Annual report pursuant to Section 13 and 15(d)

Note 6 - Stock based compensation

v2.4.0.6
Note 6 - Stock based compensation
 12 Months Ended
Dec. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
6.
Stock based compensation

Stock options

2000 Equity Incentive Plan:

In July 2000, the Company approved the SMTC/SMTC Manufacturing Corporation of Canada 2000 Equity Incentive Plan (the “2000 Equity Incentive Plan”). The plan permitted the issuance of up to 1,727,052 shares plus an additional number of shares determined by the Board of Directors but not to exceed 1% of the total number of shares outstanding per year. Options granted before the fourth quarter of 2007 generally vested over a four-year period and expired 10 years from their respective date of grant, while options granted thereafter vest over a three-year period and expire 5 years from their respective date of grant.

2010 Incentive Plan:

In July 2010, the Company approved a new stock option plan, the 2010 SMTC Incentive Plan (the “2010 Incentive Plan”). The plan permits the issuance of up to 350,000 shares plus an additional number of shares determined by the Board of Directors but not to exceed 1% of the total number of fully diluted shares outstanding per year. Options generally vest over a three-year period and expire 5 years from their respective date of grant. In June 2011, the Company voted to increase the amount of shares available under the 2010 plan by 670,000 and in June 2012 the company voted to increase the number of shares available under the 2010 plan by 652,000.

The Company generally issues new shares when options are exercised. A summary of stock option activity for the periods ended January 2, 2011, January 1, 2012 and December 30, 2012 is as follows:

   
Outstanding
options
   
Weighted
average
exercise
price
   
Aggregate
intrinsic
value
   
Weighted
average
remaining
contractual
term (years)
 
Outstanding balance at January 3, 2010
    1,937,440     $ 1.72                  
Options forfeited or expired
    (7,440 )   $ 5.93                  
Options exercised
    (1,267,248 )   $ 1.55                  
Outstanding balance at January 2, 2011
    662,752     $ 2.00                  
Options granted under the 2010 Equity Incentive Plan
    922,000     $ 2.87                  
Options forfeited or expired
    (89,732 )   $ 2.70                  
Options exercised
    (292,194 )   $ 1.07                  
Outstanding balance at January 1, 2012
    1,202,826     $ 2.82                  
Options granted under the 2010 Equity Incentive Plan
    350,000     $ 3.11                  
Options forfeited or expired
    (13,600 )   $ 23.76                  
Options exercised
    (138,419 )   $ 1.36                  
                                 
Outstanding balance at December 30, 2012
    1,400,807     $ 2.82     $ 138       3.8  
                                 
                                 
Exercisable balance at December 30, 2012
    212,564     $ 2.17     $ 137       2.6  

The estimated fair value of options is determined using the Black-Scholes option pricing model and is amortized over the vesting period on a straight line basis. The Company has elected to use the simplified method for estimating the expected life which is equal to the midpoint between the vesting period and the contractual term. The simplified method is used as the Company does not have sufficient historical exercise data and the terms of share option grants have changed.  The computation of expected volatility is based on the Company’s historical volatility from its traded common stock over the expected term of the option grants. The interest rate for periods within the expected term of the award is based on the U.S. Treasury yield curve in effect at the time of grant.  The following weighted average assumptions were used in calculating the estimated fair value of options used to compute stock-based compensation expenses:

   
Period ended
December 30, 2012
   
Period ended
January 1, 2012
 
Black-Scholes weighted-average assumptions
           
Expected dividend yield
    0.0 %     0.0 %
Expected volatility
    83.0 %     92.6 %
Risk-free interest rate
    0.5 %     0.67 %
Expected option life in years
    4.0       4.2  
Weighted-average stock option fair value per option granted
  $ 1.86     $ 1.08  

There were no options granted during the period ended January 2, 2011.

During the periods ended December 30, 2012, January 1, 2012 and January 2, 2011, the Company recorded stock-based compensation expense and a corresponding increase in additional paid in capital of $379, $271, and $249, respectively.

During the periods ended December 30, 2012, January 1, 2012 and January 2, 2011, 253,332, 227,632 and 353,334 options vested, respectively. As at December 30, 2012, compensation expense of $1,108 related to non-vested stock options has not been recognized.

The following table presents information about stock options outstanding as of December 30, 2012:

Outstanding
options
   
Weighted
average
exercise
price
   
Exercisable
options
   
Weighted
average
exercise
price
 
                     
                     
  33,333     $ 0.70       33,333     $ 0.70  
  65,474     $ 1.00       39,731     $ 1.00  
  375,000     $ 2.38       87,500     $ 2.38  
  350,000     $ 3.11       —     $ 3.11  
  547,000     $ 3.20       22,000     $ 3.20  
  30,000     $ 4.00       30,000     $ 4.00  
                             
  1,400,807     $ 2.82       212,564     $ 2.17  

Deferred Share Units

In previous periods, Deferred Share Units were granted to directors and the former Chief Executive Officer of the Company as remuneration. There were no units granted during the periods ended December 30, 2012, January 1, 2012 and January 2, 2011. During the period ended January 2, 2011, 202,425 deferred share units previously granted to the former Chief Executive Officer of the Company were cancelled. In the periods ended December 30, 2012, January 1, 2012 and January 2, 2011, cash payments of nil, $128 and $192, respectively, were made for zero, 46,688 and 86,553 deferred share units, respectively.

There were no deferred share units outstanding at December 30, 2012 and January 1, 2012. At January 2, 2011 46,688 deferred share units were outstanding.

Deferred Share Unit compensation recovery for the periods ended December 30, 2012 and January 1, 2012 was nil and $21, respectively. Deferred Share Unit compensation expense for the period ended January 2, 2011 was $712 reflecting mark-to-market adjustments. There will be no further Deferred Share Unit compensation expenses or recoveries since there are no deferred share units outstanding.