Stockholders' Deficit, Option Plans, and Employee Benefit Plan

12 Months Ended

Dec. 31, 2012

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 an 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 the event of death of the employee or a change in control, as defined by the Plan, all unvested shares shall automatically vest in full.  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.  All stock options issued under these plans have expired as of December 31, 2012.

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.

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 was 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.  There were 20,000 options outstanding at December 31, 2012 and 2011.  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 were 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 would not have an exercise price any lower than 85% of the fair value on the date of grant.  All options had a term of ten years and vested 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 0 and 6,564 options outstanding at December 31, 2012 and 2011, respectively.  A total of 6,564, 10,252 and 76,378 options expired during 2012, 2011 and 2010, respectively; 0, 2,000 and 2,750 options were canceled in 2012, 2011 and 2010, respectively; and 983,379 options were exchanged for restricted stock in June 2008.  Telos Delaware, Inc. was dissolved in December 2012.

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, had a term of ten years, and vested 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 0 and 3,750 options outstanding at December 31, 2012 and 2011, respectively.   A total of 3,750, 8,564 amd 39,005 options expired during 2012, 2011 and 2010, respectively; 0, 4,250 and 876 options were canceled in 2012, 2011 and 2010, 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, 2012, 2011, and 2010 is as follows:

	Number of Shares (000's)			Weighted Average Exercise Price
2012  Stock Option Activity
Outstanding at beginning of year		30		$	1.33
Granted		----			----
Exercised		----			----
Canceled		(10	)		2.72
Outstanding at end of year		20		$	0.62
Exercisable at end of year		20		$	0.62
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

The aggregate intrinsic value for options outstanding and exercisable at year end 2012 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, 2012.

The following table summarizes information about stock options outstanding and exercisable at December 31, 2012 and 2011:

December 31, 2012:
		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		20	1.6 years	$	0.62		20	$	0.62

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

As of December 31, 2012 and 2011, all outstanding options 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 employee contributions to the Plan up to a maximum of 2% of such employee's eligible annual base salary.  Participant contributions vest immediately, and Company contributions vest at the rate of 20% for each year, with full vesting occurring after completion of five years of service.  Our total contributions to this Plan for 2012, 2011, and 2010 were $649,000, $591,000, and $786,000, 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 employee contributions to the Plan up to a maximum of 2% of such employee's eligible annual base salary. The total 2012, 2011 and 2010 Telos ID contributions to this plan were $77,000, $69,000 and $85,000, respectively.