Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-212654
Registration No. 333-213255
2,291,900
Class A units consisting of common stock and warrants and 400 Class B units consisting of shares of Series C convertible
preferred stock and warrants (and an aggregate of 5,625,500 shares of common stock underlying (i) shares of Series C
convertible preferred stock and (ii) warrants).
OPTEX SYSTEMS
HOLDINGS, INC.
We
are offering 2,291,900 shares of our common stock, $.001 par value per share, together with warrants to purchase an equal number
of shares of common stock (and the shares issuable from time to time upon exercise of the warrants) pursuant to this prospectus
at an offering price of $1.20 for each unit of a share and a warrant (“Class A unit”). The shares and warrants will
be separately issued, but the shares and warrants will be issued and sold to purchasers in equal proportion. Each warrant will
have an exercise price of $1.50 per share, will be exercisable upon issuance and will expire five years from issuance.
We are also offering to those purchasers,
whose purchase of Class A units in this offering would result in the purchaser, together with its affiliates and certain related
parties, beneficially owning more than 4.99% of our outstanding common stock following
the consummation of this offering, the opportunity to purchase, in lieu of the number of Class A units that would result in ownership
in excess of 4.99% of our outstanding common stock, a unit consisting of one share
of Series C convertible preferred stock, par value $.001 per share, convertible at any time at the holder’s option into
a number of shares of common stock equal to $5,000 divided by $1.20, the public offering price per Class A unit (the “Conversion
Price”), and warrants to purchase a number of shares of common stock equal to the number of shares of common stock issuable
upon conversion of one share of Series C convertible preferred stock (“Class B unit”) at a public offering price of
$5,000 per Class B unit. The warrants included in the Class B units will have the same terms as the warrants included in the Class
A units.
Our common stock is currently
traded on the OTCQB Marketplace, operated by OTC Markets Group, Inc. under the symbol “OPXS”. On August 15, 2016,
the last reported sales price for our common stock was $2.15 per share. There is no established trading market for the
warrants or the Series C convertible preferred stock. The warrants have been approved for quotation on the OTCQB Marketplace under the ticker symbol “OPXXW”.
INVESTING
IN THE OFFERED SECURITIES INVOLVES RISKS, INCLUDING THOSE SET FORTH IN THE “RISK FACTORS” SECTION OF THIS PROSPECTUS
BEGINNING ON PAGE 8. INVESTORS SHOULD ONLY CONSIDER AN INVESTMENT IN THESE SECURITIES IF THEY CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT.
NEITHER THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
|
|
Per
Class A
Unit (2)
|
|
|
Per
Class B
Unit (2)
|
|
|
Total
|
|
Public offering price
|
|
$
|
1.20
|
|
|
$
|
5,000.00
|
|
|
$
|
4,750,280.00
|
|
Underwriting
discounts and commissions
(1)
|
|
$
|
0.
084
|
|
|
$
|
350.00
|
|
|
$
|
332,519.60
|
|
Proceeds, before expenses,
to us
|
|
$
|
1.116
|
|
|
$
|
4,650.00
|
|
|
$
|
4,417,760.40
|
|
|
(1)
|
In addition to the underwriting
discount, we have agreed to the representative a non-accountable expense allowance of
1% of the aggregate gross proceeds of this offering and to reimburse the representative
up to $127,000 for its fees and expenses in connection with this offering, which includes
the fees and expenses of the representative’s counsel. We have agreed to issue
warrants to the representative of the underwriters. See “Underwriting” on
page 58 of this prospectus for a description of the compensation arrangements.
|
|
(2)
|
The public offering price and underwriting
discount corresponds to (i) in respect of the Class A units (a) a public offering price
per share of common stock of $1.19 and (b) a public offering price per warrant of $0.01,
and (ii) in respect of the Class B units, (a) a public offering price per share of Series
C convertible preferred stock of $4,958.33 and (ii) a public offering price per warrant
of $0.01.
|
We have granted the underwriters a
45-day option to purchase up to 593,785 additional shares of common stock and/or additional warrants to purchase up to 593,785
shares of common stock (15% of the shares (including the number of shares of common stock issuable upon conversion of the Series
C convertible preferred stock issued in this offering) and 15% of the warrants issued in the offering), in any combination thereof,
from us at the offering price for each security, less underwriting discounts and commissions, to cover over-allotments, if any.
The over-allotment option may be used to purchase shares of common stock, warrants, or any combination thereof, as determined
by the representative of the underwriters. The shares and/or warrants issuable upon exercise of the over-allotment option are
identical to those offered by this prospectus. If the underwriters exercise this option in full, the total underwriting discounts
and commissions payable by us will be $382,397.54, and the total proceeds to us, before expenses, will be $5,080,424.46. We estimate
the total expenses of this offering, excluding underwriting commissions and discounts, to be approximately $411,000.
The underwriters are offering the Class
A units and Class B units as set forth under the heading “Underwriting” beginning on page 58. The underwriters expect
to deliver our securities, against payment, on or about August 26, 2016.
Joseph Gunnar
& Co.
The
date of this prospectus is August 23, 2016.
TABLE OF
CONTENTS
You should rely only
on the information contained in this prospectus and any related
free writing prospectus that we may provide to you in connection
with this offering. We have not, and the underwriter has not,
authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should
assume that the information appearing in this prospectus is
accurate only as of the date on the front cover of this prospectus.
Our business, financial condition, results of operations and
prospects may have changed since that date.
For investors outside
the United States: neither we nor the underwriter have done
anything that would permit this offering or possession or
distribution of this prospectus or any free writing prospectus we
may provide to you in connection with this offering in any
jurisdiction where action for that purpose is required, other than
in the United States. You are required to inform yourselves about
and to observe any restrictions relating to this offering and the
distribution of this prospectus and any such free writing
prospectus outside of the United States.
i
PROSPECTUS SUMMARY
This summary
highlights important information about this offering and our
business. It does not include all information you should consider
before investing in our common stock. Please review this prospectus
in its entirety, including the risk factors and our financial
statements and the related notes, before you decide to
invest.
References in this prospectus to “we,”
“us,” and “our” refer to Optex Systems
Holdings, Inc. and its subsidiaries.
Our Company
We
manufacture optical sighting systems and assemblies, primarily for Department of Defense applications. Its products are installed
on various types of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and armored security
vehicles and have been selected for installation on the Stryker family of vehicles. We also manufacture and deliver numerous
periscope configurations, rifle and surveillance sights and night vision optical assemblies. We have capabilities which include
machining, bonding, painting engraving and assembly and can perform both optical and environmental testing in-house. Our products
consist primarily of build-to-customer print products that are delivered both directly to the armed services and to other defense
prime contractors. We are both a prime and sub-prime contractor to the Department of Defense. Sub-prime contracts are typically
issued through major defense contractors such as General Dynamics Land Systems, Raytheon Corp., BAE, NorcaTec and others. We are
also a military supplier to foreign governments such as Israel, Australia and NAMSA and South American countries and as a subcontractor
for several large U.S. defense companies serving foreign governments.
Recent Orders
|
·
|
In
February 2016, we received a $1.2 million award from General Dynamics Land Systems.
|
|
|
|
|
·
|
In
April 2016, we received $841,000 in initial orders for advanced laser protected periscopes
from U.S. Army Contracting Command.
|
|
|
|
|
·
|
In
May 2016, we received a new $1.12 million purchase order from a domestic customer.
|
|
|
|
|
·
|
In
June 2016, we completed shipment of $518,000 of periscopes to Brazil.
|
|
|
|
|
·
|
In
July 2016, we secured a five-year contract with the Defense Logistics Agency with a value
of $5.99 million.
|
New Product Development
We continue to field new product opportunities
from both domestic and international customers. Given continuing unrest in multiple global hot spots, the need for precision
optics continues to increase. Most of these requirements are for observation and situational awareness applications; however,
we continue to see requests for higher magnification and custom reticles in various product modifications. The basic need
to protect the soldier while providing information about the mission environment continues to be the primary driver for these requirements.
We do not believe that the upcoming presidential election will
cause a major change in the direction of funding or product need for the U.S. military. Maintenance will still be required,
and the opportunities for us to upgrade existing systems with higher performing systems will continue to present themselves.
Spending levels may change, but given the mix between foreign spending, domestic/prime demand, and the more recent commercial opportunities,
we do not expect any negative trends arising from political domestic changes into fiscal 2017.
During the first six months of 2015, we
released a new digital spotting scope called Red Tail (patent pending). This device is targeted towards long range observation
and image recording used by military, border patrol, and select consumer/commercial applications. The device is designed to deliver
high definition images with military grade resolution, but at commercial “off the shelf” pricing. Using high grade
optics to deliver a 45X magnified image onto a 5 megapixel CMOS sensor, the Red Tail device then transmits this image via Wi-Fi
to the user’s smartphone or tablet. Digital still images or videos can then be captured and/or emailed using a custom Red
Tail app available for either iOS or Android devices. We demonstrated this device in April 2015 at the Border Security Expo in
Phoenix, Arizona and received positive feedback from U.S. border agents, police officers, and other Expo attendees.
On November 10, 2015, we entered into
a retail sales relationship with Cabela’s Inc., to distribute our Red Tail Digital Spotting Scope as well as our new Stabilized
Monocular. We are presently in negotiations to make these devices available via General Services Administration schedules for
government personnel.
1
Products
Our products are installed on various types
of U.S. military land vehicles, such as the Abrams and Bradley, and Stryker families of fighting vehicles, as well as light armored
and armored security vehicles. We also manufacture and deliver numerous periscope configurations, rifle and surveillance sights
and night vision optical assemblies. We deliver our products both directly to the federal government and to prime contractors.
We deliver high volume products, under
multi-year contracts, to large defense contractors and government customers. Increased emphasis in the past two years has been
on new opportunities to promote and deliver our products in foreign military sales, where U.S.-manufactured, combat and wheeled
vehicles, are supplied (and upgraded) in cooperation with the U.S. Department of Defense. We have a reputation for quality and
credibility with our customers as a strategic supplier. We also anticipate the opportunity to integrate some of our night vision
and optical sights products into commercial applications.
Specific product categories include:
|
·
|
Electronic
sighting systems
|
|
·
|
Mechanical
sighting systems
|
|
·
|
Laser
protected plastic and glass periscopes
|
|
·
|
Non-laser
protected plastic and glass periscopes
|
|
·
|
Howitzer
sighting systems
|
|
·
|
M36
Thermal Day/Night Periscopes
|
|
·
|
M17
Day/Thermal Periscopes
|
|
·
|
Replacement
optics (e.g. filters, mirrors)
|
|
·
|
Optical
assemblies and laser filters
|
Product Line
|
|
Product
Category
|
Periscopes
|
|
Laser & Non Laser Protected Plastic & Glass Periscopes, Electronic M17 Day/Thermal
Periscopes, Vision Blocks
|
|
|
|
Sighting Systems
|
|
Back Up Sights, Digital Day and Night Sighting Systems (DDAN), M36 Thermal Periscope,
Unity Mirrors
|
|
|
|
Howitzers
|
|
M137 Telescope, M187 Mount, M119 Aiming Device
|
|
|
|
Other
|
|
Muzzle Reference Systems (MRS), Binoculars, Collimators, Optical Lenses & Elements,
Windows
|
|
|
|
Applied Optics Center
|
|
ACOG Laser filter, Laser Filter Interface, Optical Assemblies
|
We also anticipate the opportunity to
integrate some of our night vision and optical sights products into commercial applications and have taken steps in fiscal 2016
to market our products in the commercial (nonmilitary) areas.
2
Recent Events
Reverse
Stock Split
On October 6, 2015, 20 calendar days had
passed since the mailing to our shareholders of the Definitive Schedule 14C filed on September 11, 2015 regarding the approval
by our Board of Directors and shareholders of a reverse stock split of our common stock, in a ratio to be determined by our board
of directors, of not less than 1-for-400 nor more than 1-for-1000 and on October 7, 2015, we effected a 1-for-1000 reverse split
of our common stock. All warrant, option, share and per share information in this prospectus gives retroactive effect for a 1-for-1000
split. All numbers in this prospectus gives effect to all financial information as if the reverse split had occurred on the date
reported, except as otherwise noted.
Resignation of Directors
Effective November 3, 2015, Stanley Hirschman retired as one
of our directors. In recognition of his service, all of his unvested stock options were deemed to vest immediately, and the termination
date of all of his stock options was extended to December 31, 2019. On May 26, 2016, Kerry Craven resigned as one of our
directors.
Compensation Changes
On January 21, 2016, our Board of Directors Compensation Committee
held a meeting and approved the following compensation changes:
•
A
base salary increase of 10% for Danny Schoening, CEO, and Karen
Hawkins, CFO.
•
A
bonus payment of $7.5 thousand awarded to Karen Hawkins for 2015
performance.
•
A
$10 thousand monthly director fee for Peter Benz, Chairman,
effective for calendar 2016.
Credit Facility — Avidbank
On April 20, 2016, we amended our revolving credit facility with
Avidbank. The new renewable revolving maturity date is January 22,
2018. The facility provides up to $2 million in financing against
eligible receivables and is subject to meeting certain covenants
including an asset coverage ratio test for up to twenty months. The
material terms of the amended revolving credit facility are as
follows:
•
The interest rate for all advances shall be the then in effect
prime rate plus 2.5% and is subject to a minimum interest payment
requirement per six-month period of $10,000.
•
Interest shall be paid monthly in arrears.
•
A
facility fee of (0.5%) of the revolving line ($10,000) was due (and
paid) on May 22, 2016 and each anniversary thereof for so long as
the revolving credit facility is in effect.
•
The loan period is from April 20 through January 22, 2018 at which
time any outstanding advances, and accrued and unpaid interest
thereon, will be due and payable.
•
Our obligations to Avidbank are secured by a first lien on all of
its assets (including intellectual property assets should it have
any in the future) in favor of Avidbank.
•
The facility contains customary events of default. Upon the
occurrence of an event of default that remains uncured after any
applicable cure period, Avidbank’s commitment to make further
advances may terminate, and Avidbank would also be entitled to
pursue other remedies against us and the pledged collateral.
•
Pursuant to a guaranty executed by Optex Systems Holdings in favor
of Avidbank, Optex Systems Holdings has guaranteed all obligations
of Optex Systems, Inc. to Avidbank.
3
Investor
Relations — IRTH Communications
On April 6, 2016, we executed an investor relations services
agreement with IRTH Communications. The material terms of the
agreement are as follows:
•
An
initial retainer of $7,500, followed by 11 consecutive monthly
payments of $7,500.
•
A
single one-time retainer payment of 40,000 shares of our common
stock; which shares shall be “Restricted Securities”
pursuant to the provisions of Rule 144, as promulgated under the
Securities Act of 1933, as amended.
•
Reimbursement of any reasonable out-of-pocket cost and expenses,
approved by us in advance.
•
The term of the agreement is 12 months, expiring on April 5, 2017,
and shall automatically renew for an additional 12-month term on
each yearly anniversary date unless we give notice to IRTH of an
intention to terminate at the expiration of the original term.
•
Continued payments of $7,500 per month plus a one-time payment of
$100,000 worth of retainer shares of our common stock on renewal;
which shares shall be “Restricted Securities” pursuant
to the provisions of Rule 144.
On
April 29, 2016, we issued 40,000 common “restricted” shares at a market price of $2.35 per share ($94,000) in support
of the IRTH Communications agreement in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933.
2016 Restricted Stock Unit Plan
On June 14, 2016, our
Compensation Committee approved our 2016 Restricted Stock Unit
Plan. This plan provides for issuance of stock units
(“RSUs”) for up to 1,000,000 shares of our common
stock. Each RSU constitutes a right to receive one share of our
common stock, subject to vesting, which unless otherwise stated in
an RSU agreement, shall vest in equal amounts on the first, second
and third anniversary of the grant date. Shares of our common stock
underlying the number of vested RSUs will be delivered as soon as
practicable after vesting. During the period between grant and
vesting, the RSUs may not be transferred, and the grantee has no
rights as a shareholder until vesting has occurred. If the
grantee’s employment is terminated for any reason (other than
following a change in control of us or a termination of an officer
other than for cause), then any unvested RSUs under the award will
automatically terminate and be forfeited. If an officer
grantee’s employment is terminated by us without cause or by
the grantee for good reason, then, provided that the RSUs have not
been previously forfeited, the remaining unvested portion of the
RSUs will immediately vest as of the officer grantee’s
termination date. In the event of a change in control, our
obligations regarding outstanding RSUs shall, on such terms as may
be approved by the Committee prior to such event, immediately vest,
be assumed by the surviving or continuing company or cancelled in
exchange for property (including cash).
On
June 15, 2016, we issued 150,000 RSUs to our Chief Executive Officer, Danny Schoening, and 50,000 RSUs to our Chief Financial
Officer, Karen Hawkins. The RSUs issued to Mr. Schoening and Ms. Hawkins vest as follows: 34% on January 1, 2017, 33% on January
1, 2018 and 33% on January 1, 2019.
4
Risk
Factors
Investing
in our common stock is a speculative proposition, and we encourage you to review our Risk Factors section commencing on p.8 of
this prospectus.
These risks include, but are not limited to, the following:
•
our lack of market saturation for our products and our ability to
achieve full commercialization of our product ahead of our
competitors;
•
our ability to achieve market acceptance and to become
profitable;
•
our ability to engage and retain key personnel, for which we do not
carry key man insurance; and
•
the dilutive nature of this offering and the potential need to
raise further capital in the future, which will have a further
dilutive effect on our shareholders.
Corporate
Information
On March 30, 2009, Optex Systems Holdings, Inc. (formerly known as
Sustut Exploration, Inc.), a Delaware corporation, and Optex
Systems, Inc., a privately held Delaware corporation, entered into
a reorganization agreement, pursuant to which Optex Systems, Inc.
was acquired by Optex Systems Holdings in a share exchange
transaction. Optex Systems Holdings was the surviving corporation
and Optex Systems, Inc. became our wholly-owned subsidiary. At the
closing, we changed our name from Sustut Exploration, Inc. to Optex
Systems Holdings, Inc., and our year end changed from December 31
to a fiscal year ending on the Sunday nearest September 30.
Our principal executive office is located at 1420 Presidential
Drive, Richardson, TX 75081. Our telephone number is (972)
764-5700. Our website is
www.optexsys.com
.
Our website and the information contained on, or that can be
accessed through, our website will not be deemed to be incorporated
by reference in, and are not considered part of, this prospectus.
You should not rely on our website or any such information in
making your decision whether to purchase our common stock.
We do not intend the use or display of other companies’
trademarks and trade names to imply a relationship with, or
endorsement or sponsorship of us by, any other companies.
5
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize the consolidated
financial data for our business. You should read this summary financial data in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes,
all incorporated by reference elsewhere in this prospectus.
We
derived the consolidated statements of operations data for the year ended September 27, 2015, from our audited consolidated financial
statements referenced elsewhere in this prospectus. The unaudited consolidated statements of operations data for the nine months
ended June 26, 2016 and June 28, 2015, and the unaudited consolidated balance sheet data as of June 26, 2016, are derived from
our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited information
on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting
only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth
in those statements. Our historical results are not necessarily indicative of the results to be expected in the future. All numbers
are in thousands except share numbers.
Pro
forma basic net income (loss) per share has been calculated assuming the conversion of all outstanding shares of our preferred
stock into 2,698,431 shares of common stock upon the completion of this offering. The balance sheet data as of June 26, 2016,
is presented:
|
•
|
on a pro
forma basis to reflect the automatic conversion of outstanding shares of our preferred
stock into 2,698,431 shares of common stock in connection with the completion of this
offering; and
|
|
•
|
on
a pro forma basis to reflect the redemption of 66.4 Series A and 795.1 Series B preferred
shares that will not convert to common shares in connection with the completion of this
offering; and
|
|
•
|
on a pro forma as adjusted basis to
reflect the pro forma adjustments and the sale by us of 2,291,900 shares of common stock offered by this prospectus at
an assumed initial public offering price of $1.19 per share less and $0.01 per warrant less the underwriting
discounts and commissions and estimated offering expenses payable by us.
|
|
|
Year ended
September
27,
2015
|
|
|
Nine months
ended
June 26,
2016
|
|
|
Nine months
ended
June 28,
2015
|
|
|
|
|
|
|
(Unaudited)
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
13,003
|
|
|
$
|
11,773
|
|
|
$
|
7,814
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
11,617
|
|
|
|
9,708
|
|
|
|
7,723
|
|
General and Administrative Expense
|
|
|
2,826
|
|
|
|
2,394
|
|
|
|
2,237
|
|
Operating Loss
|
|
|
(1,440
|
)
|
|
|
(329
|
)
|
|
|
(2,146
|
)
|
Other Income and Expense
|
|
|
1,931
|
|
|
|
(28
|
)
|
|
|
1,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
491
|
|
|
|
(357
|
)
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes (benefit)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
491
|
|
|
$
|
(357
|
)
|
|
$
|
(202
|
)
|
Preferred stock dividend premium
|
|
|
(6,441
|
)
|
|
|
—
|
|
|
|
(6,441
|
)
|
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS
|
|
|
(5,950
|
)
|
|
|
(357
|
)
|
|
|
(6,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss)
per share
|
|
$
|
(0.85
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
6,969,350
|
|
|
|
7,413,452
|
|
|
|
6,968,467
|
|
|
|
As of June 26, 2016
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
Pro Forma
as
Adjusted
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
9,056
|
|
|
$
|
2,256
|
|
|
$
|
11,312
|
|
Property and equipment, net
|
|
|
1,745
|
|
|
|
—
|
|
|
|
1,745
|
|
Other assets
|
|
|
121
|
|
|
|
—
|
|
|
|
121
|
|
Total assets
|
|
|
10,922
|
|
|
|
2,256
|
|
|
|
13,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,009
|
|
|
|
—
|
|
|
|
3,009
|
|
Stockholders’ equity
|
|
|
7,913
|
|
|
|
2,256
|
|
|
|
10,169
|
|
Total liabilities and stockholders’ equity
|
|
|
10,922
|
|
|
|
2,256
|
|
|
|
13,178
|
|
6
Summary
of the Offering
Class A units offered by us
|
|
We are offering 2,291,900 Class A units (excluding
over allotment). Each Class A unit consists of one share of common stock and a warrant to purchase one share of our common
stock (together with the shares of common stock underlying such warrants).
|
|
|
|
Offering price per Class A unit
|
|
$1.20
|
|
|
|
Class B units offered by us
|
|
We are also offering 400 Class B units to those purchasers,
whose purchase of Class A units in this offering would result in the purchaser, together with its affiliates and
certain related parties, beneficially owning more than 4.99% of our outstanding common stock following the
consummation of this offering, the opportunity to purchase, in lieu of the number of Class A units that would result in
ownership in excess of 4.99% of our outstanding common stock. Each Class B unit will consist of one
share of Series C preferred stock, par value $0.001 per share, convertible into a number of shares of common stock
equal to $5,000 divided by $1.20, the public offering price per Class A unit (the “Conversion Price”),
and warrants to purchase a number of shares of common stock equal to the number of shares of common stock issuable
upon conversion of one share of Series C convertible preferred stock (together with the shares of common stock underlying
such shares of Series C convertible preferred stock and such warrants).
|
|
|
|
Offering price per Class B unit
|
|
$5,000.00
|
|
|
|
Description of Series C preferred stock
|
|
Each share of Series C preferred stock is convertible at
any time at the holder’s option into a number of shares of common stock equal to $5,000 divided by the Conversion Price.
