Stockholders' Deficit, Option Plans, and Employee Benefit Plan

12 Months Ended

Dec. 31, 2011

Stockholders' Deficit, Option Plans, and Employee Benefit Plan [Abstract]

Stockholders' Deficit, Option Plans, and Employee Benefit Plan

Note 9.   Stockholders' Deficit, Option Plans, and Employee Benefit Plan

Common Stock

The relative rights, preferences, and limitations of the Class A common stock and the Class B common stock are in all respects identical. The holders of the common stock have one vote for each share of common stock held.  Subject to the priority rights of the Public Preferred Stock and any series of the Senior Preferred Stock, holders of Class A and Class B common stock are entitled to receive such dividends as may be declared.

Restricted Stock Grants

In June 2008, we issued 4,774,273 shares of restricted stock (Class A common) in exchange for the majority of stock options outstanding under the Telos Corporation, Xacta Corporation and Telos Delaware, Inc. stock option plans.  In addition, we granted 7,141,501 shares of restricted stock to our executive officers and employees.  In September 2008 and December 2009, we granted 480,000 shares and 80,000 shares, respectively, of restricted stock to certain of our directors.  In February 2011, we granted an additional 2,330,804 shares of restricted stock to our executive officers, directors and employees.  In March 2012, we granted an additional 10,000 shares to our employee.  Such stock is subject to a vesting schedule as follows:  25% of the restricted stock vests immediately on the date of grant, thereafter, an additional 25% will vest annually on the anniversary of the date of grant subject to continued employment or services.  In accordance with ASC 718, we reported no compensation expense for any of the issuances as the value of the common stock was negligible, based on the deduction of our outstanding debt, capital lease obligations, and preferred stock from an estimated enterprise value, which was estimated based on discounted cash flow analysis, comparable public company analysis, and comparable transaction analysis.  Additionally, we determined that a significant change in the valuation estimate for common stock would not have a significant effect on the consolidated financial statements.

Stock Options

We have granted stock options to certain of our employees under five plans.  The Long-Term Incentive Compensation Plan was adopted in 1990 ("1990 Stock Option Plan") and had option grants under it through 2000.  In 1993, stock option plan agreements were reached with certain employees (“1993 Stock Option Plan”).  In 1996, the Board of Directors approved and the shareholders ratified the 1996 Stock Option Plan ("1996 Stock Option Plan").

In 2000, the Board of Directors approved two stock option plans, one for Telos Delaware, Inc. (“Telos Delaware Stock Incentive Plan”) and one for Xacta Corporation (“Xacta Stock Incentive Plan”), both wholly owned subsidiaries of the Company.

As determined by the members of the Compensation Committee, we generally grant options under our respective plans at the estimated fair value at the date of grant, based upon all information available to it at the time.

1990 Stock Option Plan

Under the terms of the 1990 Stock Option Plan, 2,168,215 shares of our Class A common stock were available for issuance under options to key employees, including officers and directors.  The options expire 10 years from the date of grant.  The option price determined by the Board of Directors was not less than the estimated fair value at the date of the grant and the options generally vest over a four-year period.  The 1990 Stock Option Plan expired in 2000, with 923,000 remaining unissued options canceled.  There were no options outstanding at December 31, 2011 and 2010.  A total of 0,0, and 6,000 options expired in 2011, 2010 and 2009, respectively, and 445,249 options were exchanged for restricted stock in June 2008.

1996 Stock Option Plan

The 1996 Stock Option Plan allowed for the award of options to purchase up to 6,644,974 shares of Class A common stock at an exercise price of not lower than the estimated fair value at the date of grant.  Vesting of the stock options for key employees is based both upon the passage of time, generally four years, and certain key events occurring including an initial public offering or a change in control.  The stock options may be exercised over a ten-year period subject to the vesting requirements. Effective May 10, 2004, the 1996 Stock Option Plan was amended by the Board of Directors to increase the total amount of authorized shares of Class A common stock to 7,345,433, an increase of 700,459 shares, to reflect those options granted to Mr. Wood that were not exercised under the 1993 Stock Option Plan.  The 1996 Stock Option Plan expired in March 2006, with its remaining 516,000 unissued options canceled.  A total of 0, 0, and 15,000 options granted under the 1996 Stock Option Plan expired during 2011, 2010 and 2009, respectively.  There were 20,000 options outstanding at December 31, 2011 and 2010.  A total of 2,463,500 options were exchanged for restricted stock in June 2008.

