for the assumed lease for the Applied Optics acquisition occurring in November. The total expense for manufacturing and office equipment was $6.9 thousand.  Total expense under facility lease agreements as of the three months ended December 29, 2013 was $54 thousand and total expense for manufacturing and office equipment was $6 thousand.

As of December 28, 2014, the remaining minimum lease payments under the non-cancelable operating leases for equipment, office and facility space are as follows:

The total combined rental expenses for both facilities is approximately $578 thousand annualized, which includes minimum lease payments of approximately $506 thousand and estimated CAM costs of approximately $166 thousand per year, offset by ($94) thousand in sublease rental receipts. As a result of the Applied Optics acquisition, the total expected increase in facilities and associated CAM expenses is approximately $271 thousand annually.

Pursuant to the terms of the last amendment to the Richardson site facilities lease, there was no base rent payment due from January 1, 2014 through March 31, 2014, and the total value of the rent abatement related to the lease amendment is $63.5 thousand. As of December 28, 2014 the unamortized deferred rent was $87.5 thousand as compared to $91 thousand as of September 28, 2014. Deferred rent expense is recognized at a rate of $1.2 thousand per month over the life of the lease.