Notwithstanding the foregoing, we shall not effect any conversion of Series C preferred stock, with certain exceptions, to
the extent that, after giving effect to an attempted conversion, the holder of shares of Series C preferred stock (together
with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s
affiliates) would beneficially own a number of shares of our common stock in excess of 4.99% of the shares of our common stock then outstanding after giving effect to such exercise. For additional information,
see “Description of Securities—Series C Preferred Stock” in this prospectus.
|
|
|
|
Common stock outstanding before the offering(*):
|
|
1,755,436
|
|
|
|
Common stock to be outstanding after the
offering (*):
|
|
6,745,767 shares (or 7,339,552 shares if the underwriters exercise in full their option
to purchase additional shares).
|
|
|
|
Underwriters option
|
|
We have granted to the underwriters an option for a period
of 45 days from the date of this prospectus supplement to purchase up to 593,785 additional shares and/or warrants to
purchase up to 593,785 additional shares, in any combination thereof, to cover over-allotments.
|
|
|
|
Estimate of Proceeds:
|
|
$4,750,280
|
|
|
|
Use of proceeds
2
:
|
|
We intend to use the net proceeds from this offering for the following purposes:
|
Proceeds:
|
|
|
|
|
Gross Proceeds without over allotment
|
|
$
|
4,750,280
|
|
Underwriter Discount, Fees and Expenses
|
|
|
(743,520
|
)
|
Series A (66.4 shares) and Series
B Preferred Share Redemption (795.1 shares)
|
|
|
(1,750,810
|
)
|
Net Proceeds
|
|
|
2,255,950
|
|
|
|
|
|
|
Uses:
|
|
|
|
|
Working Capital & Operating Expenses
|
|
|
416,190
|
|
Sales, Marketing & Business Development
|
|
|
400,000
|
|
Acquisitions
|
|
|
1,439,760
|
|
Total Uses
|
|
$
|
2,255,950
|
|
No listing of Series C preferred stock:
|
|
We do not intend to apply for listing of the shares of Series C preferred
stock on any exchange or other trading system.
|
|
|
|
Quotation of Warrants on OTCQB:
|
|
The warrants have been approved for quotation on the OTCQB under the symbol “OPXXW”.
|
•
52,850 shares of common stock issuable upon the exercise of vested options outstanding as of July 11, 2016, at a weighted average
exercise price of $10.00 per share;
•
17,150 shares of common stock reserved for future grant or issuance as of August 15, 2016 under all of our 2009 Stock Option Plan;
•
1,000,000 shares of common stock reserved for future grant or issuance as of August 15, 2016 under our 2016 Restricted Stock Unit
Plan;
•
3,958,700 shares of common stock issuable upon exercise of the warrants issued to the public in connection with this offering;
•
1,666,800 shares issuable upon conversion of the Series C preferred stock; and
•
197,935 shares of common stock issuable upon exercise of the warrants to be received by the underwriter in connection with this
offering.
|
2
|
Without
over allotment.
|
7
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
Prospective investors should carefully consider the risks described
below, together with all of the other information included or
referred to in this annual report, before purchasing shares of our
common stock. There are numerous and varied risks, known and
unknown, that may prevent us from achieving our goals. The risks
described below are not the only risks we will face. If any of
these risks actually occurs, our business, financial condition or
results of operations may be materially adversely affected. In such
case, the trading price of our common stock could decline and
investors in our common stock could lose all or part of their
investment. The risks and uncertainties described below are not
exclusive and are intended to reflect the material risks that are
specific to us, material risks related to our industry and material
risks related to companies that undertake a public offering or seek
to maintain a class of securities that is registered or traded on
any exchange or over-the-counter market.
Risks Related to our Business
We expect that we may need to raise additional capital in the
future beyond any cash flow from our existing business; additional
funds may not be available on terms that are acceptable to us, or
at all.
We anticipate we may have to raise additional capital in the future
to service our debt and to finance our future working capital
needs. We cannot assure you that any additional capital will be
available on a timely basis, on acceptable terms, or at all. Future
equity or debt financings may be difficult to obtain. If we are not
able to obtain additional capital as may be required, our business,
financial condition and results of operations could be materially
and adversely affected.
We anticipate that our capital requirements will depend on many
factors, including:
•
our ability to fulfill backlog;
•
our ability to procure additional production contracts;
•
our ability to control costs;
•
the timing of payments and reimbursements from government and other
contracts, including but not limited to changes in federal
government military spending and the federal government procurement
process;
•
increased sales and marketing expenses;
•
technological advancements and competitors’ response to our
products;
•
capital improvements to new and existing facilities;
•
our relationships with customers and suppliers; and
•
general economic conditions including the effects of future
economic slowdowns, acts of war or terrorism and the current
international conflicts.
Even if available, financings may involve significant costs and
expenses, such as legal and accounting fees, diversion of
management’s time and efforts, and substantial transaction
costs. If adequate funds are not available on acceptable terms, or
at all, we may be unable to finance our operations, develop or
enhance our products, expand our sales and marketing programs, take
advantage of future opportunities or respond to competitive
pressures.
Current economic conditions may adversely affect our ability to
continue operations.
Current economic conditions may continue to cause a decline in
business and consumer spending and capital market performance,
which could adversely affect our business and financial
performance. Our ability to raise funds, upon which we are fully
dependent to continue to conduct and expand our operations, may be
adversely affected by current and future economic conditions, such
as a reduction in the availability of credit, financial market
volatility and economic recession.
8
Our ability to fulfill our backlog may have an effect on our long
term ability to procure contracts and fulfill current
contracts.
Our ability to fulfill our backlog may be limited by our ability to
devote sufficient financial and human capital resources and limited
by available material supplies. If we do not fulfill our backlog in
a timely manner, we may experience delays in product delivery which
would postpone receipt of revenue from those delayed deliveries.
Additionally, if we are consistently unable to fulfill our backlog,
this may be a disincentive to customers to award large contracts to
us in the future until they are comfortable that we can effectively
manage our backlog.
Our historical operations depend on government contracts and
subcontracts. We face risks related to contracting with the federal
government, including federal budget issues and fixed price
contracts.
Future general political and economic conditions, which cannot be
accurately predicted, may directly and indirectly affect the
quantity and allocation of expenditures by federal agencies. Even
the timing of incremental funding commitments to existing, but
partially funded, contracts can be affected by these factors.
Therefore, cutbacks or re-allocations in the federal budget could
have a material adverse impact on our results of operations. Given
the continued adverse economic conditions, the federal government
has slowed its pace with regard to the release of orders for the
U.S. military. Since we depend on orders for equipment for the U.S.
military for a significant portion of our revenues, this slower
release of orders will continue to have a material adverse impact
on our results of operations. Obtaining government contracts may
also involve long purchase and payment cycles, competitive bidding,
qualification requirements, delays or changes in funding, budgetary
constraints, political agendas, extensive specification
development, price negotiations and milestone requirements. In
addition, our government contracts are primarily fixed price
contracts, which may prevent us from recovering costs incurred in
excess of budgeted costs. Fixed price contracts require us to
estimate the total project cost based on preliminary projections of
the project’s requirements. The financial viability of any
given project depends in large part on our ability to estimate such
costs accurately and complete the project on a timely basis. Some
of those contracts are for products that are new to our business
and are thus subject to unanticipated impacts to manufacturing
costs. Given the current economic conditions, it is also possible
that even if our estimates are reasonable at the time made, that
prices of materials are subject to unanticipated adverse
fluctuation. In the event our actual costs exceed fixed contractual
costs of our product contracts, we will not be able to recover the
excess costs which could have a material adverse effect on our
business and results of operations. We examine these contracts on a
regular basis and accrue for anticipated losses on these contracts,
if necessary. As of June 26, 2016, we had a loss provision of
$6 thousand accrued as a result of cost overruns on small
contracts that will complete during fiscal year 2016.
Approximately 95% of our contracts contain termination clauses for
convenience. In the event these clauses should be invoked by our
customer, future revenues against these contracts could be
affected, however these clauses allow for a full recovery of any
incurred contract costs plus a reasonable fee up through and as a
result of the contract termination. We are currently unaware of any
pending terminations on our existing contracts.
In some cases, contract awards may be issued that are subject to
renegotiation at a date (up to 180 days) subsequent to the initial
award date. Generally, these subsequent negotiations have had an
immaterial impact (zero to 5%) on the contract price of the
affected contracts. Currently, none of our awarded contracts are
subject to renegotiation.
We have sought to mitigate the adverse impact from the slower pace
of U.S. military orders on our results of operations by seeking to
obtain foreign military orders as well as new commercial business.
We do not expect these markets to completely mitigate the negative
impact of lower U.S. defense spending.
There
is further uncertainty which arises from the sequestration in early 2013 which may continue to affect business opportunities at
the federal government level.
Military spending has been negatively
impacted by the Budget Control Act of 2011, which was passed in August 2011. The Budget Control Act mandated a $917.0 billion
reduction in discretionary spending over the next decade, and $1.2 trillion in automatic spending cuts over a nine-year period
to be split between defense and non-defense programs beginning in January 2013.
9
On
November 2, 2015 Congress passed the Bipartisan Budget Act of 2015 which sets federal spending through the 2016 and 2017 fiscal
years, and eases strict caps on spending set forth in the 2011 sequestration. The plan lifted caps on the appropriated spending
each year by $50 billion in 2016 and $30 billion in 2017, evenly divided between defense and domestic programs with an additional
$16 billion added each year in the form of inflated war spending, evenly split between the Defense and State departments. The
agreed budget framework for the fiscal 2016 and 2017 budget years combined with the increased spending limits provides the needed
stability for the defense agencies to plan the required programs over the next two years. On November 10, 2015, Congress passed
the National Defense Authorization Act 2016, which is the comprehensive legislation to authorize the budget authority of the Department
of Defense and the national security programs of the Department of Energy. The bill authorizes $607 billion in defense funding
for fiscal year 2016, a 3.9% increase from the authorized funding of $584 billion in fiscal year 2015. As of August 15, 2016 the
National Defense Authorization funding for fiscal year 2017 has not yet been approved by Congress. The preliminary estimates on
the fiscal year 2017 spending are up slightly from 2016 levels to $611 billion. We are unable to tie the budget increase to any
specific military vehicle and as such, the impact of the funding increase to our company is unknown as of August 15, 2016.
If we fail to scale our operations appropriately in response to
growth and changes in demand, we may be unable to meet competitive
challenges or exploit potential market opportunities, and our
business could be materially and adversely affected.
Our past growth has placed, and any future growth in our historical
business is expected to continue to place, a significant strain on
our management personnel, infrastructure and resources. To
implement our current business and product plans, we will need to
continue to expand, train, manage and motivate our workforce, and
expand our operational and financial systems and our manufacturing
and service capabilities. All of these endeavors will require
substantial management effort and additional capital. If we are
unable to effectively manage our expanding operations, we may be
unable to scale our business quickly enough to meet competitive
challenges or exploit potential market opportunities, and our
current or future business could be materially and adversely
affected.
We do not have employment agreements with our key personnel, other
than our Chief Executive Officer, and our management has very
minimal unencumbered equity ownership in us. If we are not able to
retain our key personnel or attract additional key personnel as
required, we may not be able to implement our business plan and our
results of operations could be materially and adversely
affected.
We depend to a large extent on the abilities and continued
participation of our executive officers and other key employees.
The loss of any key employee could have a material adverse effect
on our business. We currently have only one employment agreement,
with our Chief Executive Officer which renews on an annual basis
and currently expires on December 1, 2016, and we do not presently
maintain “key man” insurance on any key employees. Our
management also has minimal unencumbered ownership interest in us,
thus limiting their direct stake in our outcome. We believe that as
our activities increase and change in character, additional,
experienced personnel will be required to implement our business
plan. Competition for such personnel is intense, and we cannot
assure you that they will be available when required, or that we
will have the ability to attract and retain them. In addition, due
to our small size, we do not presently have depth of staffing in
our executive, operational and financial management areas in order
to have an effective succession plan should the need arise. Thus,
in the event of the loss of one or more of our management
employees, our results of operations could be vulnerable to
challenges associated with recruiting additional key personnel, if
such recruiting efforts are not successful in a timely manner.
Certain of our products are dependent on specialized sources of
supply that are potentially subject to disruption which could have
a material, adverse impact on our business.
We have selectively single-sourced some of our material components
in order to mitigate excess procurement costs associated with
significant tooling and startup costs. Furthermore, because of the
nature of government contracts, we are often required to purchase
selected items from U.S. government approved suppliers, which may
further limit our ability to utilize multiple supply sources for
these key components.
To
the extent any of these single sourced or government approved suppliers may have disruptions in deliveries due to production,
quality, or other issues, we may also experience related production delays or unfavorable cost increases associated with retooling
and qualifying alternate suppliers. The impact of delays resulting from disruptions in supply for these items could negatively
impact our revenue, our reputation with our customers, and our results of operations. In addition, significant price increases
from single-source suppliers could have a negative impact on our profitability to the extent that we are unable to recover these
cost increases on our fixed price contracts.
10
Each
contract has a specific quantity of material which needs to be purchased, assembled, and shipped. Prior to bidding a contract,
we contact potential sources of material and receive qualified quotations for this material. In some cases, the entire volume
is given to a single supplier and in other cases; the volume might be split between several suppliers. If a contract has a single
source supplier and that supplier fails to meet their obligations (e.g., quality, delivery), then we would find an alternate supplier
and bring this information back to the final customer. Contractual deliverables would then be re-negotiated (e.g., specifications,
delivery, price). As of August 15, 2016, approximately 24% of our material requirements are single-sourced across 7 suppliers
representing approximately 11% of our active supplier orders. Single-sourced component requirements span across all of our major
product lines. The vast majority of these single-sourced components could be provided by another supplier with minimal interruption
in schedule (supply delay of 3 months or less) or minimally increased costs. We do not believe these single sourced materials
to pose any significant risk to us as other suppliers are capable of satisfying the purchase requirements in a reasonable time
period with minimal increases in cost. Of these single sourced components, we have contracts (purchase orders) with firm pricing
and delivery schedules in place with each of the suppliers to supply parts in satisfaction of our current contractual needs.
We
consider only those specialized single source suppliers where a disruption in the supply chain would result in a period of three
months or longer for us to identify and qualify a suitable replacement to present a material financial or schedule risk. In the
table below, we identify only those specialized single source suppliers and the product lines supported by those materials utilized
by us as of August 15, 2016.
Product
Line
|
|
Supplier
|
|
Supply
Item
|
|
Risk
|
|
Purchase
Orders
|
Sighting Systems
M36 DDAN
|
|
Raytheon EO Innovations
|
|
Digital camera system
|
|
Alternative source would take in excess of six months to qualify
|
|
Current firm fixed price & quantity purchase orders are in place with the supplier to
meet all contractual requirements. Supplier is on schedule.
|
|
|
|
|
|
|
|
|
|
Sighting Systems
M36 DDAN
|
|
Libra Industries
|
|
Digital camera system
|
|
Alternative source would take in excess of six months to qualify
|
|
New supplier is the designated replacement for Raytheon on M36 DDAN video system boards.
One P.O. is currently in place to drive the transfer from Raytheon.
|
|
|
|
|
|
|
|
|
|
Sighting Systems
M36 DDAN
|
|
L3 Comm Corp Warrior Systems.
|
|
Image Intensifier
|
|
Requires specialized, equipment. Alternative source would take
six months or more to qualify
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements. Supplier is on schedule.
|
|
|
|
|
|
|
|
|
|
Periscopes
|
|
Harbor Castings
|
|
Steel castings
|
|
Alternative source would take six months to qualify
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements.
|
|
|
|
|
|
|
|
|
|
Periscopes
|
|
Optical
Security LLC
|
|
Block Assembly
|
|
Alternative source would take six months to qualify
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements.
|
|
|
|
|
|
|
|
|
|
Applied Optics Center
Optical Assemblies
|
|
Outback Manufacturing
|
|
Erector Tube
|
|
Item is source directed by our customer. Alternative source
would take in excess of six months to qualify.
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements. Supplier is on schedule.
|
|
|
|
|
|
|
|
|
|
Applied Optics Center
ACOG Laser Filter Unit
|
|
Armament Technology
|
|
Anti-Reflective Device
|
|
No alternative source, item is source directed by U.S. Govt.
|
|
Firm fixed price & quantity purchase orders are in place with the supplier to meet all
contractual requirements. Supplier is on schedule.
|
11
The defense technology supply industry is subject to technological
change and if we are not able to keep up with our competitors
and/or they develop advanced technology as response to our
products, we may be at a competitive disadvantage.
The market for our products is generally characterized by
technological developments, evolving industry standards, changes in
customer requirements, frequent new product introductions and
enhancements, short product life cycles and severe price
competition. Our competitors could also develop new, more advanced
technologies in reaction to our products. Currently accepted
industry standards may change. Our success depends substantially on
our ability, on a cost-effective and timely basis, to continue to
enhance our existing products and to develop and introduce new
products that take advantage of technological advances and adhere
to evolving industry standards. An unexpected change in one or more
of the technologies related to our products, in market demand for
products based on a particular technology or of accepted industry
standards could materially and adversely affect our business. We
may or may not be able to develop new products in a timely and
satisfactory manner to address new industry standards and
technological changes, or to respond to new product announcements
by others. In addition, new products may or may not achieve market
acceptance.
As a result of our November 2014 acquisition of the Applied Optics
Center from L-3, we believe we have incurred the following
additional risks, which may have a material adverse effect on our
business results as we integrate the operations.
As a result of the purchase and integration of the Applied Optics
Center from L-3 with our traditional business lines, the combined
businesses are subject to some additional risks which were not
formerly present.
•
AOC has a substantial fixed cost base that is inflexible in the
short term to changes in market conditions. This is due to the
highly skilled and specialized workforce with established benefits
for severance and vacation accruals that may exceed 6 months. In
the short term, we may not be able to generate sufficient business
revenue to cover these costs, so there will likely be increased
cash flow requirements that exceed our availability and would
entail our raising additional funds to cover cash flow.
•
The manufacturing process entails use of coating equipment chambers
which require utilization of high amounts of electrical power and
are thus highly sensitive to changes in energy costs. Current
energy rates are locked in through May 28, 2018; however, if energy
costs or usage increase significantly, it would have a material
impact on future financials if AOC were unable to successfully
incorporate the increases into priced contracts. Further,
significant interruptions or surges in the electrical power supply
could result in equipment damage, repair expenses and machine down
time.
•
Above and beyond the normal risks to retain skilled personnel,
there may be an inability to retain the specialized work force of
AOC as a result of the changed corporate climate and the difference
in corporate values of L-3 and us. A failure to retain such
personnel could result in a material adverse ability to produce the
traditional AOC products or cause delays and additional costs as we
would need to train new personnel.
Unexpected warranty and product liability claims could adversely
affect our business and results of operations.
The possibility of future product failures could cause us to incur
substantial expense to repair or replace defective products. Some
of our customers require that we warrant the quality of our
products to meet customer requirements and be free of defects for
twelve to fifteen months subsequent to delivery. As of June
26, 2016, approximately 80% of our current contract deliveries were
covered by these warranty clauses. We establish reserves for
warranty claims based on our historical rate of less than one
percent of returned shipments against these contracts. There can be
no assurance that this reserve will be sufficient if we were to
experience an unexpectedly high incidence of problems with our
products. Significant increases in the incidence of such claims may
adversely affect our sales and our reputation with consumers. Costs
associated with warranty and product liability claims could
materially affect our financial condition and results of
operations.