Telos Delaware Stock Incentive Plan

During the third quarter of 2000, our Board of Directors approved a new stock option plan for Telos Delaware, Inc., a wholly owned subsidiary of the Company.  Certain of our key executives and employees are eligible to receive stock options under the plan.  Under the plan, we may award up to 3,500,000 shares of common stock as either incentive or non-qualified stock options. An incentive option must have an exercise price of not lower than fair value on the date of grant.  A non-qualified option will not have an exercise price any lower than 85% of the fair value on the date of grant.  All options have a term of ten years and vest no less rapidly than the rate of 20% per year for each of the first five years unless changed by the Compensation Committee of the Board of Directors.  There were 6,564 and 18,816 options outstanding at December 31, 2011 and 2010, respectively.  A total of 10,252, 76,378 and 0 options expired during 2011, 2010 and 2009, respectively; 2,000, 2,750 and 9,688 options were canceled in 2011, 2010 and 2009, respectively; and 983,379 options were exchanged for restricted stock in June 2008.

Xacta Stock Incentive Plan

In the third quarter of 2000, Xacta Corporation, a wholly owned subsidiary of the Company, initiated a stock option plan under which up to 3,500,000 shares of Xacta common stock may be awarded to key employees and associates.  The options may be awarded as incentive or non-qualified, have a term of ten years, and vest no less rapidly than the rate of 20% per year for each of the first five years unless changed by the Compensation Committee of the Board of Directors.  The exercise price may not be less than the estimated fair value on the date of grant for an incentive option, or less than 85% of the estimated fair value on the date of grant for a non-qualified stock option.  There were 3,750 and 16,564 options outstanding at December 31, 2011 and 2010, respectively.   A total of 8,564, 39,005 and 0 options expired during 2011, 2010 and 2009, respectively; 4,250, 876 and 10,625 options were canceled in 2011, 2010 and 2009, respectively; and 2,498,564 options were exchanged for restricted stock in June 2008.

A summary of the status of our stock options for the years ended December 31, 2011, 2010, and 2009 is as follows:

	Number of Shares (000's)			Weighted  Average Exercise  Price
2011  Stock Option Activity
Outstanding at beginning of year		55		$	1.75
Granted		----			----
Exercised		----			----
Canceled		(25	)		2.27
Outstanding at end of year		30		$	1.33
Exercisable at end of year		30		$	1.33
2010  Stock Option Activity
Outstanding at beginning of year		174		$	2.48
Granted		----			----
Exercised		----			----
Canceled		(119	)		2.81
Outstanding at end of year		55		$	1.75
Exercisable at end of year		55		$	1.75
2009  Stock Option Activity
Outstanding at beginning of year		216		$	2.34
Granted		----			----
Exercised		----			----
Canceled		(42	)		1.74
Outstanding at end of year		174		$	2.48
Exercisable at end of year		174		$	2.48

The aggregate intrinsic value for options outstanding and exercisable at year end 2011 is negligible.  The aggregate intrinsic value represents the total pretax intrinsic value (the difference between our fair market value as determined by management and the exercise price, multiplied by the number of share-based awards) that would have been received by the option holders had all option holders exercised their options on December 31, 2011.

The following table summarizes information about stock options outstanding and exercisable at December 31, 2011 and 2010:

December 31, 2011:
	Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding (000's)		Weighted Remaining  Contractual Life in Years	Weighted Average  Exercise  Price		Number  Exercisable (000's)		Weighted Average Exercise Price
$0.50 – $0.99		24	1.5 years	$	0.64		24	$	0.64
$3.85 – $4.00		6	0.4 years	$	3.85		6	$	3.85

December 31, 2010:
	Options Outstanding					Options Exercisable
Range of  Exercise Prices	Number Outstanding (000's)		Weighted Remaining Contractual  Life in Years	Weighted  Average  Exercise Price		Number  Exercisable  (000's)		Weighted Average  Exercise Price
$0.50 – $0.99		36	2.1 years	$	0.68		36	$	0.68
$3.85 – $4.00		19	0.3 years	$	3.85		19	$	3.85

As of December 31, 2011 and 2010, all outstanding shares under the plans are vested.

Telos Shared Savings Plan

We sponsor a defined contribution employee savings plan (the "Plan") under which substantially all full-time employees are eligible to participate.  The Plan holds 3,658,536 shares of Telos Class A common stock. Since no public market exists for Telos Class A common stock, the Trustees of the Plan and their professional advisors undertake an annual evaluation, based upon the most recent audited financial statements. To date, the Plan's trustees have priced the stock at the exact midpoint of the evaluated range of the value of the stock.  We match one-half of voluntary participant contributions to the Plan up to a maximum contribution by us of 3% of a participant's salary.  Our total contributions to this Plan for 2011, 2010, and 2009 were $591,000, $786,000, and $791,000, respectively.

Additionally, effective September 1, 2007, Telos ID sponsors a defined contribution savings plan under which substantially all full-time employees are eligible to participate.   Telos ID  matches one-half of voluntary participant contributions to the Plan up to a maximum Company contribution of 3% of a participant's salary. The total 2011, 2010 and 2009 Telos ID contributions to this plan were $69,000, $85,000 and $76,000, respectively.