6.        Stock based compensation

Stock options   

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. There was no vote to increase the number of available shares of the 2010 Incentive Plan in 2013. Based on the permitted annual increase described above, the 2013 annual increase to the shares was 164,256 based on 1% of the diluted outstanding common shares. Therefore, 1,401,256 shares are available for issuance as at December 29, 2013.

The Company generally issues new shares when options are exercised. A summary of stock option activity for the periods ended January 1, 2012, December 30, 2012 and December 29, 2013 is as follows:

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:

During the periods ended December 29, 2013, December 30, 2012 and January 1, 2012, the Company recorded stock-based compensation expense and a corresponding increase in additional paid in capital of $248, $379, and $271, respectively.

During the periods ended December 29, 2013, December 30, 2012 and January 1, 2012, 158,334, 253,332 and 227,632 options vested, respectively. As at December 29, 2013, compensation expense of $266 related to non-vested stock options has not been recognized.

The following table presents information about stock options outstanding as of December 29, 2013:

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 29, 2013, December 30, 2012 and January 1, 2012. In the periods ended December 29, 2013, December 30, 2012 and January 1, 2012, cash payments of nil, nil and $128, respectively, were made for zero, zero and 46,688 deferred share units, respectively.

There were no deferred share units outstanding at December 29, 2013, December 30, 2012 and January 1, 2012.