We derive almost all of our revenue from three customers and the
loss of any of these customers could have a material adverse effect
on our revenues.
For
the year ended September 27, 2015, we derived approximately 83% of our gross operating revenue from four customers: 32.0% from
the U.S. Government (primarily USACC — Warren), 26.4% from General Dynamics Land Systems Divisions, 14.1% from L3 Communications,
Inc. and 11.1% from Nightforce Optics Inc. Procuring new customers and contracts may partially mitigate this risk. In particular,
a decision by either General Dynamics Land System Divisions or USACC-Warren to cease issuing contracts to us could have a significant
material impact on our business and results of operations given that they represent 58.4% of our gross business revenue. There
can be no assurance that we could replace these customers on a timely basis or at all.
12
We
have approximately 80 discrete contracts with General Dynamics Land System Division and the U.S. Government (primarily USACC-Warren),
and other prime contractors. If they choose to terminate these contracts, we are entitled to fully recover all contractual costs
and reasonable profits incurred up to or as a result of the terminated contract.
We only possess two patents and one patent license and rely
primarily on trade secrets to protect our intellectual
property.
We utilize several highly specialized and unique processes in the
manufacture of our products, for which we rely solely on trade
secrets to protect our innovations. We cannot assure you that we
will be able to maintain the confidentiality of our trade secrets
or that our non-disclosure agreements will provide meaningful
protection of our trade secrets, know-how or other proprietary
information in the event of any unauthorized use, misappropriation
or other disclosure. The non-disclosure agreements that are
designed to protect our trade secrets could be breached, and we
might not have adequate remedies for the breach.
It is also possible that our trade secrets will otherwise become
known or independently developed by our competitors, many of which
have substantially greater resources than us, and these competitors
may have applied for or obtained, or may in the future apply for or
obtain, patents that will prevent, limit or interfere with our
ability to make and sell some of our products. Although based upon
our general knowledge (and we have not conducted patent searches),
we believe that our products do not infringe on the patents or
other proprietary rights of third parties; however, we cannot
assure you that third parties will not assert infringement claims
against us or that such claims will not be successful.
We have one outstanding patent application. While we are optimistic
that our application will be approved, we cannot guarantee that
this patent application will ever result in an actual patent being
awarded. The application was based on technology which is believed
to be unique; however, there are many companies and many patents
already awarded in this space. Further, the time frame for the US
Patent and Trademark Office to review the patent application and
engage in negotiations cannot be guaranteed.
In the future, we may look to acquire other businesses in our
industry and the acquisitions will require us to use substantial
resources.
In
the future, we may decide to pursue acquisitions of other businesses in our industry. In order to successfully acquire other businesses,
we would be forced to spend significant resources for both acquisition and transactional costs, which could divert substantial
resources in terms of both financial and personnel capital from our current operations. Additionally, we might assume liabilities
of the acquired business, and the repayment of those liabilities could have a material adverse impact on our cash flow. Furthermore,
when a new business is integrated into our ongoing business, it is possible that there would be a period of integration and adjustment
required which could divert resources from ongoing business operations.
13
The
Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a shareholder’s
ability to buy and sell our stock.
FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities
to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes
that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your
ability to buy and sell our stock and have an adverse effect on the
market for our shares.
The elimination of monetary liability against our directors,
officers and employees under Delaware law and the existence of
indemnification rights to our directors, officers and employees may
result in substantial expenditures by us and may discourage
lawsuits against our directors, officers and
employees
.
We provide indemnification to our directors and officers to the
extent provided by Delaware law. The foregoing indemnification
obligation could result in our incurring substantial expenditures
to cover the cost of settlement or damage awards against directors
and officers, which we may be unable to recoup. These provisions
and resultant costs may also discourage us from bringing a lawsuit
against directors and officers for breaches of their fiduciary
duties and may similarly discourage the filing of derivative
litigation by our stockholders against our directors and officers
even though such actions, if successful, might otherwise benefit us
and our stockholders.
Risks
Related to Our Stock
We
have issued a large number of shares of preferred stock, warrants and options, which if converted or exercised would substantially
increase the number of common shares outstanding.
On July 14, 2016, we had 1,730,436
shares of common stock outstanding, and (a) we have options outstanding to purchase common stock that, if fully exercised, would
generate proceeds of $528,500 and result in the issuance of an additional 52,850 shares of common stock, and (b) we have 546 shares
of Series A preferred stock and 801.6 shares of Series B preferred stock that, if fully converted at the $2.50 conversion rate,
would result in the issuance of an additional 2,020,573 shares of common stock. Future sales of our common stock, warrants, options
and Series A and Series B preferred stock may also adversely affect our stock price and our ability to raise funds in new offerings.
As a key component of our growth strategy we have provided and
intend to continue offering compensation packages to our management
and employees that emphasize equity-based compensation and would
thus cause further dilution.
Historically, we have not paid dividends on our common stock, and
we do not anticipate paying any cash dividends in the foreseeable
future.
We
have never paid cash dividends on our common stock. We intend to retain our future earnings, if any, to fund operational and capital
expenditure needs of our business, and we do not anticipate paying any cash dividends in the foreseeable future. As a result,
capital appreciation, if any, of our common stock will be the sole source of gain for our common stockholders in the foreseeable
future.
Our stock price is speculative and there is a risk of
litigation.
The trading price of our common stock has in the past and may in
the future be subject to wide fluctuations in response to factors
such as the following:
•
revenue or results of operations in any quarter failing to meet the
expectations, published or otherwise, of the investment
community;
•
speculation in the press or investment community;
14
•
wide fluctuations in stock prices, particularly with respect to the
stock prices for other defense industry companies;
•
announcements of technological innovations by us or our
competitors;
•
new products or the acquisition of significant customers by us or
our competitors;
•
changes in investors’ beliefs as to the appropriate
price-earnings ratios for us and our competitors;
•
changes in management;
•
sales of common stock by directors and executive officers;
•
rumors or dissemination of false or misleading information,
particularly through Internet chat rooms, instant messaging, and
other rapid-dissemination methods;
•
conditions and trends in the defense industry generally;
•
the announcement of acquisitions or other significant transactions
by us or our competitors;
•
adoption of new accounting standards affecting our industry;
•
general market conditions;
•
domestic or international terrorism and other factors; and
•
the other factors described in this section.
Fluctuations in the price of our common stock may expose us to the
risk of securities class action lawsuits. Although no such lawsuits
are currently pending against us and we are not aware that any such
lawsuit is threatened to be filed in the future, there is no
assurance that we will not be sued based on fluctuations in the
price of our common stock. Defending against such suits could
result in substantial cost and divert management’s attention
and resources. In addition, any settlement or adverse determination
of such lawsuits could subject us to significant liability.
Future sales of our common stock could depress our stock
price.
Sales
of a large number of shares of our common stock, or the availability of a large number for sale, could materially adversely affect
the per share market price of our common stock and could impair our ability to raise funds in addition offering of our debt or
equity securities. In the event that we propose to register shares of common stock under the Securities Act for our own account,
certain shareholders are entitled to include their shares in the registration, subject to limitations described in the agreements
granting these rights.
If you are not an institutional investor, you may
purchase securities in this offering only if you reside within the states in which we will apply to have the securities registered
or are exempt from registration, and, if required, meet any requisite suitability standards.
Because our common stock is quoted
on the OTCQB Marketplace and not listed on a national securities exchange, this offering must be registered, or be exempt from
registration, in any state in which the securities are to be offered or sold. We will apply to register the securities, or will
seek to obtain an exemption from registration, only in certain states. If you are not an “institutional investor,”
you must be a resident of these jurisdictions to purchase our securities in the offering. The definition of an “institutional
investor” varies from state to state, but generally includes financial institutions, broker-dealers, banks, insurance companies
and other qualified entities. If you are not an institutional investor, you may purchase securities in this offering only if you
reside in the jurisdictions where there is an effective registration or an available exemption, and, if required, meet any requisite
suitability standards.
Cautionary Note
Regarding Forward-Looking Information
This prospectus, in particular the “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” appearing herein, contains certain
“forward-looking statements” within the meaning of
Section 27A of the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended (“Exchange
Act”). These forward-looking statements represent our
expectations, beliefs, intentions or strategies concerning future
events, including, but not limited to, any statements regarding our
assumptions about financial performance; the continuation of
historical trends; the sufficiency of our cash balances for future
liquidity and capital resource needs; the expected impact of
changes in accounting policies on our results of operations,
financial condition or cash flows; anticipated problems and our
plans for future operations; and the economy in general or the
future of the electrical storage device industry, all of which are
subject to various risks and uncertainties.
When used in this prospectus as well as in reports, statements, and
information we have filed with the Securities and Exchange
Commission, in our press releases, presentations to securities
analysts or investors, in oral statements made by or with the
approval of an executive officer, the words or phrases
“believes,” “may,” “will,”
“expects,” “should,”
“continue,” “anticipates,”
“intends,” “will likely result,”
“estimates,” “projects” or similar
expressions and variations thereof are intended to identify such
forward-looking statements. However, any statements contained in
this prospectus that are not statements of historical fact may be
deemed to be forward-looking statements. We caution that these
statements by their nature involve risks and uncertainties, certain
of which are beyond our control, and actual results may differ
materially depending on a variety of important factors.
15
USE
OF PROCEEDS
We estimate that we will receive up to
$4,750,280 in gross proceeds from the sale of common stock and warrants (and a potential additional $712,542 if the entire overallotment
is exercised) in this offering, based on an assumed price of $1.20 per combination of share of common stock and warrant, which
is based upon the closing price of our common stock on August 15, 2016 of $2.15, and corresponding warrant and after deducting
estimated underwriter fees and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option
in full, we estimate that the net proceeds from this offering will be approximately $2,255,950, excluding the proceeds, if any,
from the exercise of any warrants issued in the over-allotment option.
We intend to use the net proceeds from this
offering for the following purposes:
Proceeds:
|
|
|
|
|
Gross Proceeds without over allotment
|
|
$
|
4,750,280
|
|
Underwriter discount, fees and expenses
|
|
|
(743,520
|
)
|
Series A (66.4 shares) and B
preferred stock redemption (795.1 shares)
|
|
|
(1,750,810
|
)
|
Net Proceeds
|
|
$
|
2,255,950
|
|
|
|
|
|
|
Uses:
|
|
|
|
|
Working capital & operating expenses
|
|
|
416,190
|
|
Sales, marketing & business development
|
|
|
400,000
|
|
Acquisitions
|
|
|
1,439,760
|
|
Total Uses
|
|
$
|
2,255,950
|
|
The allocation of the net proceeds of the offering set forth above
represents our estimates based upon our current plans and
assumptions regarding industry and general economic conditions, our
future revenues and expenditures.
With respect to the portion of the use of proceeds to be utilized
for acquisitions, we have identified specific businesses as
potential acquisitions, thus we are in negotiations regarding any
such acquisitions, and we seek to commence active searches for such
businesses on an ongoing basis. The nature of businesses sought are
smaller divisions of major defense industry manufacturers which
will provide accretive and compatible businesses to our core
business, much as our Applied Optics Product Line acquisition in
November 2014. We seek to acquire businesses which manufacture
products which are compatible with our main night vision products
for the defense and commercial industries to either or both provide
supply of main components of our products and/or expand our product
offerings.
The amounts and timing of our actual expenditures will depend upon
numerous factors, including market conditions, cash generated by
our operations, business developments and related rate of growth.
We may find it necessary or advisable to use portions of the
proceeds from this offering for other purposes.
Circumstances that may give rise to a change in the use of proceeds
and the alternate purposes for which the proceeds may be used
include:
•
the existence of other opportunities or the need to take advantage
of changes in timing of our existing activities;
•
the need or desire on our part to accelerate, increase or eliminate
existing initiatives due to, among other things, changing market
conditions and competitive developments; and/or
•
if
strategic opportunities of which we are not currently aware present
themselves, including acquisitions, joint ventures, licensing and
other similar transactions.
From time to time, we evaluate these and other factors and we
anticipate continuing to make such evaluations to determine if the
existing allocation of capital, including the proceeds of this
offering, is being optimized. Pending such uses, we intend to
invest the net proceeds of this offering in direct and guaranteed
obligations of the United States, interest-bearing,
investment-grade instruments or certificates of deposit.
16
DILUTION
If you purchase securities in this
offering, your interest will be diluted immediately to the extent of the difference between the assumed public offering price
of $1.20 per share, based upon the closing price of our common stock on August 15, 2016 of $2.15, and the as adjusted net tangible
book value per share of our common stock immediately following this offering.
Our net tangible book value as of June
26, 2016 was $7.8 million. The net tangible book value per share is approximately $1.36 per share and represents our total tangible
assets less total liabilities and less the redemption value of $1.75 million of Series A (66.4) and Series B (795.1) preferred
shares, divided by the number of shares of common stock outstanding as of August 15, 2016 of 1,755,436 plus the conversion of
470.5 Series A preferred shares and 6.4 Series B preferred shares into 2,698,431 common shares as a condition of the offering.
Assuming
that we issue only Class A units (and no Class B units) at an assumed offering price of $1.20, net tangible book value dilution
per share of common stock to new investors represents the difference between the amount per share paid by purchasers in this offering
and the as adjusted net tangible book value per share of common stock immediately after completion of this offering. After giving
effect to our sale of 2,291,900 shares in this offering at an assumed public offering price of $1.20 per share, and after deducting
the underwriter commissions and estimated offering expenses, our as-adjusted net tangible book value as of June 26, 2016 would
have been $10.1 million, or $1.20 per share. This represents an immediate dilution in net tangible book value of ($0.16) per share
to existing stockholders and no change in net tangible book value per share to purchasers of shares in
this offering, as illustrated in the following table:
Public offering price per share
|
|
$
|
1.20
|
|
Increase per share to new investors
in the offering
|
|
$
|
-
|
|
Adjusted net tangible book value per share after giving
effect to the offering and preferred share conversions
|
|
$
|
1.20
|
|
|
|
|
|
|
Net tangible book value per share as of June 26, 2016 as adjusted for
preferred share conversions*
|
|
$
|
1.36
|
|
Decrease in net tangible book
value per share attributable to new investors
|
|
$
|
(0.16
|
)
|
Adjusted net tangible book value per share after giving
effect to the offering and preferred share conversions
|
|
$
|
1.20
|
|
The total number of shares of our common
stock outstanding after this offering is based on 1,755,436 shares outstanding as of August
15, 2016 and the conversion of preferred shares to 2,698,431 common shares on closing and excludes as of that date, the following:
•
52,850 shares of common stock issuable upon the exercise of vested options outstanding as of August 15, 2016, at a weighted average
exercise price of $10.00 per share;
•
17,150 shares of common stock reserved for future grant or issuance as of August 15, 2016 under all of our 2009 Stock Option
Plan;
•
1,000,000 shares of common stock reserved for future grant or issuance as of August 15, 2016 under our 2016 Restricted Stock Unit
Plan
•
3,958,700 shares of common stock issuable upon exercise of the warrants issued to the public in connection with this offering;
and
•
197,935 shares of common stock issuable upon exercise of the warrants to be received by the underwriter in connection with this
offering.
Except as otherwise indicated herein,
all information in this prospectus assumes the underwriter does not sell any common stock contained in the over-allotment option.
17
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our common
stock. We currently anticipate that we will retain all future
earnings for the expansion and operation of our business and do not
anticipate paying cash dividends in the foreseeable future.
Otherwise, the payment of dividends on common stock, if any, in the
future is within the discretion of our Board and will depend on its
earnings, capital requirements and financial condition and other
relevant facts.
18
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of June 26, 2016:
•
on
an actual basis; and
•
on a pro forma basis, based upon an assumed offering price of $1.20 per share of common stock and corresponding warrant,
to give effect to the sale of 2,291,900 shares of common stock in this offering, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
Based
on the assumed offering price of $1.20 per Class A unit, and no Class B units are sold, which is based upon the closing price
of our common stock on August 15, 2016, we allocated the $4.75 million aggregate consideration to common stock. The pro forma information
below is only for illustrative purposes and our capitalization following the completion of this offering will be adjusted based
on the actual offering price and other terms of this offering determined at pricing. The pro forma information below is only for
illustrative purposes and our capitalization following the completion of this offering will be adjusted based on the actual offering
price and other terms of this offering determined at pricing. You should read this table in conjunction with “Use of Proceeds”
above as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and financial statements and the related notes appearing elsewhere in this prospectus.
|
|
June 26, 2016
|
|
|
|
Unaudited
Actual
|
|
|
Unaudited
Pro
Forma
|
|
|
|
(in thousands except share amounts)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash & Cash Equivalents
|
|
$
|
601
|
|
|
$
|
2,857
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
|
730
|
|
|
|
730
|
|
Total Liabilities
|
|
$
|
730
|
|
|
$
|
730
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred Stock Series A ($.001 par 5,000 authorized,
546 and zero Series A preferred shares issued and outstanding, respectively)
|
|
|
—
|
|
|
|
—
|
|
Preferred Stock Series B ($.001 par 1,010 authorized,
969 and zero Series B preferred shares issued and outstanding, respectively)
|
|
|
—
|
|
|
|
—
|
|
Preferred Stock Series C ($.001 par 400 authorized,
zero and 400 Series C preferred shares issued and outstanding, respectively)
|
|
|
—
|
|
|
|
—
|
|
Common Stock – (par $.001, 2,000,000,000 authorized,
1,621,145 and 6,745,767 shares issued and outstanding, respectively)
|
|
|
2
|
|
|
|
7
|
|
Additional Paid-in-capital
|
|
|
26,504
|
|
|
|
28,755
|
|
Retained Earnings (Deficit)
|
|
|
(18,593
|
)
|
|
|
(18,593
|
)
|
Total Stockholders’
Equity
|
|
|
7,913
|
|
|
|
10,169
|
|
Capitalization
|
|
$
|
8,643
|
|
|
$
|
10,899
|
|
The total
number of shares of our common stock outstanding in the table above is based on 1,621,145 shares outstanding as of June 26, 2016,
and includes conversions of Series A and B preferred shares to 134,291 common shares through August 15, 2016 and conversion of
preferred shares to 2,698,431 common shares at closing and excludes as of that date, the following:
•
52,850 shares of common stock issuable upon the exercise of vested options outstanding as of June 26, 2016, at a
weighted average exercise price of $10.00 per share;
•
17,150 shares of common stock reserved for future grant or issuance as of June 26, 2016 under all of our 2009 Stock Option Plan;
•
1,000,000 shares of common stock reserved for future grant or issuance as of August 15,
2016 under our 2016 Restricted Stock Unit Plan
•
3,958,700 shares of common stock issuable upon exercise of the warrants issued to the public in connection with this offering;
and
•
197,935 shares of common stock issuable upon exercise of the warrants to be received by the underwriter in connection with this
offering.
19
Except
as otherwise indicated herein, all information in this prospectus assumes the underwriter does not sell any common stock contained
in the over-allotment option.
20
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
information
Our
common stock is currently quoted on the OTCQB Marketplace under the symbol “OPXS”. Trading in our common stock has
historically lacked consistent volume, and the market price has been volatile.
The following table shows the range of
high and low bid prices for our common stock as reported by the OTCQB Marketplace. The quotations reflect inter-dealer prices,
without retail markup, markdown or commission and may not represent actual transactions.
|
|
|
|
|
Fourth
Quarter 2013
|
|
$
|
20.00
|
|
$
|
8.00
|
First
Quarter 2014
|
|
$
|
9.00
|
|
$
|
8.00
|
Second
Quarter 2014
|
|
$
|
30.00
|
|
$
|
30.00
|
Third
Quarter 2014
|
|
$
|
10.00
|
|
$
|
10.00
|
Fourth
Quarter 2014
|
|
$
|
20.00
|
|
$
|
10.00
|
First
Quarter 2015
|
|
$
|
10.00
|
|
$
|
10.00
|
Second
Quarter 2015
|
|
$
|
10.00
|
|
$
|
8.00
|
Third
Quarter 2015
|
|
$
|
7.00
|
|
$
|
5.00
|
Fourth
Quarter 2015
|
|
$
|
8.00
|
|
$
|
8.00
|
First
Quarter 2016
|
|
$
|
7.30
|
|
$
|
2.60
|
Second
Quarter 2016
|
|
$
|
3.50
|
|
$
|
2.00
|
Third
Quarter 2016
|
|
$
|
2.60
|
|
$
|
1.75
|
On
August 15, 2016, the closing price for our common stock as reported on the OTCQB was $2.15 per share.
Securities outstanding and holders of record
On August 15, 2016, there were approximately
80 shareholders of record for our common stock and 1,755,436 shares of our common stock issued and outstanding.
Dividends
We have never paid dividends. We currently anticipate that we will
retain all future earnings for the expansion and operation of our
business and do not anticipate paying cash dividends in the
foreseeable future.
21
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the period ended September 27,
2015 is hereby incorporated by reference in their entirety from our Form 10-K for the year ended September 27, 2015, filed with
the SEC on December 15, 2015
3
. The Management’s Discussion and Analysis of Financial Condition and Results of
Operations for the periods ended December 27, 2015, March 27, 2016 and June 26, 2016 are hereby incorporated by reference in their
entirety from our Form 10-Qs for the quarters ended December 27, 2015, March 27, 2016 and June 26, 2016, filed with the SEC on
February 16, 2016, May 11, 2016 and August 8, 2016, respectively.
22
FINANCIAL
STATEMENTS FOR THE YEAR ENDED SEPTEMBER 27, 2015 AND SEPTEMBER 28, 2014 AND THE QUARTERS ENDED DECEMBER 27, 2015 AND DECEMBER
28, 2014, MARCH 27, 2016 AND MARCH 28, 2015 AND JUNE 26, 2016 AND JUNE 28, 2015.
Our
audited financial statements for the years ended September 27, 2015 and September 28, 2014, and the quarters ended December 27,
2015 and December 28, 2014, March 27, 2016 and March 28, 2015 and June 26, 2016 and June 28, 2015, respectively, are hereby incorporated
by reference in their entirety from our Form 10-K for the year ended September 27, 2015, filed with the SEC on December 15, 2015
and our Form 10-Qs for the quarters ended December 27, 2015, March 27, 2016 and June 26, 2016, filed with the SEC on February
16, 2016, May 11, 2016 and August 8, 2016, respectively.
23
BUSINESS
Background
Prior History —
Sustut Exploration, Inc.
Sustut Exploration, Inc. was a Delaware corporation formed on April
11, 2006 to search for available mining properties in North Central
British Columbia. It entered into an option agreement in 2006 to
purchase a mineral claim, and the option expired in May 2008
without any payment being made. Thus, as of May 2008, Sustut had no
operating business.
As a result of the reorganization on March 30, 2009, which is
described below, Optex Systems Holdings changed its name from
Sustut Exploration Inc. to Optex Systems Holdings, Inc.
Reorganization
On
March 30, 2009, a reorganization occurred whereby the then existing shareholders of Optex Systems, Inc., a private Delaware corporation
(“Optex Systems, Inc. (Delaware)”), exchanged their shares of Optex Systems, Inc. (Delaware) common stock with the
shares of common stock of us as follows (all on a pre-split basis due to the historical context): (i) the outstanding 85,000,000
shares of Optex Systems, Inc. (Delaware) common stock were exchanged for 113,333,282 shares of our common stock, (ii) the outstanding
1,027 shares of Optex Systems, Inc. (Delaware) Series A preferred stock were exchanged for 1,027 shares of Series A preferred
stock and (iii) the 8,131,667 shares of Optex Systems, Inc. (Delaware) common stock purchased in the private placement were exchanged
for 8,131,667 (presplit) shares of us common stock. Optex Systems, Inc. (Delaware) has remained our wholly-owned subsidiary.
Current Line of
Business
We manufacture optical sighting systems and assemblies, primarily
for Department of Defense applications. Our products are installed
on various types of U.S. military land vehicles, such as the Abrams
and Bradley fighting vehicles, light armored and armored security
vehicles and have been selected for installation on the Stryker
family of vehicles. We also manufacture and deliver numerous
periscope configurations, rifle and surveillance sights and night
vision optical assemblies. Our products consist primarily of
build-to-customer print products that are delivered both directly
to the armed services and to other defense prime contractors. Less
than 1% of today’s revenue is related to the resale of
products substantially manufactured by others. In this case, the
product would likely be a simple replacement part of a larger
system previously produced by us.
We continue to field new product opportunities from both domestic
and international customers. Given continuing unrest in multiple
global hot spots, the need for precision optics continues to
increase. Most of these requirements are for observation and
situational awareness applications; however, we continue to see
requests for higher magnification and custom reticles in various
product modifications. The basic need to protect the soldier while
providing information about the mission environment continues to be
the primary driver for these requirements.
We do not believe that the upcoming presidential election will
cause a major change in the direction of funding or product need
for the U.S. military. Maintenance will still be required, and the
opportunities for us to upgrade existing systems with higher
performing systems will continue to present themselves. Spending
levels may change, but given the mix between foreign spending,
domestic/prime demand, and the more recent commercial
opportunities, we do not expect any negative trends arising from
political domestic changes into fiscal 2017.
Recent
Events
Reverse Stock Split
On October 6, 2015, 20 calendar days had passed since the mailing
to our shareholders of the Definitive Schedule 14C filed on
September 11, 2015 regarding the approval by our Board of Directors
and shareholders of a reverse stock split of our common stock, in a
ratio to be determined by our board of directors, of not less than
1-for-400 nor more than 1-for-1000 and on October 7, 2015, we
effected a 1-for-1000 reverse split of our common stock.
24
Resignations
of Directors
Effective November 3, 2015, Stanley Hirschman retired as one of our
directors. In recognition of his service, all of his unvested stock
options were deemed to vest immediately, and the termination date
of all of his stock options was extended to December 31, 2019. On
May 26, 2016, Kerry Craven resigned as one of our directors.
Compensation Changes
On January 21, 2016, our Board of Directors Compensation Committee
held a meeting and approved the following compensation changes:
•
A
base salary increase of 10% for Danny Schoening, CEO, and Karen
Hawkins, CFO.
•
A
bonus payment of $7.5 thousand awarded to Karen Hawkins for 2015
performance.
•
A
$10 thousand monthly director fee for Peter Benz, Chairman,
effective for calendar 2016.
Credit Facility — Avidbank
On April 20, 2016, we amended our revolving credit facility with
Avidbank. The new renewable revolving maturity date is January 22,
2018. The facility provides up to $2 million in financing against
eligible receivables and is subject to meeting certain covenants
including an asset coverage ratio test for up to twenty months. The
material terms of the amended revolving credit facility are as
follows:
•
The interest rate for all advances shall be the then in effect
prime rate plus 2.5% and is subject to a minimum interest payment
requirement per six month period of $10,000.
•
Interest shall be paid monthly in arrears.
•
A
facility fee of (0.5%) of the revolving line ($10,000) was due (and
paid) on May 22, 2016 and each anniversary thereof for so long as
the revolving credit facility is in effect.
•
The loan period is from April 20 through January 22, 2018 at which
time any outstanding advances, and accrued and unpaid interest
thereon, will be due and payable.
•
Our obligations to Avidbank are secured by a first lien on all of
its assets (including intellectual property assets should it have
any in the future) in favor of Avidbank.
•
The facility contains customary events of default. Upon the
occurrence of an event of default that remains uncured after any
applicable cure period, Avidbank’s commitment to make further
advances may terminate, and Avidbank would also be entitled to
pursue other remedies against us and the pledged collateral.
•
Pursuant to a guaranty executed by Optex Systems Holdings in favor of Avidbank, Optex Systems Holdings has guaranteed all
obligations of Optex Systems, Inc. to Avidbank.
25
2016
Restricted Stock Unit Plan
On June 14, 2016, our
Compensation Committee approved our 2016 Restricted Stock Unit
Plan. This plan provides for issuance of stock units
(“RSUs”) for up to 1,000,000 shares of our common
stock. Each RSU constitutes a right to receive one share of our
common stock, subject to vesting, which unless otherwise stated in
an RSU agreement, shall vest in equal amounts on the first, second
and third anniversary of the grant date. Shares of our common stock
underlying the number of vested RSUs will be delivered as soon as
practicable after vesting. During the period between grant and
vesting, the RSUs may not be transferred, and the grantee has no
rights as a shareholder until vesting has occurred. If the
grantee’s employment is terminated for any reason (other than
following a change in control of us or a termination of an officer
other than for cause), then any unvested RSUs under the award will
automatically terminate and be forfeited. If an officer
grantee’s employment is terminated by us without cause or by
the grantee for good reason, then, provided that the RSUs have not
been previously forfeited, the remaining unvested portion of the
RSUs will immediately vest as of the officer grantee’s
termination date. In the event of a change in control, our
obligations regarding outstanding RSUs shall, on such terms as may
be approved by the Committee prior to such event, immediately vest,
be assumed by the surviving or continuing company or cancelled in
exchange for property (including cash).
On June 15, 2016, we issued 150,000 RSUs to our Chief Executive
Officer, Danny Schoening, and 50,000 RSUs to our Chief Financial
Officer, Karen Hawkins. The RSUs issued to Mr. Schoening and Ms.
Hawkins vest as follows: 34% on January 1, 2017, 33% on January 1,
2018 and 33% on January 1, 2019.
New Product Development
During the first six months of 2015, we released a new digital
spotting scope called Red Tail (patent pending). This device is
targeted towards long range observation and image recording used by
military, border patrol, and select consumer/commercial
applications. The device is designed to deliver high definition
images with military grade resolution, but at commercial “off
the shelf” pricing. Using high grade optics to deliver a 45X
magnified image onto a 5 megapixel CMOS sensor, the Red Tail device
then transmits this image via Wi-Fi to the user’s smartphone
or tablet. Digital still images or videos can then be captured
and/or emailed using a custom Red Tail app available for either iOS
or Android devices. We demonstrated this device in April 2015 at
the Border Security Expo in Phoenix, Arizona and received positive
feedback from U.S. border agents, police officers, and other Expo
attendees.
On November 10, 2015, we entered into a retail sales relationship
with Cabela’s Inc., to distribute our Red Tail Digital
Spotting Scope as well as our new Stabilized Monocular. We are
presently in negotiations to make these devices available via
General Services Administration schedules for government
personnel.
Products
Our
products are installed on various types of U.S. military land vehicles, such as the Abrams and Bradley, and Stryker families of
fighting vehicles, as well as light armored and armored security vehicles. We also manufacture and deliver numerous periscope
configurations, rifle and surveillance sights and night vision optical assemblies. We deliver our products both directly to the
federal government and to prime contractors.
26
We deliver high volume products, under multi-year contracts, to large defense contractors and government customers.
Increased emphasis in the past two years has been on new opportunities to promote and deliver our products in foreign
military sales, where U.S.-manufactured, combat and wheeled vehicles, are supplied (and upgraded) in cooperation with the
U.S. Department of Defense. We have a reputation for quality and credibility with our customers as a strategic supplier. We
also anticipate the opportunity to integrate some of our night vision and optical sights products into commercial
applications.
Specific product categories include:
•
Electronic sighting systems
•
Mechanical sighting systems
•
Laser protected plastic and glass periscopes
•
Non-laser protected plastic and glass periscopes
•
Howitzer sighting systems
•
M36 Thermal Day/Night Periscopes
•
M17 Day/Thermal Periscopes
•
Ship binoculars
•
Replacement optics (e.g. filters, mirrors)
•
Optical assemblies and laser filters
|
|
|
Periscopes
|
|
Laser & Non Laser Protected Plastic &
Glass Periscopes, Electronic M17 Day/Thermal Periscopes, Vision
Blocks
|
|
|
|
Sighting Systems
|
|
Back Up Sights, Digital Day and Night Sighting
Systems (DDAN), M36 Thermal Periscope, Unity Mirrors
|
|
|
|
Howitzers
|
|
M137 Telescope, M187 Mount, M119 Aiming
Device
|
|
|
|
Other
|
|
Muzzle Reference Systems (MRS), Binoculars,
Collimators, Optical Lenses & Elements, Windows
|
|
|
|
Applied Optics Center
|
|
ACOG Laser filter, Laser Filter Interface,
Optical Assemblies
|
Location
and Facility
We are headquartered in Richardson, TX and lease approximately
93,733 combined square feet of facilities including Richardson,
Texas and Dallas, Texas. As of December 11, 2015, we had 92 full
time equivalent employees. We operate with a single shift, and
capacity could be expanded by adding a second shift. Our
proprietary processes and methodologies provide barriers to entry
for other competing suppliers. In many cases, we are the sole
source provider or one of only two providers of a product. We have
capabilities which include machining, bonding, painting, tracking,
engraving and assembly and can perform both optical and
environmental testing in-house. We renewed the lease on our 49,100
square foot, Richardson, Texas facility, effective as of December
10, 2013, with a lease expiration of March 31, 2021. As of December
11, 2015, the Richardson facility operates with 58 full time
equivalent employees in a single shift operation.
In November 2014, we also acquired a business unit from L-3
Communications, Inc., which is described herein below under
“Recent Events — Acquisition”. The acquisition,
Applied Optics Center, is located in Dallas, Texas with leased
premises consisting of approximately 56,633 square feet of space,
of which 12,000 square feet is currently subleased to L3 Mobile
Vision. As of December 11, 2015, the Applied Optics Center operates
with 34 full time equivalent employees in a single shift
operation.
27
Contracts
Many of our contracts allow for government
contract financing in the form of contract progress payments pursuant to Federal Acquisition Regulation 52.232-16, “Progress
Payments”. As a small business, and subject to certain limitations, this clause provides for government payment of
up to 90% of incurred program costs prior to product delivery. To the extent our contracts allow for progress payments, we
intend to utilize this benefit, thereby minimizing the working capital impact on us for materials and labor required to complete
the contracts.
Our
contracts allow for Federal Acquisition Regulation 52.243-1 which entitles the contractor to an “equitable adjustment”
to the contract if the contract changes result in a change in contract costs or time of performance. In essence, an
equitable price adjustment request is a request for a contract price modification (generally an increase) that allows for the
contractor to be “made whole” for additional costs incurred which were necessitated by some modification of the contract
effort. This modification may come from an overt change in U.S. Government requirements or scope, or it may come from
a change in the conditions surrounding the contract (e.g., differing site conditions or late delivery of U.S. Government-furnished
property) which result in statement of work additions, deletions, part substitutions, schedule or other changes to the contract
which impact the contractor’s overall cost to complete.
During 2010, Optex Systems Holdings realized increased losses
against the Howitzer programs of $1.1 million of which $0.8 million related specifically to production issues encountered on our
Howitzer product line. Increased losses were primarily attributable to manufacturing issues on our U.S. government Howitzer
Aiming Circles culminating in higher material scrap and labor hours, combined with a reduction in total production volume in 2010
which further impacted production efficiencies across all product lines. Optex Systems Holdings requested an equitable adjustment
on this program due to significant design issues impacting the manufacturability of the product. As there was no guarantee
that the request would be granted in part or in full, we realized the entire loss in fiscal year 2010. The initial equitable
adjustment claim was formally rejected by the contracting agency on May 31, 2012; however, we appealed the decision with the Armed
Services Board of Contract Appeals (ASBCA). In September 2015, the U.S. Government agreed to a $0.9 million settlement against
the claim for the Aiming Circle contract number W52H09-06-D-0229. The settlement is the result of a negotiation and fact gathering
process managed through the Armed Services Contract Board of Appeals. A contract modification was issued on September 23, 2015
increasing the total contract price by the agreed amount. As the respective units were shipped complete in 2011, the contract
was essentially complete on execution of the modification and the entire amount was recorded as revenue for the twelve months
ended September 27, 2015.
Each contract with our customers has specific
quantities of material that need to be purchased, assembled, and then shipped. Prior to bidding a contract, we contact potential
sources of material and receive qualified quotations for each material. In some cases, the entire volume is given to a single
supplier and in other cases, the volume might be split between several suppliers. If a contract has a single source supplier and
that supplier fails to meet their obligations (e.g., quality, delivery), then we would attempt to find an acceptable alternate
supplier, and if successful, we would then renegotiate contractual deliverables (e.g., specifications, delivery, price). As of
June 26, 2016, approximately 24% of our material requirements are single-sourced across 7 suppliers representing approximately
11% of our active supplier orders. Single-sourced component requirements span across all of our major product lines. Of these
single sourced components, we have material contracts (purchase orders) with firm pricing and delivery schedules in place with
each of the suppliers to supply the parts necessary to satisfy our current contractual needs.
We are subject to, and must comply with, various governmental
regulations that impact, among other things, our revenue, operating
costs, profit margins and the internal organization and operation
of our business. The material regulations affecting our U.S.
government business are summarized in the table below.
|
|
|
Federal Acquisition Regulation
|
|
The principal set of rules in the Federal
Acquisition Regulation System. This system consists of sets of
regulations issued by agencies of the federal government of the
United States to govern what is called the “acquisition
process,” which is the process through which the government
acquires goods and services. That process consists of three phases:
(1) need recognition and acquisition planning, (2) contract
formation, and (3) contract administration. This system regulates
the activities of government personnel in carrying out that
process. It does not regulate the purchasing activities of private
sector firms, except to the extent that those activities involve
government solicitations and contracts by reference.
|
|
|
|
International Traffic in Arms
Regulations
|
|
United States government regulations that
control the export and import of defense-related articles and
services on the United States Munitions List. These regulations
implement the provisions of the Arms Export Control Act.
|
|
|
|
Truth in Negotiations Act
|
|
A public law enacted for the purpose of
providing for full and fair disclosure by contractors in the
conduct of negotiations with the government. The most significant
provision included is the requirement that contractors submit
certified cost and pricing data for negotiated procurements above a
defined threshold of $750,000. It requires contractors to provide
the government with an extremely broad range of cost or pricing
information relevant to the expected costs of contract performance,
and it requires contractors and subcontractors to submit cost or
pricing data to the government and to certify that, to the best of
their knowledge and belief, the data are current, accurate, and
complete.
|
We
are responsible for full compliance with the Federal Acquisition Regulation. Upon award, the contract may identify certain regulations
that we need to meet. For example, a contract may allow progress billing pursuant to specific Federal Acquisition Regulation clauses
incorporated into the contract. Other contracts may call for specific first article acceptance and testing requirements. The Federal
Acquisition Regulation will identify the specific regulations that we must follow based on the type of contract awarded. The Federal
Acquisition Regulation also contains guidelines and regulations for managing a contract after award, including conditions under
which contracts may be terminated, in whole or in part, at the government’s convenience or for default. These regulations
also subject us to financial audits and other reviews by the government of our costs, performance, accounting and general business
practices relating to our government contracts, which may result in adjustment of our contract-related costs and fees and, among
other things and impose accounting rules that define allowable and unallowable costs governing our right to reimbursement under
certain contracts.
28
First Article Testing and Acceptance requirements consist of
specific steps. For example, the first article testing associated
with Howitzer-type product is comprehensive and time consuming. The
dimensions and material specifications of each piece of the
assembly must be verified, and each product has in excess of 100
piece parts. Once the individual piece parts are verified to be compliant to the specification, the assembly processes are
documented and verified. A sample of the production (typically
three units) is verified to meet final performance specifications.
Once the units meet the final performance specification, they are
then subjected to accelerated life testing, a series of tests which
simulate the lifetime use of the product in the field. This
consists of exposing the units to thermal extremes, humidity,
mechanical shock, vibration, and other physical exposure tests.
Once completed, the units undergo a final verification process to
ensure that no damage has occurred as a result of the testing and
that they continue to meet the performance specification. All of
the information and data is recorded into a final first article
inspection and test report and submitted to the customer along with
the test units for final approval. First Article Acceptance and
Testing is generally required on new contracts/product awards but
may also be required on existing products or contracts where there
has been a significant gap in production, or where the product has
undergone significant manufacturing process, material, tooling,
equipment or product configuration changes.
We are also subject to laws, regulations and executive orders
restricting the use and dissemination of information deemed
classified for national security purposes and the exportation of
certain products and technical data as covered by the International
Traffic in Arms Regulation. In order to import or export items
listed on the U.S. Munitions List, we are required to be registered
with the Directorate of Defense Trade Controls office. The
registration is valid for one year, and the registration fees are
established based on the number of license applications submitted
the previous year. We currently have an approved and current
registration on file with the Directorate of Defense Trade Controls
office. Once the registration is approved, each import/export
license must be filed separately. License approval requires the
company to provide proof of need, such as a valid contract or
purchase order requirement for the specific product or technical
data requested on the license and requires a detailed listing of
the items requested for export/import, the end-user, the end-user
statement, the value of the items, consignees/freight forwarders
and a copy of a valid contract or purchase order from the end-user.
The approval process for the license can vary from several weeks to
six months or more. The licenses we currently use are the DSP-5
(permanent export), DSP-6 (license revisions) and DSP-73 (temporary
export).
The aforementioned licenses are valid for 48 months from date that
each such license is issued as set forth on the table below
(updated as of June 30, 2016).
DSP – 5 licenses
|
|
Issue
Date
|
|
Expiration
Date
(48 months
of issue)
|
50397890
|
|
8/8/2012
|
|
8/7/2016
|
50398181
|
|
8/10/2012
|
|
8/9/2016
|
50398178
|
|
8/10/2012
|
|
8/9/2016
|
50402338
|
|
8/29/2012
|
|
8/28/2016
|
50403055
|
|
9/6/2012
|
|
9/5/2016
|
50399603
|
|
9/18/2012
|
|
9/17/2016
|
50401835
|
|
9/12/2012
|
|
9/11/2016
|
50430589
|
|
1/25/2013
|
|
1/22/2017
|
50435218
|
|
3/7/2013
|
|
3/5/2017
|
50435219
|
|
3/7/2013
|
|
3/5/2017
|
50439431
|
|
3/7/2013
|
|
11/4/2017
|
50455029
|
|
6/10/2013
|
|
6/8/2017
|
50459204
|
|
6/28/2013
|
|
6/26/2017
|
50468553
|
|
7/29/2013
|
|
7/28/2017
|
50468550
|
|
8/30/2013
|
|
8/28/2017
|
50470855
|
|
9/9/2013
|
|
9/8/2017
|
50486913
|
|
11/20/2013
|
|
11/19/2017
|
50486760
|
|
12/5/2013
|
|
12/4/2017
|
50486727
|
|
12/6/2013
|
|
12/5/2017
|
50490381
|
|
12/11/2013
|
|
12/10/2017
|
50490628
|
|
1/3/2014
|
|
1/2/2018
|
50490371
|
|
1/14/2014
|
|
1/13/2018
|
50497324
|
|
2/1/2014
|
|
1/31/2018
|
50497307
|
|
2/12/2014
|
|
2/11/2018
|
29
DSP
– 5 licenses
|
|
Issue
Date
|
|
Expiration
Date
(48 months
of issue)
|
50497324
|
|
2/20/2014
|
|
2/19/2018
|
50497162
|
|
2/20/2014
|
|
2/19/2018
|
50501481
|
|
2/26/2014
|
|
2/25/2018
|
50504795
|
|
3/27/2014
|
|
3/26/2018
|
50511388
|
|
4/21/2014
|
|
4/20/2018
|
50510061
|
|
5/19/2014
|
|
5/18/2018
|
50521562
|
|
6/27/2014
|
|
6/26/2018
|
50521680
|
|
7/7/2014
|
|
7/6/2018
|
50521706
|
|
7/15/2014
|
|
7/14/2018
|
50521673
|
|
7/15/2014
|
|
7/14/2018
|
50521555
|
|
7/17/2014
|
|
7/16/2018
|
50530555
|
|
9/22/2014
|
|
9/21/2018
|
50537697
|
|
10/30/2014
|
|
10/29/2018
|
50539610
|
|
11/14/2014
|
|
11/13/2018
|
50486913
|
|
11/20/2014
|
|
11/19/2018
|
50537673
|
|
11/25/2014
|
|
11/24/2018
|
50546222
|
|
1/9/2015
|
|
1/8/2019
|
50549789
|
|
2/18/2015
|
|
2/17/2019
|
50549846
|
|
2/23/2015
|
|
2/22/2019
|
50549534
|
|
2/25/2015
|
|
2/24/2019
|
50549933
|
|
2/27/2015
|
|
2/26/2019
|
50549843
|
|
3/23/2015
|
|
3/22/2019
|
50553876
|
|
3/27/2015
|
|
3/26/2019
|
50553879
|
|
3/23/2015
|
|
3/22/2019
|
50560846
|
|
5/21/2015
|
|
5/20/2019
|
50560953
|
|
5/29/2015
|
|
5/28/2019
|
50560953
|
|
5/29/2015
|
|
5/28/2019
|
50561878
|
|
6/05/2015
|
|
6/4/2019
|
50562319
|
|
6/12/2015
|
|
6/11/2019
|
50568890
|
|
8/7/2015
|
|
8/6/2019
|
50565738
|
|
7/9/2015
|
|
7/8/2019
|
050566061
|
|
7/22/2015
|
|
7/21/2019
|
050561747
|
|
7/27/2015
|
|
7/26/2019
|
050565746
|
|
7/30/2015
|
|
7/29/2019
|
050568890
|
|
8/7/2015
|
|
8/6/2019
|
050570373
|
|
8/21/2015
|
|
8/20/2019
|
050571083
|
|
9/8/2015
|
|
9/7/2019
|
050574185
|
|
9/25/2015
|
|
9/24/2019
|
050573342
|
|
10/7/2015
|
|
10/6/2019
|
050573343
|
|
10/7/2015
|
|
10/6/2019
|
050581564
|
|
12/11/2015
|
|
12/10/2019
|
050581341
|
|
12/17/2015
|
|
12/16/2019
|
050582302
|
|
12/17/2015
|
|
12/16/2019
|
050581218
|
|
12/18/2015
|
|
12/17/2019
|
050581341
|
|
12/17/2015
|
|
12/16/2019
|
050582108
|
|
1/20/2016
|
|
1/19/2020
|
050586060
|
|
2/24/2016
|
|
2/23/2020
|
050598474
|
|
6/10/2016
|
|
6/9/2020
|
050596660
|
|
6/23/2016
|
|
6/22/2020
|
30
DSP – 6 licenses
|
|
Issue Date
|
|
Expiration Date
(48 months
of issue)
|
060046631
|
|
10/22/2015
|
|
10/20/2019
|
060046632
|
|
10/21/2015
|
|
10/20/2019
|
DSP – 73 Licenses
|
|
Date Issued
|
|
Expiration Date
(48 months
of issue)
|
730038918
|
|
8/13/2012
|
|
8/12/2016
|
730039701
|
|
9/26/2012
|
|
9/24/2016
|
730053549
|
|
7/29/2015
|
|
7/28/2019
|
Licenses are subject
to termination if a licensee is found to be in violation of the Arms Export Control Act or the International Traffic in Arms Regulations
requirements. If a licensee is found to be in violation, in addition to a termination of its licenses, it can be subject to fines
and penalties by the government.
Our contracts may also be governed by the Truth in Negotiation Act
requirements where certain of our contracts or proposals exceed the
$750,000 threshold and/or are deemed as sole source, or
non-competitive awards, covered under this act. For these
contracts, we must provide a vast array of cost and pricing data in
addition to certification that our pricing data and disclosure
materials are current, accurate and complete upon conclusion of the
negotiation. Due to the additional disclosure and certification
requirements, if a post contract award audit were to uncover that
the pricing data provided was in any way not current, accurate or
complete as of the certification date, we could be subjected to a
defective pricing claim adjustment with accrued interest.
Currently, we do not have any pending defective pricing claim
adjustments. Additionally, as a result of this requirement,
contract price negotiations may span from two to six months and can
result in undefinitized or not to exceed ceiling priced contracts
subject to future downward negotiations and price adjustments.
Currently, we do not have any undefinitized contracts subject to
further price negotiation.
Our failure to comply with applicable regulations, rules and
approvals or misconduct by any of our employees could result in the
imposition of fines and penalties, the loss of security clearances,
the loss of our U.S. government contracts or our suspension or
debarment from contracting with the U.S. government generally, any
of which could have a material adverse effect our business,
financial condition, results of operations and cash flows. We are
currently in compliance with all applicable regulations and do not
have any pending claims as a result of noncompliance.
The terms of our material contracts are as follows (updated as of
June 26, 2016):
Customer
|
|
Customer
PO/Contract
|
|
Contract
Type
(1)
|
|
Total
Award
Value
(2)
(millions)
|
|
|
Order
Period
Expiration
|
|
Remaining
Value
(3)
(millions)
|
|
|
Delivery
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GDLS – Canada
(4)
DDAN Sighting Systems
|
|
Subcontract
PO 35334144
|
|
FFPQ
|
|
$
|
8.7
|
|
|
N/A
|
|
$
|
1.6
|
|
|
Mid 2012 – Dec 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GDLS – Canada
(5)
DDAN Sighting Systems
|
|
Subcontract
PO 35419634
|
|
FFPQ
|
|
$
|
1.0
|
|
|
N/A
|
|
$
|
1.0
|
|
|
Sept 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USACC – Warren
(6)
ACOG Laser Filters (AOC)
|
|
Prime Contract W56HZV-15-C-0139
|
|
FFPQ
PP
|
|
$
|
1.3
|
|
|
July 7, 2016
|
|
$
|
0.6
|
|
|
Dec 2015 – Aug 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USACC – Warren
(7)
Plastic Periscopes
|
|
Prime Contract W56HZV-16-C-0091
|
|
FFPQ
PP
|
|
$
|
1.1
|
|
|
April 13, 2017
|
|
$
|
1.1
|
|
|
Oct 2016 – Dec 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Dynamics
(8)
|
|
Subcontract
|
|
FFPQ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PO 40242047
|
|
|
|
$
|
1.3
|
|
|
N/A
|
|
$
|
1.3
|
|
|
Aug 2016 – Oct 2017
|
____________
31
(6)
New prime U.S. government contract award on July 7, 2015 for $1.3 million. The awarded contract includes a 100%, 1 year option
quantity, up to an additional $1.3 million from the base award.
(7)
New prime U.S. government contract award on April 13, 2016 for $0.84 million. The awarded contract includes a 100%, one year option
quantity, up to an additional $0.84 million from the base award. As of July 12, 2016 $0.22 million in option quantity values had
been awarded.
(8)
New contract award quantity awarded on January 24, 2016.
The impact on us of U.S. congressionally mandated defense spending
reductions is reflected in the lower annual sales and based on the
most recent U.S. Budget projections. The projected spending will
approximate or decline slightly from the current reduced spending
levels through fiscal year 2020. The chart below was derived from
public government spending sources and depicts total U.S. military
spending from 2004 through 2014 and forecasted spending through
2020. It is difficult to directly tie this spending to any specific
military vehicles; however, we serve the U.S. armed forces, active
duty and reserves, plus various state national guards. The purpose
of including this chart is to provide the reader with actual trend
data showing U.S. military defense and procurement spending from
2004 through 2014. The total military spending increased from
$436.4 billion in 2004 and peaked at $678.1 billion in 2011
representing a total increase in military spending of 55.4% during
that period. As of fiscal year 2015 the total projected military
spending is projected to decline by 16.3% from the peak 2011 level.
However, the military procurement budget in the below chart depicts
a more significant decline through 2015 of 20.5% to $106.2 billion
from its peak level of $133.6 billion in 2010. The U.S. government
spending reductions have had a significant impact on our product
lines as our products directly support various types of U.S.
military land vehicle procurements. As a result of lower U.S.
government spending, the Company has continued to explore other
opportunities for manufacturing outside of our traditional product
lines for products which could be manufactured using our existing
lines in order to fully utilize our existing capacity. Further, we
continue to look for additional strategic businesses to acquire
that will strengthen our existing product line, expand our
operations, and enter new markets.
32
Source: Government
Printing Office, U.S. Budget Historical Tables, FY 2015, Table 3.2
Outlays by function and subfunction, 1962-2020
The following factors are important to the U.S. military:
•
Product reliability — failure can cost lives
•
Speed to delivery and adherence to delivery schedule
•
System life cycle extension
•
Low cost/best value
•
Visual aids for successful execution of mission objectives
•
Mission critical products specifically related to soldier
safety.
We focus on delivering products that satisfy these factors and
believes it is well positioned to continue to service U.S. and
foreign military needs.
Market
Opportunity — Foreign Military
Despite the downturn in U.S. military spending, foreign military
funding for products built in the United States for selected
foreign militaries has held to peak funding levels. Thus, we have
increased efforts to promote our proven military products, as well
as newly improved product solutions directly to foreign military
representatives. In 2014, we completed the first shipments of M17
Day/Thermal Periscope (NSN 6650-01-619-6545) to a country in South
America. This direct sales transaction allows us to directly serve
South American customers and affect influence into their future
procurements. Additionally, shipment of the new M17 Day/Thermal
Periscope validates our efforts to upgrade existing platforms with
new technology. The M17 Day/Thermal Periscope is a cost effective
upgrade to existing systems in that it provides both day and
thermal views specifically designed for driving armored vehicles. It can be installed in
vehicles which were originally designed without this technology and
may be used as a backup to existing systems. We anticipate our
efforts in South America will culminate in new orders for this
technology in the near term. We are now bidding on several
substantial government contracts to expand sales and production
beyond the current production and backlog. For example, we are
supporting General Dynamics Land Systems in their efforts related
to the production of the Israeli Namer Armored Personnel Carrier
(aka Merkava APC). We will continue to pursue international
opportunities through direct sales (e.g., General Dynamics Land
Systems — Canada) and through existing customers (e.g.,
General Dynamics Land Systems — Israeli Namer Project).
33
We
are also exploring possibilities to adapt some of our products for commercial use in those markets that demonstrate potential
for solid revenue growth, both domestically and internationally.
Market
Opportunity — Commercial
Our products are currently sold to military and related government
markets. We believe there may be opportunities to commercialize
various products we presently manufacture to address other markets.
Our initial focus will be directed in four product areas.
•
Big Eye Binoculars — While the military application we
produce is based on mature military designs, we own all castings,
tooling and glass technology. These large fixed mount binoculars
could be sold to cruise ships, personal yachts and
cities/municipalities. The binoculars are also applicable to fixed,
land based outposts for private commercial security as well as
border patrols and regional law enforcement.
•
Night Vision Sight — We have manufactured the optical system
for the NL-61 Night Vision Sight for the Ministry of Defense of
Israel. This technology could be implemented for commercial
applications.
•
Infrared Imaging Equipment — We manufacture and assemble
infrared imaging equipment and components for Raytheon’s
Thermal Imaging M36 Mount product and has recently added a
low-cost, uncooled, thin film, thermal imager through its
partnership with selective suppliers. This combined equipment and
technology has potential applications with the border patrol,
police and governmental or commercial security agencies.
•
Thin Film Coatings — The acquisition of the Applied Optics
Center (AOC) also creates a new sector of opportunity for
commercial products for us. Globally, commercial optical products
use thin film coatings to create product differentiation. These
coatings can be used for redirecting light (mirrors), blocking
light (laser protection), absorbing select light (desired
wavelengths), and many other combinations. They are used in
telescopes, rifle scopes, binoculars, microscopes, range finders,
protective eyewear, photography, etc. Given this broad potential,
the commercial applications are a key opportunity going
forward.
Customer
Base
We serve customers in four primary categories: as prime defense
contractor (TACOM Life Cycle Command, DLA (Defense Logistics
Agency) Warren, U.S. Army, Navy and Marine Corps), as defense
subcontractor (General Dynamics, L-3 Communications, BAE, and
NorcaTec) and also as a military supplier to foreign governments
(Israel, Australia and NAMSA) and a commercial optical assembly
supplier (Nightforce Optics, Cabela’s). During the nine months ended June 26, 2016, we derived approximately 83% of
our gross business revenue from four major customers: U.S.
government agencies (44%), General Dynamics (17%), Exelis (8%), Nightforce Optics, Inc. (14%). We have
approximately 80 discrete contracts for items that are utilized in
vehicles, product lines and spare parts. Due to the high percentage
of prime and subcontracted U.S. defense revenues, large customer
size and the fact that there are multiple contracts with each
entity, which are not interdependent, we are of the opinion that
this provides us with a fairly well diversified revenue pool.
34
Marketing
Plan
Potential Entrants — Low Risk to us. In order to enter this
market, potential competitors must overcome several barriers to
entry. The first hurdle is that an entrant would need to prove to
the government agency in question the existence of a government
approved accounting system for larger contracts. Second, the
entrant would need to develop the processes required to produce the
product. Third, the entrant would then need to produce the product
and then submit successful test requirements (many of which require
lengthy government consultation for completion). Finally, in many
cases, the customer has an immediate need and therefore cannot wait
for this qualification cycle and therefore must issue the contracts
to existing suppliers.
Historically, we competed with two other companies in different
spaces. First, we previously competed with Miller-Holzwarth in the
plastic periscope business. In July 2012, Miller-Holzwarth, Inc.
ceased operations apparently as a result of an inability to meet
its financial obligations combined with a decline in defense market
conditions. Second, we currently compete with Seiler Instruments
for fire control products. These contracts are higher value
products, but lower quantities. Given the expense of development
and qualification testing, the barrier to entry is high for new
competitors. During the last four years, overall plastic periscope
demand quantities have declined, while competition on the lower
level periscope products has significantly increased as new
contractors aggressively compete for market share amongst the
existing customer base and quantities.
Buyers — Medium Risk to us. In most cases the buyers (usually
government agencies or defense contractors) have two fairly strong
suppliers. It is in their best interest to keep at least two, and
therefore, in some cases, the contracts are split between
suppliers. In the case of larger contracts, the customer can
request an open book policy on costs and expects a reasonable
margin to have been applied.
Substitutes
— Low Risk to us. We have both new vehicle contracts and replacement part contracts for the exact same product. The U.S.
government has declared that the Abrams/Bradley base vehicles will be the ground vehicle of choice through 2040.
35
The Bradley vehicle has been in service for 28 years, the Abrams
for 27 years. In February 2008, the U.S. Army signed a multiyear
third party contract for the delivery of improved Abrams and
Bradleys. The contract is for up to 435 tanks and 540 Bradley
vehicles. These are the only production tanks currently in
production by the government. This, in conjunction with the 30-year life span, supports their continued use through 2040.
The Abrams is the principal battle tank of the United States Army
and Marine Corps, and the armies of Egypt, Kuwait, Saudi Arabia,
and since 2007, Australia. The new contract terms allow
efficiencies within the supply chain and a very long return on
investment on new vehicle proposals.
Suppliers — Low to Medium Risk to Optex Systems Holdings. The
suppliers of standard processes (e.g., casting, machining and
plating) need to be very competitive to gain and/or maintain
contracts. Those suppliers of products that use top secret
clearance processes are slightly better off; however, there
continues to be multiple avenues of supply and therefore only
moderate power.
Consistent with our marketing plan and business model, the AOC
acquisition strengthened our overall position by decreasing the
bargaining power of their suppliers through the backwards
integration of a key supplier and created additional barriers of
entry of potential competitors. Overall, the customer base and the
competition have seen the acquisition as creating a stronger
company.
The second model is a two by two matrix for products and
customers.
|
|
|
|
Chile
M17 Day/Thermal
|
|
|
USACC
Binoculars
|
|
Brazil
M17
Day/Thermal
|
New
Products
|
|
GDLS
DDAN
|
|
Israel
M17 Day/Thermal
|
|
|
Commercial
Optical
Lens
|
|
Commercial:
Optical Lens, Spotting
Scopes, Monocular Lens
|
|
|
|
|
|
|
|
USACC
Periscopes, Back Up Sights,
|
|
|
|
|
Binoculars,
Vision Blocks,
|
|
|
|
|
ACOG
Filter Units
|
|
Marines
Sighting Systems
|
|
|
GDLS
Periscopes, Collimators
|
|
Commercial:
Optical Lens, Spotting
|
Existing
Products
|
|
|
|
Scopes,
Monocular Lens
|
|
|
BAE
Periscopes
|
|
|
|
|
L3
-
Laser Interface Filters
|
|
|
|
|
DLA
Optical
Elements
|
|
|
|
|
|
|
|
|
|
Existing
Customers
|
|
New
Customers
|
This product/customer matrix sets forth our four basic
approaches:
1)
Sell
existing products to existing customers.
2)
Sell
existing products to new customers.
3)
Develop
new products to meet the needs of our existing customers.
4)
Develop
new products to meet the needs of new customers.
The product categories described in the above matrix are associated
with the product lines set forth below:
|
|
|
Periscopes
|
|
Laser & Non Laser Protected Plastic &
Glass Periscopes, Electronic M17 Day/Thermal Periscopes, Vision
Blocks
|
|
|
|
Sighting Systems
|
|
Back Up Sights, Digital Day and Night Sighting
Systems (DDAN), M36 Thermal Periscope, Unity Mirrors
|
|
|
|
Howitzers
|
|
M137 Telescope, M187 Mount, M119 Aiming
Device
|
|
|
|
Other
|
|
Muzzle Reference
Systems (MRS), Binoculars, Collimators, Optical Lenses &
Elements, Windows
|
|
|
|
Applied Optics Center
|
|
ACOG Laser filter, Laser Filter Interface,
Optical Assemblies
|
36
Operations
Plan
Our operations plan can be broken down into three distinct areas:
material management, manufacturing space planning and efficiencies
associated with economies of scale.
Materials Management
The largest portion of our costs is materials. We have completed
the following activities in order to demonstrate continuous
improvement:
-
Successful completion of annual surveillance audit for ISO
9001:2008 certificate, with no major nonconformance issues
-
Weekly cycle counts on inventory items
-
Weekly material review board meeting on non-moving piece parts
-
Kanban kitting on products with consistent ship weekly ship
quantities
-
Daily cross functional floor meetings focused on delivery, yields
and labor savings
-
Redesigned floor layout using tenant improvement funds
-
Daily review of yields and product velocity
-
Bill of material reviews prior to work order release
Future
continuous improvement opportunities include installation and training of shop floor control module within the ERP system and
organizational efficiencies of common procurement techniques among buyers.
Manufacturing Space Planning
We currently lease 93,733 square feet of manufacturing space (see
“Location and Facility”), including the additional
leased space in conjunction with our recent acquisition as
described under “Recent Events”. Our current facilities
are sufficient to meet our immediate production needs without
excess capacity. As our processes are primarily labor driven, we
are able to easily adapt to changes in customer demand by adjusting
headcounts, overtime schedules and shifts in line with production
needs. In the event additional floor space is required to
accommodate new contracts, Optex has the option to lease adjacent
floor space at the current negotiated lease cost per square foot.
Consistent with the space planning, we will drive economies of
scale to reduce support costs on a percentage of sales basis. These
cost reductions can then be either passed through directly to the
bottom line or used for business investment.
Our manufacturing process is driven by the use of six sigma
techniques and process standardization. Initial activities in this
area have been the successful six sigma projects in several
production areas which have led to improved output and customer
approval on the aesthetics of the work environment. In addition, we
use many tools including 5S programs, six sigma processes, and
define, measure, analyze, improve, control (DMAIC) problem solving
techniques to identify bottlenecks within the process flow, reduce
cost and improve product yields. Successful results can then be
replicated across the production floor and drive operational
improvements.
Economies of Scale
Plant efficiencies fluctuate as a function of program longevity,
complexity and overall production volume. Our internal processes
are primarily direct labor intensive and can be more easily adapted
to meet fluctuations in customer demand; however, our material
purchases, subcontracted operations and manufacturing support costs
are extremely sensitive to changes in volume. As our volume
increases, our support labor, material and scrap costs decline as a
percentage of revenue as we are able to obtain better material
pricing, and scrap, start up and support labor (fixed) costs and
they are spread across a higher volume base. On the contrary, as
production volumes decline, our labor and material costs per unit
of production generally increase. Additional factors that
contribute to economies of scale relate to the longevity of the
program. Long running, less complex programs (e.g., periscopes) do
not experience as significant of an impact on labor costs as
production volumes change, as the associated workforce is generally less skilled and can be ramped
quickly as headcounts shift. Our more complex thin laser filter
coatings, Howitzer and thermal day/night programs are more
significantly impacted by volume changes as they require a more
highly-skilled workforce and ramp time is longer as the training is
more complex. We continually monitor customer demand over a rolling
twelve-month window and in order to anticipate any changes in
necessary manpower and material which allows us to capitalize on
any benefits associated with increased volume and minimize any
negative impact associated with potential declines in product
quantities.
37
Intellectual
Property
We utilize several highly specialized and unique processes in the
manufacture of our products. While we believe that these trade
secrets have value, it is probable that our future success will
depend primarily on the innovation, technical expertise,
manufacturing and marketing abilities of our personnel. We cannot
assure you that we will be able to maintain the confidentiality of
our trade secrets or that our non-disclosure agreements will
provide meaningful protection of our trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or other disclosure. The confidentiality
agreements that are designed to protect our trade secrets could be
breached, and we might not have adequate remedies for the breach.
Additionally, our trade secrets and proprietary know-how might
otherwise become known or be independently discovered by others. We
possess two patents and have applied for another in the US and in
foreign countries. While we are optimistic that our application
will be approved, we cannot guarantee that this patent application
will ever transpire into an awarded patent. The claims were based
on technology which is believed to be unique; however, there are
many companies and many patents already awarded in this space.
Further, the time frame for the US Patent and Trademark Office to
review the patent application and engage in negotiations cannot be
guaranteed.
Our competitors, many of which have substantially greater
resources, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or interfere
with our ability to make and sell some of our products. Although we
believe that our products do not infringe on the patents or other
proprietary rights of third parties, we cannot assure you that
third parties will not assert infringement claims against us or
that such claims will not be successful.
In May 2015, we announced the issuance to us of U.S. Patent No.
13,792,297 titled “ICWS Periscope”. This invention
improves previously accepted levels of periscope performance that,
in turn, improve soldier’s safety.
In December 2013, Optex Systems, Inc. was issued U.S. Patent No.
23,357,802 titled “Multiple Spectral Single Image Sighting
System Using Single Objective Lens Set.” The technology
platform, designed for our DDAN program, is applicable to all
ground combat vehicles used by the US and foreign militaries. This
invention presents a single image to both day and night sensors
using precision optics, which in turn allows the user to
individually observe day, night, or day and night simultaneously.
In addition, it has proven to be especially useful in light
transition points experienced at dusk and dawn. We are in
production and currently delivering sighting systems with this
advanced technology, a significant upgrade in the goal of
supporting our customers as they modernize the worldwide inventory
of aging armored vehicles. This technology is applicable to many
sighting systems, and it has already been designed for
implementation on the Light Armored Vehicles, the Armored Security
Vehicle, the Amphibious Assault Vehicle, and the M60 Main Battle
Tank. Digital Day and Night technology has advanced the
capabilities of these installed weapon systems and is the first in
a series of patents we have applied for to protect our Intellectual
Property portfolio in support of the warfighters who use these
systems.
In May 2012, we purchased a perpetual, non-exclusive license, with
a single up front license fee of $200,000 to use Patent 7,880,792
“Optical and Infrared Periscope with Display Monitor”
owned by Synergy International Optronics, LLC. We believe the
purchase of the license agreement may allow us to extend and expand
our market potential for the M113APC vehicle type which has the
highest number of commonly used armored vehicles in the world. The
current estimated active M113 APC worldwide inventory is over
80,000 units. This licensing of this patent allows us to develop
additional products for this vehicle type, including the M17
Day/Thermal and M17 Day/Night periscopes. We are actively marketing
the new periscopes internationally and completed our first
international shipment utilizing this technology in March 2014. We
continue to prototype these products and demonstrate them to
potential customers.
Competition
The markets for our products are competitive. We compete primarily
on the basis of our ability to design and engineer products to meet
performance specifications set by our customers. Our customers
include military and government end users as well as prime
contractors that purchase component parts or subassemblies, which
they incorporate into their end products. Product pricing, quality,
customer support, experience, reputation and financial stability
are also important competitive factors.
38
There are a limited number of competitors in each of the markets
for the various types of products that we design, manufacture and
sell. At this time, we consider our primary competitors for the
Optex, Richardson site to be Seiler Instruments, Kent Periscopes
and Synergy International Optronics, LLC. The Applied Optics Center
thin film and laser coatings products compete primarily with
Materion-Barr, Artemis and Alluxa.
Our competitors are often well entrenched, particularly in the
defense markets. Some of these competitors have substantially
greater resources than we do. While we believe that the quality of
our technologies and product offerings provides us with a
competitive advantage over certain manufacturers, some of our
competitors have significantly more financial and other resources
than we do to spend on the research and development of their
technologies and for funding the construction and operation of
commercial scale plants.
We expect our competitors to continue to improve the design and
performance of their products. We cannot assure investors that our
competitors will not develop enhancements to, or future generations
of, competitive products that will offer superior price or
performance features, or that new technology or processes will not
emerge that render our products less competitive or obsolete.
Increased competitive pressure could lead to lower prices for our
products, thereby adversely affecting our business, financial
condition and results of operations. Also, competitive pressures
may force us to implement new technologies at a substantial cost,
and we may not be able to successfully develop or expend the
financial resources necessary to acquire new technology. We cannot
assure you that we will be able to compete successfully in the
future.
Employees
We had 89 full time equivalent employees as of June 26, 2016.
We also utilize small temporary work forces to handle peak loads as
needed. To the best of our knowledge, we are compliant with local
prevailing wage, contractor licensing and insurance regulations,
and has good relations with its employees, who are not currently
unionized.
Leases
We are headquartered in Richardson, TX and lease 93,733 combined
square feet of facilities including Richardson, Texas and Dallas,
Texas. We operate with a single shift, and capacity could be
expanded by adding a second shift. Our proprietary processes and
methodologies provide barriers to entry for other competing
suppliers. In many cases, we are the sole source provider or one of
only two providers of a product. We have capabilities which include
machining, bonding, painting, tracking, engraving and assembly and
can perform both optical and environmental testing in-house.
We renewed the lease on our 49,100 square foot, Richardson, Texas
facility, effective as of December 10, 2013 with a lease expiration
of March 31, 2021. As of June 26, 2016, the Richardson facility
operates with approximately 58 full time equivalent employees in a single shift
operation.
In November 2014, we also acquired a new business unit from L-3
Communications, Inc., which is described herein below under
“Recent Events — Acquisition”. The acquisition,
the Applied Optics Center, is located in Dallas, Texas with leased
premises consisting of approximately 56,633 square feet of space,
of which 12,000 square feet is currently subleased to L3 Mobile
Vision. The term of the lease expires September 30, 2016, and there
are four renewal options available to the tenant, and each renewal
term is five years in duration. The sublease term is for November,
2014 through September, 2016. As of June 26, 2016, Applied
Optics Center operates with approximately 34 full time equivalent employees in a
single shift operation.
Legal
Proceedings
From time to time, we are involved in lawsuits, claims,
investigations and proceedings, including pending opposition
proceedings involving patents that arise in the ordinary course of
business. There are no matters pending that we expect to have a
material adverse impact on our business, results of operations,
financial condition or cash flows.
39
MANAGEMENT
Our board of directors directs the management of the business and
affairs of our company as provided in our certificate of
incorporation, our by-laws and the General Corporation Law of
Delaware. Members of our board of directors keep informed about our
business through discussions with senior management, by reviewing
analyses and reports sent to them, and by participating in board
and committee meetings.
Our company is led by Danny Schoening, who has served as COO since
2009 and was appointed CEO in 2013, and Peter Benz who was
appointed as a Director by its Board of Directors and was also
elected as Chairman of the Board of Directors on November 19,
2014.
As
of August 15, 2016, our board of directors consists of five active directors which includes three independent directors and two
internal directors as discussed below.
Our board leadership structure is used by other smaller public companies in the United States, and we believe that
this leadership structure is effective for us. We believe that having a separate Chief Executive Officer (principal
executive officer) and Chairman is the correct form of leadership for us. We believe that due to our small size bifurcating
the leadership role provides for a second point of view and oversight rather than consolidating the role in one individual,
who is also tasked with our day to day affairs. We believe that our directors provide effective oversight of the risk
management function, especially through dialogue between the full board and our management. Our directors serve for a one
year term and if there is no election until their successors are elected and duly qualify. We intend to have our majority
holders re-elect the Board in fiscal 2016 as a formality.
We do not currently consider diversity in identifying nominees for
director. Due to our small size, the priority has been in
attracting qualified directors, and issues such as diversity have
not yet been considered.
On
August 4, 2016, our Board of Directors approved election of our current board of directors to serve another one year term (or
until the 2017 Annual Meeting, whichever is later) and if there is no reelection by that time, to serve until their successors
are elected and duly qualify. On August 17, 2016, our majority shareholder, Sileas Corporation, elected our current Board of Directors
to serve another one year term (or until the 2017 Annual Meeting, whichever is later) and if there is no reelection by that time,
to serve until their successors are elected and duly qualify. We intend to file a Definitive Schedule 14C with the SEC no later
than August 25, 2016 and to mail such Definitive Schedule 14C to our shareholders as promptly thereafter as practicable.
Directors
and Executive Officers
The following table sets forth information regarding the members of
our board of directors and our executive officers and other
significant employees. All of our current officers and directors
were appointed on March 30, 2009, the closing date of the
reorganization, except as otherwise noted.
The following table sets forth certain information with respect to
our directors and executive officers:
|
|
|
|
|
Peter T. Benz
(2)
|
|
56
|
|
Chairman of the Board and Director
|
Stanley Hirschman
(4)
|
|
68
|
|
President
|
David Kittay
(3)
|
|
51
|
|
Director
|
Owen Naccarato
(3)
|
|
65
|
|
Director
|
Charles Trego
(3)
|
|
65
|
|
Director
|
Danny Schoening
|
|
51
|
|
Chief Executive Officer, Chief Operating Officer
and Director
|
Karen L. Hawkins
(1)
|
|
51
|
|
Chief Financial Officer
|
Peter
T. Benz
. On November 19, 2014, Peter Benz was appointed as one of our Directors and was also elected as our Chairman of
the Board of Directors. Mr. Benz serves as Chairman and Chief Executive Officer of Viking Asset Management, LLC and is a member
of the investment committee. His responsibilities include assuring a steady flow of candidate deals, making asset allocation and
risk management decisions and overseeing all business and investment operations. He has more than 25 years of experience specializing
in investment banking and corporate advisory services for small growth companies in the areas of financing, merger/acquisition,
funding strategy and general corporate development. Prior to founding Viking in 2001, Mr. Benz founded Bi Coastal Consulting Company
where he advised hundreds of companies regarding private placements, initial public offerings, secondary public offerings and
acquisitions. Mr. Benz currently serves as a director for usell.com, Inc, Lilis Energy Inc., Embark Holdings and IDI, Inc. Prior
to founding Bi Coastal Consulting, Mr. Benz was responsible for private placements and investment banking activities at Gilford
Securities in New York, NY. Mr. Benz is a graduate of Notre Dame University. The Board of Directors has determined that Mr. Benz
is suited to be a director because of his capital markets experience.
40
David
Kittay,
is an experienced investment banker and asset manager. Mr. Kittay is Senior Vice President of North View Investment
Banking Group responsible for facilitating the investment banking activities of the firm including relationship cultivation, mergers
and acquisitions, capital formation, financial structuring and solutions. Additionally, he serves as Special Consultant to Beechwood
Re, a reinsurance company based in New York. In October 2008 he co-founded Summerline Asset Management, a specialty investment
firm, with which he has been involved on a continuous basis since 2008, which works with non-investment grade public and private
companies requiring financing ranging from $5 to $100 million. Mr. Kittay holds a Bachelors of Arts from Ithaca College, Ithaca,
New York and is a graduate of New York Law School holding his Juris Doctorate degree.
Our board of directors has determined that Mr. Kittay is suited to
sit on our Board because of his long term experience with the
capital markets.
Owen Naccarato, Esq., CPA and MBA,
has for the last sixteen
years been a practicing attorney, with his own firm, specializing
in corporate and securities law. Mr. Naccarato specializes in SEC
matters. Prior to practicing law, Mr. Naccarato has over twenty
years of experience holding various high level financial and
accounting positions with Fortune 500 and smaller firms in the
manufacturing, leasing, consumer/commercial financing and real
estate industries. Mr. Naccarato is a member of the ABA, the
California State Bar, the Los Angeles County Bar and the Orange
County Bar. Mr. Naccarato also earned a BS in Accounting from
Northern Illinois University, an MBA from DePaul University and was
a certified public accountant, having articulated in the State of
Illinois. Our board of directors has determined that Mr. Naccarato
is suited to sit on our Board because of his long standing capital
markets experience.
Charles R. Trego,
is currently a director (and former chief
financial officer) of Axion Power International, Inc., a battery
technology company based in New Castle, PA, and has served in
various positions with Axion since 2010. He most recently served as
Executive Vice President and Chief Financial Officer of Minrad
International, an Amex-listed pharmaceutical and medical device
company in Orchard Park, NY. Minrad was acquired by India’s
Piramal Healthcare in early 2009, and Trego was an integral part of
the acquisition strategy and managed the bridge financing through
the transition. He served as a consultant providing financial
management services to several companies from April 2009 to
February 2010. Prior to that, from 2005 to 2008, he was Senior Vice
President and Chief Financial Officer of Elmira NY-based Hardinge
Inc, a Nasdaq-listed global machine tool company ($327 million in
annual revenue), and from 2003 to 2005 he was Chief Financial
Officer and Treasurer of Latham NY-based Latham International ($180
million in annual revenue), a privately held manufacturer and
marketer of swimming pool components, His career began with a
position as Senior Auditor with Ernst & Whinney in Dayton, and
continued with financial officer positions with increasing
responsibility with Ponderosa Inc., Bojangles of America, Rich Sea
Pak, Rymer Foods and Rich Products Corporation. During his 14-year
tenure as Chief Financial Officer at Rich Products, revenue
increased from $650 million to more than $1.8 billion. He has over
30 years of experience as a financial officer of global middle
businesses across several industries and includes private (family),
public and private equity ownership structures. He has served as
the chief financial officer of startup, turnaround, restructuring
and growth businesses with revenue ranging from $25 million to $2
billion. Trego graduated from the University of Dayton in 1972 (BS
in Accounting) and in 1978 (MBA). He achieved his CPA designation
in 1973 from the State of Ohio. The Company has determined that Mr.
Trego should serve as a director due to his long term finance and
accounting experience.
Danny Schoening
. Mr. Schoening joined Optex Systems, Inc.
(Texas) in January 2008. Upon the acquisition of the assets of
Optex Systems, Inc. (Texas) by Optex Systems, Inc. (Delaware), Mr.
Schoening became the COO of Optex Systems, Inc. (Delaware) (as of
September 28, 2008) and he commenced service with Optex Systems
Holdings as its Chief Operating Officer as of the date of the
reorganization, March 30, 2009 and was appointed Chief Executive
Officer and as a Director in 2013. He has been instrumental in
establishing the systems and infrastructure required to continue
Optex System’s rapid growth. This activity was rewarded with
Optex System’s recent ISO 9001:2000 Certification. From
February 2004 to January 2008, Danny was the Vice President of
Operations for The Finisar Corporation AOC Division for 4 years
where he led a team of up to 200 employees to produce vertical
cavity lasers for the data communications industry at production
rates of hundreds of thousands of units per week. Prior to Finisar,
Danny was the Director of Operations for multiple divisions of
Honeywell International. Serving the Automotive, Medical,
Aerospace, and Consumer Commercial Markets. During this 17-year
period, Danny was recognized with Honeywell’s Lund Award,
their highest award for developing employee resources. Danny has a
broad experience level in the following technologies: Mechanical
Assembly Processes, Micro-Electronic Assembly Processes, Laser
Manufacturing, Plastic Molding, Metal Machining, Plating, Thick Film Printing, Surface
Mount Technology, Hall Effect Technology and MEMS based Pressure
Devices. Danny received a Bachelor’s of Science in
Manufacturing Engineering Technology from the University of
Nebraska, an MBA from Southern Methodist University, and holds
three U.S. patents. The Board of Directors has determined that Mr.
Schoening is suited to sit on our Board because of his industry
experience and as he is the CEO.
41
Karen
L. Hawkins
. On November 19, 2014, Karen Hawkins was appointed as our Chief Financial Officer. Ms. Hawkins had previously
served as our Vice President, Finance and Controller, since the date of the reorganization, March 30, 2009 and was the controller
of Optex Systems, Inc. (Delaware), effective September 28, 2009. She began her employment with Optex Systems, Inc. (Texas) in
April 2007. Ms. Hawkins has over 25 years’ experience in Financial Accounting and Management, primarily focused in the Defense
and Transportation Industries. She has a strong background in both Financial & Cost Accounting, with extensive Government
Pricing, Financial Analysis, and Internal Auditing experience. Her past history also includes Program Management, Materials Management
and Business Development. She brings over 18 years’ direct experience in Government Contracting with a strong knowledge
of Cost Accounting Standards Board and Federal Acquisition Regulation. Her previous employment includes General Dynamics —
Ordinance and Tactical Division, Garland (formerly known as Intercontinental Manufacturing) for over 13 years from November, 1994
through March, 2007. During her tenure there she served in the roles of Controller (Accounting & IT), Program Manager over
a $250M 3-year Army Indefinite Delivery/Indefinite Quantity (Indefinite Delivery/Indefinite Quantity) type contract, as well as
Materials Manager with oversight of Purchasing, Production Control & Warehousing functions. Prior to her employment at General
Dynamics, Ms. Hawkins served in various finance and accounting positions at Luminator, a Mark IV Industries Co, and Johnson Controls,
Battery Division - Garland. Karen received her Bachelor’s Degree in Business Administration in Accounting from Stephen F.
Austin State University in Texas in 1986 and became a Certified Public Accountant in 1992.
Stanley A. Hirschman
.
(Resigned as a director effective
November 3, 2015)
Mr. Hirschman served as a Director and
President of Optex Systems, Inc. (Delaware) since September 28,
2008 and assumed the same roles on behalf of us on March 30, 2009,
in which roles he is committed to providing Optex his management
experience and provides direction and oversight of other executive
officers and management. From 1997 to 2009, he was president of
CPointe Associates, Inc., a Plano, Texas consulting group, and
provided consulting and governance services to small public
companies. Since February 2009 he has been the majority beneficial
owner of Sileas Corp, our majority shareholder. During the past
five years, Mr. Hirschman has also sat on the Board of Directors of
Axion Power International, Inc. Prior to establishing CPointe
Associates, he was Vice President Operations, Software Etc., Inc.,
a 396 retail software store chain, from 1989 until 1996. He has
also held executive positions with T.J. Maxx, Gap Stores and Banana
Republic. Mr. Hirschman is a member of the National Association of
Corporate Directors, regularly participates in the KMPG Audit
Committee Institute and is a graduate of the Harvard Business
School Audit Committees in the New Era of Governance symposium. He
is active in community affairs and serves on the Advisory Board of
the Salvation Army Adult Rehabilitation Centers. Our Board has
determined that Mr. Hirschman is suitable for our Board due to his
long term management and corporate governance experience.
Family
Relationships
There are no family relationships among the officers and
directors.
Presiding
Director
Our Chairman, Merrick Okamoto, as Chairman, acted as the presiding
director at meetings of our board of directors during the fiscal
years ended 2014 and 2013. Effective as of November 19, 2014, Peter
Benz took over as the Chairman and presiding director of the board
meetings. In the event that the Chairman is unavailable to serve at
a particular meeting, responsibility for the presiding director
function will rotate among the directors in attendance.
Corporate
Governance
Our board of directors believes that sound governance practices and
policies provide an important framework to assist them in
fulfilling their duty to stockholders. Our board of directors
actively supports management’s adoption and implementation of
many “best practices” in the area of corporate
governance, including annual review of internal control changes,
compensation practices, executive management and auditor retention.
In 2015 and 2014, all directors attended a minimum of 75% of the meetings of
the board of directors.
42
Code of
Ethics
Our board of directors has adopted a Code of Ethics which has been
distributed to all directors, and executive officers, and will be
distributed to employees and will be given to new employees at the
time of hire. The Financial Code of Ethics contains a number of
provisions that apply principally to our Principal Executive
Officer, Principal Financial Officer and other key accounting and
financial personnel. A copy of our Code of Business Conduct and
Ethics can be found under the “Investor Relations”
section of our website (
www.optexsys.com
)
under the section for corporate governance. We also intend to
disclose any amendments or waivers of our Code on our website.
Board
Meetings
We are incorporated under the laws of the State of Delaware. The
interests of our stockholders are represented by the board of
directors, which oversees our business and management.
The board of directors meets regularly during the year and holds
special meetings and acts by unanimous written consent whenever
circumstances require. The board held two meetings (including
special meetings) and took action by unanimous written consent four
times during our fiscal year ended September 27, 2015.
Board
Committees
On July 14, 2015, our board of directors confirmed the appointment
of the following independent directors to serve on the following
committees of our board of directors:
Audit Committee: Charles Trego (Chair)
and David Kittay
Compensation Committee: Owen Naccarato
(Chair) and David Kittay
Nominating Committee: David Kittay
(Chair), Owen Naccarato and Charles Trego.
Kerry Craven, who was a member of the
Board of Directors and a member of the Audit Committee, Compensation Committee and Nominating Committee, resigned from the Board
of Directors on May 26, 2016.
The
board also acknowledged the charters for each committee which are approved.
Mr. Trego has also been determined to be the Audit Committee
financial expert, a position for which he qualifies as a long time
chief financial officer of public reporting companies. Due to Ms.
Craven’s resignation on May 26, 2016, the Committees remain
the same although each has one less member.
Board
nominations
Stockholders wishing to bring a nomination for a director candidate
before a stockholders meeting must give written notice to our
Corporate Secretary, either by personal delivery or by United
States mail, postage prepaid. The stockholder’s notice must
be received by the Corporate Secretary not later than (a) with
respect to an Annual Meeting of Stockholders, 90 days prior to the
anniversary date of the immediately preceding annual meeting, and
(b) with respect to a special meeting of stockholders for the
election of directors, the close of business on the tenth day
following the date on which notice of the meeting is first given to
stockholders. The stockholder’s notice must set forth all
information relating to each person whom the stockholder proposes
to nominate that is required to be disclosed under applicable rules
and regulations of the SEC, including the written consent of the
person proposed to be nominated to being named in the proxy
statement as a nominee and to serving as a director if elected. The
stockholder’s notice must also set forth as to the
stockholder making the nomination (i) the name and address of the
stockholder, (ii) the number of shares held by the stockholder,
(iii) a representation that the stockholder is a holder of record
of stock of the Optex Systems Holdings, entitled to vote at the
meeting and intends to appear in person or by proxy at the meeting
to nominate the person named in the notice, and (iv) a description
of all arrangements or understandings between the stockholder and
each nominee.
Stockholder
Communications with the Board of Directors
Stockholders may communicate directly with the board of directors
or any board member by writing to them at Optex Systems Holdings,
Inc., 1420 Presidential Drive, Richardson, TX 75081. The outside of
the envelope should prominently indicate that the correspondence is
intended for the board of directors or for a specific director. The
secretary will forward all such written communications to the
director to whom it is addressed or, if no director is specified,
to the entire board of directors.
43
Director Attendance at
Annual Meetings of Stockholders
Directors are encouraged to attend annual meetings, although such
attendance is not required.
Board
Independence
Our board of directors has
determined that four of our directors would meet the independence
requirements of the Nasdaq Capital Market, if such standards
applied to the Company. In reaching its conclusions, the board of
directors considered all relevant facts and circumstances with
respect to any direct or indirect relationships between the Company
and each of the directors, including those discussed under the
caption “Certain Relationships and Related
Transactions” below. Our board of directors determined that
any relationships that exist or existed in the past between the
Company and each of the independent directors were immaterial on
the basis of the information set forth in the above-referenced
sections.
Director
Compensation
See table below under “Executive Compensation —
Director Compensation.”
Executive
Compensation
The board of directors administers our option compensation plan.
Our Principal Executive Officer and other members of management
regularly discuss our compensation issues with the Board of
Directors. Subject to Board review, modification and approval, Mr.
Hirschman typically makes recommendations respecting bonuses and
equity incentive awards for the other members of the executive
management team. The Board establishes all bonus and equity
incentive awards for Mr. Hirschman in consultation with other
members of the management team.
Summary Compensation
Table
The
following table sets forth, for the years indicated, all compensation paid, distributed or accrued for services, including salary
and bonus amounts, rendered in all capacities by our principal executive officer, principal financial officer and all other executive
officers who received or are entitled to receive remuneration in excess of $100,000 during the stated periods. These officers
are referred to herein as the “named executive officers.” Except as provided below, none of our executive officers
received annual compensation in excess of $100,000 during the last two fiscal years.
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
(1)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Stanley A. Hirschman,
|
|
2015
|
|
$
|
61,084
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
14,971
|
|
|
$
|
—
|
|
|
$
|
76,055
|
|
President
|
|
2014
|
|
|
61,033
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,766
|
|
|
|
—
|
|
|
|
76,799
|
|
|
|
2013
|
|
|
79,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,968
|
|
|
|
—
|
|
|
|
87,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danny Schoening,
|
|
2015
|
|
$
|
213,754
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
29,941
|
|
|
$
|
—
|
|
|
$
|
243,695
|
|
CEO
|
|
2014
|
|
|
225,261
|
|
|
|
42,375
|
|
|
|
—
|
|
|
|
31,531
|
|
|
|
—
|
|
|
|
299,167
|
|
|
|
2013
|
|
|
218,856
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,115
|
|
|
|
—
|
|
|
|
223,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen Hawkins
|
|
2015
|
|
$
|
162,571
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
14,971
|
|
|
$
|
—
|
|
|
$
|
177,542
|
|
CFO
|
|
2014
|
|
|
160,422
|
|
|
|
11,931
|
|
|
|
—
|
|
|
|
15,766
|
|
|
|
—
|
|
|
|
188,119
|
|
|
|
2013
|
|
|
160,178
|
|
|
|
7,839
|
|
|
|
—
|
|
|
|
16,636
|
|
|
|
—
|
|
|
|
184,653
|
|
____________
44
Option Grants in Last
Fiscal Year
On December 19, 2013, our Board of Directors authorized an
amendment to our Stock Option Plan to increase the number of
issuable shares from 50,000 to 75,000 and authorized the grant of
20,000 options to three board members and a grant of 5,000 to an
officer. The options are exercise prices of $10 per share with each
grant to vest 25% per year over four years for each year with which
the grantee is still employed by or serving as a director of us,
Inc. (with all unvested options automatically expiring on the date
of termination of employment by or service as a director of us,
Inc.) and all unvested options immediately vesting upon a change of
control due to a merger or acquisition of us. There were no other
plan based awards made to our named executive officers during the
fiscal year ended September 28, 2015 or for the fiscal year ended
September 29, 2014.
Employment
Agreements - Danny Schoening
We entered into an employment agreement with Danny Schoening dated
December 1, 2008. The term of the agreement commenced as of
December 1, 2008 and the current term has automatically renewed
through December 1, 2016. The term of the agreement shall be
automatically extended for successive 18 month periods, unless we
shall provide a written notice of termination at least ninety (90)
days, or Mr. Schoening shall provide a written notice of
termination at least 90 days, prior to the end of the initial term
or any extended term, as applicable. During the first eighteen
months of the term of the agreement, we paid to Schoening a base
salary at the annual rate of $190,000, and his base salary for the
first renewal term has continued at the same rate. On December 9,
2011, the Board of Directors authorized a six percent increase in
Schoening’s base salary effective January 1, 2012. On
December 19, 2013, the Board of Directors of us authorized a five
percent increase in Schoening’s base salary effective January
1, 2014. Schoening was paid a one-time bonus of $10,000 at the
commencement of the employment agreement in December 2008 and was
granted 1,415 options to purchase common stock at an exercise price
of $150 per share at the time of the closing of the
reorganization.
On each subsequent renewal date of the commencement of employment,
Schoening’s base salary shall be reviewed by the Board and
may be increased to such rate as the Board, in its sole discretion,
may hereafter from time to time determine. During the term of the
agreement, Schoening shall be entitled to receive bonuses of up to
30% of his base salary per year at the discretion of our Board of
Directors pursuant to performance objectives to be determined by
the Board of Directors. Any bonuses shall be payable in cash and
shall be paid within ninety (90) days of any year anniversary of
the date of the agreement. Upon closing of the reorganization, we
granted Schoening stock options equal to 1% of the issued and
outstanding shares immediately after giving effect to the
reorganization, with 34% of the options having vested on March 30,
2010, and 33% of the options having vested on March 31, 2011 and
33% of the options having vested on March 31, 2012.
The employment agreement events of termination consist of: (i)
death of Mr. Schoening; (ii) termination by us for cause (including
conviction of a felony, commission of fraudulent acts, willful
misconduct by Mr. Schoening, continued failure to perform duties
after written notice, violation of securities laws and breach of
the employment agreement), (iii) termination without cause by us
and (iv) termination by Mr. Schoening for good reason (including
breach by us of its obligations under the agreement, the
requirement for Mr. Schoening to move more than 100 miles away for
his employment without consent, and merger or consolidation that
results in more than 66% of the combined voting power of the then
outstanding securities of us or our successor changing ownership or
a sale of all or substantially all of our assets, without the
surviving entity assuming the obligations under the agreement). For
a termination by us for cause or upon death of Mr. Schoening, Mr.
Schoening shall be paid salary and bonus earned through the date of
termination. For a termination by us without cause or by Mr.
Schoening with good reason, Mr. Schoening shall also be paid six
months’ base salary in effect and all granted stock options
shall remain exercisable for a period of two years after such
termination, with all unvested stock options immediately vesting.
The agreement contains a standard non-solicitation and non-compete
agreement that extends for one year subsequent to termination
thereof.
•
On
December 19, 2013, pursuant to the compensation bonus agreement in
the Board of Directors Resolution dated January 3, 2013, Danny
Schoening, CEO, was awarded an executive compensation incentive
bonus payout in the sum of $42 thousand.
•
On
December 19, 2013, our Board of Directors approved a
performance based compensation bonus agreement for Danny Schoening,
CEO, for the fiscal year ending September 28, 2013 with payout
milestones from 5% to 25% for achieved revenues of $13 million
through $20 million and EBITDA targets of $0 to $800 thousand.
•
On
December 19, 2013 the Board of Directors authorized salary increase
of 5% to Danny Schoening, CEO, effective January 1, 2014.
45
On August 4, 2016, our Board of Directors
approved an employment agreement for Karen Hawkins, Chief Financial Officer, dated as of August 1, 2016. This agreement has the
following salient terms:
|
·
|
The term of the agreement
commenced on August 1, 2016 and expires on January 31, 2018 and automatically renews for subsequent 18 month periods unless
Ms. Hawkins or we give notice of termination at least 90 days before the end of the term then in effect.
|
|
·
|
The base salary thereunder
is $178,496, and Ms. Hawkins is entitled to annual bonuses of up to 30% of her base salary as approved by the Board.
|
|
·
|
Ms. Hawkins is entitled
to 15 days’ vacation and all other benefits accorded to our other senior executives.
|
|
·
|
The employment agreement
events of termination consist of: (i) death of Ms. Hawkins; (ii) termination by us for cause (including conviction of a felony,
commission of fraudulent acts, willful misconduct by Ms. Hawkins, continued failure to perform duties after written notice,
violation of securities laws and breach of the employment agreement), (iii) termination without cause by us and (iv) termination
by Ms. Hawkins for good reason (including breach by us of its obligations under the agreement, the requirement for Ms. Hawkins
to move more than 100 miles away for her employment without consent, and merger or consolidation that results in more than
66% of the combined voting power of the then outstanding securities of us or our successor changing ownership or a sale of
all or substantially all of our assets, without the surviving entity assuming the obligations under the agreement). For a
termination by us for cause or upon death of Ms. Hawkins, Ms. Hawkins shall be paid salary and bonus earned through the date
of termination. For a termination by us without cause or by Ms. Hawkins with good reason, Ms. Hawkins shall also be paid six
months’ base salary in effect and all granted stock options shall remain exercisable for a period of two years after
such termination, with all unvested stock options immediately vesting. The agreement contains a standard non-solicitation
and non-compete agreement that extends for one year subsequent to termination thereof.
|
We do not have any other employment agreements with our executive
officers and directors.
Equity Compensation Plan
Information
We currently have an option compensation plan covering the issuance
of both incentive and nonstatutory options, determined at the time
of grant, for the purchase of up to 75,000 shares, which was
increased from 50,000 shares on December 19, 2013. The purpose of
the Plan is to assist us in attracting and retaining highly
competent employees and to act as an incentive in motivating
selected officers and other employees of us and our subsidiaries,
and directors and consultants of us and our subsidiaries, to
achieve long-term corporate objectives. There are 75,000, shares of
common stock reserved for issuance under this Plan. As of September
27, 2015, we had issued 73,752 share options under this Plan of
which 5,894 shares had forfeited and 45,266 shares had vested, and
5,000 shares had been exercised as of September 27, 2015. On
December 19, 2013, the Board of Directors authorized the grant of
20,000 options to three board members and a grant of 5,000 to an
officer.
The outstanding options include 51,608 options that are currently
vested and exercisable as of December 11, 2015, and 3,750 options
that will vest within 60 days (on December 18, 2015). The vested
options represent potential future cash proceeds to our company of
$901,900. There are no additional options that will become vested
and exercisable within 60 days. The remaining options will vest and
become exercisable over the next year. The following table provides
summary information on our outstanding options as of December 11,
2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY2009 Employee & officer plan
options
|
|
2,488
|
|
$
|
150.00
|
|
$
|
373,200
|
|
—
|
|
$
|
150.00
|
|
$
|
—
|
FY2012 Employee & officer plan
options
(1)
|
|
10,370
|
|
|
10.00
|
|
|
103,700
|
|
—
|
|
|
10.00
|
|
$
|
—
|
FY2012 Directors plan options
(1)
|
|
25,000
|
|
|
10.00
|
|
|
250,000
|
|
—
|
|
|
10.00
|
|
|
—
|
FY2014 Directors plan options
(2)
|
|
15,000
|
|
|
10.00
|
|
|
150,000
|
|
5,000
|
|
|
10.00
|
|
|
50,000
|
FY2014 Employee & officer plan
options
(2)
|
|
2,500
|
|
|
10.00
|
|
|
25,000
|
|
2,500
|
|
|
10.00
|
|
|
25,000
|
Non-plan options to consultants and
employees
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
Total
|
|
55,358
|
|
$
|
16.29
|
|
$
|
901,900
|
|
7,500
|
|
$
|
10.00
|
|
$
|
75,000
|
The holders of options are not required to exercise their rights at
any time and we are unable to predict the amount and timing of any
future option exercises. We reserve the right to temporarily reduce
the exercise prices of our options from time to time in order to
encourage the early exercise of the options.
46
Outstanding Equity
Awards as of September 27, 2015
|
|
|
|
|
|
|
Number
of shares underlying unexercised options
|
|
|
|
|
|
|
Equity
Incentive Plan
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danny
Schoening
|
|
1,415
|
|
—
|
|
1,415
|
|
150.00
|
|
3/29/2016
|
|
(1)
|
|
|
7,500
|
|
2,500
|
|
10,000
|
|
10.00
|
|
12/8/2018
|
|
(3)
|
|
|
2,500
|
|
7,500
|
|
10,000
|
|
10.00
|
|
12/19/2020
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen
Hawkins
|
|
250
|
|
|
|
250
|
|
150.00
|
|
5/13/2016
|
|
(2)
|
|
|
3,750
|
|
1,250
|
|
5,000
|
|
10.00
|
|
12/8/2018
|
|
(3)
|
|
|
1,250
|
|
3,750
|
|
5,000
|
|
10.00
|
|
12/19/2020
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stan
Hirschman
|
|
3,750
|
|
1,250
|
|
5,000
|
|
10.00
|
|
12/8/2018
|
|
(3)
|
|
|
1,250
|
|
3,750
|
|
5,000
|
|
10.00
|
|
12/19/2020
|
|
(4)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrick
Okamato
|
|
5,000
|
|
—
|
|
5,000
|
|
10.00
|
|
12/8/2018
|
|
(3)
|
|
|
5,000
|
|
—
|
|
5,000
|
|
10.00
|
|
12/19/2020
|
|
(4)(5)
|
47
We had no non-qualified deferred compensation plans during year
ended September 27, 2015.
Post-Termination
Compensation
We have not entered into change in control agreements with any of
our named executive officers or other members of the executive
management team other than the provision with respect to Mr.
Schoening described above. No awards of equity incentives under our
2009 Stock Option Plan provide for immediate vesting upon a change
in control. However, our Board of Directors has the full and
exclusive power to interpret the plans, including the power to
accelerate the vesting of outstanding, unvested awards. A
“change in control” is generally defined as (1) the
acquisition by any person of 66% or more of the combined voting
power of our outstanding securities or (2) the occurrence of a
transaction requiring stockholder approval and involving the sale
of all or substantially all of our assets or the merger of us with
or into another corporation.
Director
Compensation
The following table provides information regarding compensation paid to directors for services rendered during the year
ended September 27, 2015.
|
|
Fees
Earned or Paid in Cash
($)
|
|
|
|
|
|
Non-Equity Incentive Plan Compensation
($)
|
|
Nonqualified Deferred Compensation Earnings
($)
|
|
All
Other Compensation ($)
|
|
|
Stanley A. Hirschman
(2)
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
Merrick Okamoto
(1)
|
|
5,000
|
|
—
|
|
57,495
|
|
—
|
|
—
|
|
—
|
|
62,495
|
Danny Schoening
(2)
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
Peter Benz
(4)
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
Chuck Trego
(3)
|
|
4,000
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
4,000
|
David Kittay
(3)
|
|
4,000
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
4,000
|
Owen Naccarato
(3)
|
|
3,500
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
3,500
|
Kerry Craven
(3)
|
|
3,500
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
3,500
|
48
The members of our board of
directors are actively involved in various aspects of our business
ranging from relatively narrow board oversight functions to
providing hands-on guidance to our executives and scientific staff
with respect to matters within their personal experience and
expertise. We believe that the active involvement of all directors
in our principal business and policy decisions increases our board
of directors’ understanding of our needs and improves the
overall quality of our management decisions.
With
the exception of Peter Benz, Stan Hirschman and Danny Schoening, our directors are compensated separately for service as members
of our board of directors. As of February 1, 2010, Mr. Hirschman was paid a salary from Optex Systems Holdings as disclosed in
the executive compensation table above.
49
Certain Relationships and Related Transactions, and Director
Independence
Relationship between Optex Systems, Inc. (Texas), Irvine Sensors
Corporation and Longview and Alpha
Longview and Alpha were owed certain debt
by Irvine Sensors Corporation including debt evidenced by (i) a December 29, 2006 Term Loan and Security Agreement executed by
Irvine Sensors Corporation and Longview and Alpha, and (ii) a series of secured promissory notes purchased by them and issued
to them on December 29, 2006, July 19, 2007 and November 28, 2007. As of August 24, 2008, the total amount due under all of the
described notes was approximately $18.4 million. Optex Systems, Inc. (Texas), which was and is a wholly owned subsidiary of Irvine
Sensors Corporation, was a guarantor of all of those notes, and pursuant to related security agreements Longview and Alpha had
a validly perfected, fully enforceable security interest in all personal property of Optex Systems, Inc. (Texas). On September
19, 2008, pursuant to an Assignment and Stock/Note Issuance Agreement, Alpha and Longview transferred and assigned to Optex Systems,
Inc. (Delaware) which assumed, $15 million of their respective interests and rights in the aforesaid notes and obligations to
Optex Systems, Inc. (Delaware) in exchange for $9 million of equity and $6 million of debt.
Acquisition of Assets of Optex Systems, Inc. (Texas) by Optex
Systems, Inc. (Delaware) on October 14, 2008
On October 14, 2008, in a purchase transaction that was consummated
via public auction, Optex Systems, Inc. (Delaware) purchased all of
the assets of Optex Systems, Inc. (Texas) in exchange for $15
million of Irvine Sensors Corporation debt owned by it and the
assumption of approximately $3.8 million of certain Optex Systems,
Inc. (Texas) liabilities. The $15 million of Irvine Sensors
Corporation debt was contributed by Longview and Alpha to Optex
Systems, Inc. (Delaware) in exchange for a $6 million note payable
from Optex Systems, Inc. (Delaware) and a $9 million equity
interest in Optex Systems, Inc. (Delaware). Longview and Alpha
owned Optex Systems, Inc. (Delaware) until February 20, 2009, when
Longview sold 100% of its interests in Optex Systems, Inc.
(Delaware) to Sileas, as discussed below. In referring to these
transactions, Optex Systems, Inc. (Delaware) is considered to be
the successor entity to Optex Systems, Inc. (Texas), the
predecessor entity.
Secured Promissory Notes and Common Shares Issued in connection
with Purchase by Optex Systems, Inc. (Delaware)
In connection with the public sale of the Optex Systems, Inc.
(Texas) assets to Optex Systems, Inc. (Delaware), Optex Systems,
Inc. (Delaware) delivered to each of Longview and Alpha a Secured
Promissory Note due September 19, 2011 in the principal amounts of
$5,409,762 and $540,976, respectively. Each Note bears simple
interest at the rate of 6% per annum, and the interest rate upon an
event of default increases to 8% per annum. After 180 days from the
issue date, the principal amount of the Notes and accrued and
unpaid interest thereon may be converted into Optex Systems, Inc.
(Delaware) common stock at a conversion price of $1.80 per share
(pre-split and pre-reorganization price). The Notes may be redeemed
prior to maturity at a price of 120% of the then outstanding
principal amount plus all accrued and unpaid interest thereon. The
obligations of Optex Systems, Inc. (Delaware) under the Notes are
secured by a lien against all of the assets of Optex Systems, Inc.
(Delaware) in favor of Longview and Alpha. In addition, Optex
Systems, Inc. (Delaware) issued common stock to each of Longview
and Alpha in the quantities of 45,081,350 and 4,918,650,
respectively (pre reverse split numbers as historical). On October
30, 2008, Alpha sold its Optex Systems, Inc. (Delaware) common
stock to Arland Holding, Ltd. On February 20, 2009, Longview sold
its Note to Sileas (see below).
Acquisition by Sileas of Longview’s Interests in Optex
Systems, Inc. (Delaware) on February 20, 2009
On February 20, 2009, Sileas purchased 100% of the equity and debt
interest held by Longview, representing 90% of Optex Systems, Inc.
(Delaware), in a private transaction. The primary reason for the
acquisition was to eliminate shareholder control of us by Longview
and to limit any perception of control over the day-to-day
operations of us, whether or not such control actually existed.
While Longview makes investments in a variety of companies, it
strives to invest passively and leave the day-to-day operations of
the companies in its investment portfolio to the management teams
of those companies. In addition, the acquisition allowed Optex
Systems Holdings to avoid potential conflicts of interest or other
related business issues that might have adversely affected our
operations as a result of Longview’s investments in other
companies.
The purchase price for the acquisition was $13,524,405. Sileas
issued a purchase money note to Longview for the full amount of the
purchase price in exchange for 45,081,350 (pre-split as historical)
shares of common stock of us (representing 90% of the outstanding
shares) and transfer to Sileas of a note dated December 2, 2008,
issued by us to Longview in the principal amount of $5,409,762. No
contingent consideration is due the seller in the transaction. The
obligations of Sileas under the Note are secured by a security
interest in our common and preferred stock owned by Sileas that was
granted to Longview pursuant to a Stock Pledge Agreement delivered by Sileas to Longview and also by a lien
on all of the assets of Sileas. On March 27, 2009, Sileas and Alpha
(which owned the balance of the $6,000,000 of the notes) exchanged
the $6,000,000 aggregate principal amount of notes, plus accrued
and unpaid interest thereon, for 1,027 shares of Optex Systems,
Inc. (Delaware) Series A preferred stock.
50
Sileas
has no operations or business activities other than holding the stock and notes described above and has no revenues, and it holds
no assets other than the stock and notes described above. The management of Sileas believes that the value of its common stock
and preferred stock holdings in Optex Systems Holdings will increase over time. Sileas plans to repay Longview, no later than
the maturity date, through some combination of a recapitalization of Sileas equity and debt and partial or full liquidation of
its interests in Optex Systems Holdings. Sileas will be limited by the extent of our stock price and limitations on ability to
resell the stock it owns in Optex Systems Holdings.
Secured Promissory Note Due February 20, 2016/Longview Fund,
LP
As a result of the transaction described above between Sileas and
Longview on February 20, 2009, Sileas, the new majority owner of
Optex Systems, Inc. (Delaware), executed and delivered to Longview,
a Secured Promissory Note due February 20, 2012 in the principal
amount of $13,524,405. The Note bears simple interest at the rate
of 4% per annum, and the interest rate upon an event of default
increases to 10% per annum. In the event that a Major Transaction
occurs prior to the maturity date resulting in the Borrower
receiving Net Consideration with a fair market value in excess of
the principal and interest due under the terms of this Secured
Note, then in addition to paying the principal and interest due,
Sileas shall also pay an amount equal to 90% of the consideration.
“Major Transaction” refers to a transaction whereby
Optex Systems, Inc. (Delaware) would consolidate or merge into or
sell or convey all or substantially all of its assets to a third
party entity for more than nominal consideration, and “Net
Consideration” refers to the fair market value of the
consideration received in connection with a Major Transaction less
all outstanding liabilities of Optex Systems, Inc. (Delaware).
On November 22, 2011 Sileas Corp and Longview Fund, LP entered into
an amendment to the Secured Promissory Note that extended the
maturity date for an additional two-year period ending on February
20, 2014. In exchange for the extension, Sileas Corp agreed to pay
Longview Fund an extension fee equal to 2% of the principal amount
of this Secured Note. As a result of the agreement, the principal
amount of the Note was increased $270 thousand to $13.8 million as
of November 22, 2011.
On November 27, 2013 Sileas Corp. and the Longview Fund, LP entered
into an amendment to the Secured Promissory Note that extended the
maturity date for an additional two-year period ending on February
20, 2016. In exchange for the extension, Sileas Corp. agreed to pay
the Longview Fund an extension fee equal to 2% of the principal
amount of this Secured Note. As a result of the amendment, the
principal amount of the Note was increased by $275 thousand to
$14.1 million as of November 27, 2013, 2013.
On June 5, 2015, Sileas Corp. amended its Secured Note, with
Longview Fund, L.P., as lender, as follows:
•
The principal amount was increased to $18,022,329 to reflect the
original principal amount plus all accrued and unpaid interest to
date, and the Secured Note ceased to bear interest as of that
date;
•
The maturity date of the note was extended to May 29, 2021; and
•
A
conversion feature was added to the Secured Note by which the
principal amount of the Secured Note can be converted into our
Series A preferred stock, which is owned by Sileas, at the stated
value of our Series A preferred stock.
Simultaneously therewith,
Sileas entered into a Blocker Agreement with us pursuant to which
the Series A preferred stock shall not be convertible by Sileas
into our common stock, and we shall not effect any conversion of
the Series A Stock or otherwise issue any shares of our common
stock pursuant hereto, to the extent (but only to the extent) that
after giving effect to such conversion or other share issuance
hereunder Sileas (together with its affiliates) would beneficially
own in excess of 9.99% our common stock. Sileas also agreed to not
vote any of its shares of Series A preferred stock in excess of
9.99% of our common stock.
Alpha Capital Anstalt
Stock Purchase and Preferred Shares Conversions
On
February 22, 2012, Alpha Capital Anstalt bought 5,000 shares of our restricted common stock at a purchase price of $10.00
per share for a total purchase price of $50,000. On August 13, 2012, Alpha Capital Anstalt converted 3.64 preferred shares at
a stated value of $6,860 into 2,500 shares of common stock at a conversion price of $10.00 per share for a total converted
value of $25,000. The Common Stock was purchased or converted by Alpha in private transactions exempt from registration under
Section 4(2) of the Securities Act of 1934 and is restricted from resale and the stock certificate issued bears the
appropriate restrictive legend. On March 19, 2013, Alpha Capital Anstalt converted 7.29 shares of Series A preferred stock at
a stated value of $6,860 into 5,000 shares of its Common Stock at a conversion price of $10.00 per share for a total
converted value of $50,000.
51
Reorganization/Share
Exchange
On March 30, 2009, a reorganization occurred whereby the then
existing shareholders of Optex Systems, Inc. (Delaware) exchanged
their shares of common stock with the shares of common stock of us
as follows: (i) the outstanding 85,000,000 shares of Optex Systems,
Inc. (Delaware) common stock were exchanged by Optex Systems
Holdings for 113,333,282 shares (pre-split as historical) of us
common stock, (ii) the outstanding 1,027 shares of Optex Systems,
Inc. (Delaware) Series A preferred stock were exchanged by Optex
Systems Holdings for 1,027 shares of our Series A preferred stock
and (iii) the 8,131,667 shares (pre-split as historical) of Optex
Systems, Inc. (Delaware) common stock purchased in the private
placement, which also occurred on March 30, 2009, were exchanged by
Optex Systems Holdings for 8,131,667 shares of the Company’s
common stock. The per share price in the private placement was
$0.15 per share of common stock, and the closing date was March 30,
2009. Optex Systems, Inc. (Delaware) remains a wholly-owned
subsidiary of us.
At the time of the reorganization (all numbers are pre split due to
historical context), 25,000,000 shares owned by Andrey Oks, the
former CEO, were cancelled. Immediately prior to the closing,
17,449,991 shares of our common stock were outstanding. The
17,449,991 shares derives from the 17,999,995 shares outstanding as
of December 31, 2008 plus the 26,999,996 shares issued in
conjunction with the 2.5:1 forward stock split authorized by the
Sustut Board and shareholders and effected on February 27, 2009
less retirement of Andrey Oks’ 25,000,000 shares and
cancellation of 3,800,000 shares previously issued to Newbridge
Securities Corporation, shares plus issuance of 1,250,000 shares in
payment for two investor relations agreements. The total
outstanding common shares of us subsequent to the closing of the
reorganization is as follows (1):
Existing Sustut Shareholders
|
|
17,449,991
|
|
Optex Systems, Inc. (Delaware) shares
exchanged
|
|
113,333,282
|
|
Optex Systems, Inc. (Delaware) Private Placement
shares exchanged
|
|
8,131,667
|
|
Total Shares after reorganization
|
|
138,914,940
|
|
|
|
|
|
Cancellation of shares – American Capital
Ventures
|
|
(700,000
|
)
|
Private placement – June 29,
2009
|
|
750,000
|
|
Issuance of shares as consideration – ZA
Consulting
|
|
480,000
|
|
Shares Outstanding on September 27,
2009
|
|
139,444,940
|
|
Rule 409(b) states: “(b) The registrant shall include a
statement either showing that unreasonable effort or expense would
be involved or indicating the absence of any affiliation with the
person within whose knowledge the information rests and stating the
result of a request made to such person for the
information.”
We made requests of counsel representing Sustut’s directors
and officers to obtain additional information into the principles
behind their determination that the securities of the registrant
issued in the March 30, 2009 share exchange represented “fair
market value” to acquire the business operations of Optex
Systems, Inc. (Delaware), and they were not able to provide any
information. We confirm that we have no affiliation with
Sustut’s former counsel, Anslow & Jacklin, who was our
only source of information regarding the prior history of Sustut
and that the result of our request was that they stated they had no
information and were not able to obtain further information on this
issue.
We have not been able to provide further background as to how the
merger consideration was determined beyond the fact that it was
determined by negotiation between Sustut and Optex Systems, Inc.
(Delaware). Thus, we have invoked Rule 409(b) which states:
“(b) The registrant shall include a statement either showing
that unreasonable effort or expense would be involved or indicating
the absence of any affiliation with the person within whose
knowledge the information rests and stating the result of a request
made to such person for the information.”
Transactions with
Executive Management
See the “Executive Compensation” section for a
discussion of the material elements of compensation awarded to,
earned by or paid to our named executive officers. Other than as
stated in the “Executive Compensation” section, we have
not entered into any transactions with executive management.
52
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On August 15, 2016, we had 1,755,436
shares of common stock, 536.9 shares of Series A preferred stock and 801.6 shares of Series B Preferred Stock issued and outstanding.
The following table sets forth certain information with respect to the beneficial ownership of our securities as of August 15,
2016, for (i) each of our directors and executive officers; (ii) all of our directors and executive officers as a group (not noting
our four new directors who have not yet been issued any stock or options which have vested); and (iii) each person who we know
beneficially owns more than 5% of our common stock.
Beneficial ownership data in the table has been calculated based on
Commission rules that require us to identify all securities that
are exercisable or convertible into shares of our common stock
within 60 days of July 11, 2016 and treat the underlying stock as
outstanding for the purpose of computing the percentage of
ownership of the holder.
Except as indicated by the footnotes following the table, and
subject to applicable community property laws, each person
identified in the table possesses sole voting and investment power
with respect to all capital stock held by that person. The address
of each named executive officer and director, unless indicated
otherwise by footnote, is c/o our corporate headquarters.
Except as otherwise set forth below, the address of each of the
persons listed below is our address.
|
|
|
|
|
|
Preferred
Conversion
(1)(4)
|
|
|
|
Percentage
of Outstanding Shares
|
5%
Holders
|
|
Alpha
Capital
(1)
|
|
6,923
|
|
457,795
|
|
464,778
|
|
9.9
|
%
|
|
|
Sileas
Corporation
(2)(3)
|
|
1,352,185
|
|
1,291,070
|
|
2,643,255
|
|
69.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and Officers
|
|
Danny
Schoening
(5)(7)
|
|
1,367,185
|
|
1,291,070
|
|
2,658,255
|
|
69.9
|
%
|
|
|
Karen
Hawkins
(8)
|
|
7,500
|
|
—
|
|
7,500
|
|
0.2
|
%
|
|
|
Peter
Benz
(Longview Fund)
(6)
|
|
1,350
|
|
—
|
|
1,350
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and officers as a
group (3 Individuals)
|
|
|
|
1,376,035
|
|
1,291,070
|
|
2,667,105
|
|
70.1
|
%
|
53
54
DESCRIPTION
OF SECURITIES
Optex Systems Holdings is authorized
to issue 2,000,000,000 shares of common stock and 5,000 shares of preferred stock of which 1,027 shares are designated as Series
A preferred stock, and 1,010 shares are designated as Series B preferred stock and 400 shares are to be designated as Series C
preferred stock. As of August 15, 2016, there were 1,755,436 shares of common stock issued and outstanding, 536.9 shares of Series
A preferred stock issued and outstanding and 801.6 shares of Series B preferred stock issued and outstanding.
Common Stock
The
holders of common stock are entitled to one vote per share. The holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared by the board of directors out of legally available funds. However, the current policy of the board
of directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders
of common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of common
stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of
common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which
may be designated solely by action of the board of directors and issued in the future.
Series C Preferred Stock Issued in this Offering
Our board of directors shall have designated 400 shares of our preferred stock as Series C convertible preferred stock (“Series C preferred stock”), none of which
are currently issued and outstanding. The preferences and rights of the Series C preferred stock will be as set forth in a Certificate
of Designation (the “Series C Certificate of Designation”) filed as an exhibit to the registration statement of which
this prospectus is a part.
Pursuant to a transfer agency agreement
between us and Equity Stock Transfer, as transfer agent, the Series C preferred stock will be issued in book-entry form and shall
initially be represented only by one or more global certificates deposited with The Depository Trust Company, or DTC, and registered
in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.
In the event of a liquidation, the
holders of Series C preferred stock are entitled to participate on an as-converted-to-Common Stock basis with holders of the Common
Stock in any distribution of assets of the Company to the holders of the Common Stock. The Series C Certificate of Designation
provides, among other things, that we shall not pay any dividends on shares of Common Stock (other than dividends in the form
of Common Stock) unless and until such time as we pay dividends on each Series C preferred share on an as-converted basis. Other
than as set forth in the previous sentence, the Series C Certificate of Designation provides that no other dividends shall be
paid on Series C preferred stock.
With certain exceptions, as described
in the Series C Certificate of Designation, the Series C preferred stock have no voting rights. However, as long as any shares
of Series C preferred stock remain outstanding, the Series C Certificate of Designation provides that we shall not, without the
affirmative vote of holders of a majority of the then-outstanding Series C preferred stock, (a) alter or change adversely the
powers, preferences or rights given to the Series C preferred stock or alter or amend the Series C Certificate of Designation,
(b) increase the number of authorized shares of Series C preferred stock or (c) amend our certificate of incorporation in any
manner that adversely affects the rights of holders of Series C preferred stock.
Each Series C preferred share is convertible
at any time at the holder’s option into a number of shares of common stock equal to $5,000 divided by the Series C Conversion
Price. The “Series C Conversion Price” is initially $1.20 and is subject to adjustment for stock splits, stock dividends,
distributions, subdivisions and combinations. Notwithstanding the foregoing, the Series C Certificate of Designation further provides
that we shall not effect any conversion of Series C preferred stock, with certain exceptions, to the extent that, after giving
effect to an attempted conversion, the holder of Series C preferred stock (together with such holder’s affiliates, and any
persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number
of shares of Common Stock in excess of 4.99% of the shares of our Common Stock then
outstanding after giving effect to such exercise (the “preferred stock Beneficial Ownership Limitation”); provided,
however, that upon notice to the Company, the holder may increase or decrease the preferred stock Beneficial Ownership Limitation,
provided that in no event shall the preferred stock Beneficial Ownership Limitation exceed 9.99% and any increase in the preferred
stock Beneficial Ownership Limitation will not be effective until 61 days following notice of such increase from the holder to
us.
We do not intend to apply for listing
of the Series C preferred stock on any securities exchange or other trading system.
Warrants Issued in this Offering
The warrants issued in this offering
entitle the holder to purchase one share of our common stock at an exercise price equal to $1.50 per share, or 125% of the offering
price per share, at any time commencing upon consummation of this offering and terminating at 5:00 p.m., New York City time, on
the five year anniversary of the date of issuance.
Pursuant to a warrant agreement between
us and Equity Stock Transfer, LLC, as warrant agent, the warrants will be issued in book-entry form and shall initially be represented
only by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company,
or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. The material provisions
of the warrants are set forth herein but are only a summary and are qualified in their entirety by the provisions of the warrant
agreement that has been filed as an exhibit to the registration statement of which this prospectus forms a part.
The exercise price and number of shares
of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock
splits, stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation. For one year following
the issuance date of the warrants, the exercise price of the warrants will also be adjusted for issuances of common stock at a
price below their exercise price, on the date of issuance of any option to purchase, or sell or grant any right to reprice, or
otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any common stock
or common stock equivalents, at an effective price per share less than the exercise price then in effect. Under such adjustment,
the exercise price of the warrants shall be reduced to that lower issuance price per share. Under the terms of the Warrants, there
can only be one such price reset during the term of the warrant.
Under the terms of the warrant agreement,
we have agreed to use our best efforts to maintain the effectiveness of the registration statement and current prospectus relating
to common stock issuable upon exercise of the warrants until the expiration of the warrants. During any period we fail to have
maintained an effective registration statement covering the shares underlying the warrants, the warrant holder may exercise the
warrants on a cashless basis. The warrant holders do not have the rights or privileges of holders of common stock and any voting
rights until they exercise their warrants and receive shares of common stock, except as set forth in the warrants. After the issuance
of shares of common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record
on all matters to be voted on by stockholders.
Subject to limited exceptions, a holder
of warrants will not have the right to exercise any portion of its warrants if the holder (together with such holder’s affiliates,
and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a
number of shares of common stock in excess of 4.99% of the shares of our common stock then outstanding after giving effect to
such exercise (the “Beneficial Ownership Limitation”); provided, however, that, upon notice to the Company, the holder
may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation
exceed 9.99% and any increase in the Beneficial Ownership Limitation will not be effective until 61 days following notice of such
increase from the holder to us.
No fractional shares of common stock
will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, we will, upon exercise, round up to the nearest whole number of shares of common stock to be issued to the
warrant holder. If multiple warrants are exercised by the holder at the same time, we will aggregate the number of whole shares
issuable upon exercise of all the warrants. There is no established trading market for the warrants. The warrants have been approved
for quotation on the OTCQB.
In the event of a fundamental transaction
(as defined in warrant), then the Company or any successor entity will pay at the holder’s option, exercisable at any time
concurrently with or within 30 days after the consummation of the fundamental transaction, an amount of cash equal to the value
of the remaining unexercised portion of the warrants on the date of consummation of the fundamental transaction as determined
in accordance with the Black Scholes option pricing model.
Preferred
Stock
Series A Preferred
Stock
On March 24, 2009, Optex Systems Holdings filed a Certificate of
Designation with the Secretary of State of the State of Delaware
authorizing a series of preferred stock, under its articles of
incorporation, known as “Series A preferred stock”.
This Certificate of Designation was approved by Our Board of
Directors and Shareholders at a Board Meeting and Shareholders
Meeting held on February 25, 2009. The Certificate of Designation
originally set forth the following terms for the Series A preferred
stock as described in the table below.
Authorized Shares:
|
|
1,027
|
Per Share Stated Value:
|
|
$6,860.34
|
Liquidation Preference:
|
|
Per share stated value
|
Conversion Price into common stock:
|
|
$2.50 per share, as adjusted on a pro rata basis
for stock splits, dividends, combinations or reclassifications and
on a full ratchet basis for equity issuances at a price less than
the then in effect exercise price
|
Voting Rights:
|
|
The Series A preferred shares shall vote along
with the common stock on an as converted basis and shall have one
vote per share.
|
55
Our preferred shareholders have agreed to waive our obligation to
pay future dividends on their shares of preferred stock after the
date of effectiveness of this registration statement and in
conjunction with the reduction in their per share conversion price
to $0.01 as of the date of effectiveness, in accordance with the
terms of the preferred conversion feature of the Series A preferred
stock and in exchange for waiver of payment of accrued dividends
through July 15, 2011 through an offsetting increase in the stated
value of the Series A preferred stock. To date, the accrued
dividends on Series A preferred stock total $883,569, which when
divided by the 1027 shares of Series A preferred stock outstanding
equals an increase in the stated value of the shares to $6,860.34
per share. Our calculations are set forth below:
Ownership
of Series A Preferred Stock
|
|
Regarding
Shares Owned by Sileas Corp.
|
|
Regarding
Shares Owned by Alpha Capital Anstalt
|
1,027
shares
|
|
926
|
|
|
101
|
|
100%
|
|
90.2%
|
|
|
9.8%
|
|
$883,569
in dividends accrued
|
|
$796,979
|
|
|
$86,590
|
|
$883,569
total increase in total value, which
is $860.34 per share
|
|
New
stated value of $6,860.34 per Share
|
|
|
New
stated value of $6,860.34 per share
|
|
Series B Preferred
Stock
On March 26, 2015, we filed a Certificate of Designation with
respect to its Certificate of Incorporation to authorize a series
of preferred stock known as “Series B Preferred Stock”
under Article FOURTH thereof, with 1010 shares of Series B
preferred stock issuable thereunder. The amendment was approved by
our Board of Directors under Article FOURTH of its Certificate of
Incorporation, as amended. The Certificate of Designation sets
forth the following terms of the Series B preferred stock as
described in the table below:
Authorized Shares:
|
|
1010
|
Per Share Stated Value:
|
|
$1,629.16
|
Liquidation Preference:
|
|
Per share stated value to other classes of
equity except to Series A preferred stock
|
Conversion Price into Common Stock:
|
|
$2.50 per share
|
Voting Rights:
|
|
Additionally, the holders of the Series B
preferred stock are entitled to vote together with the common stock
and the Series A preferred stock on an “as-converted”
basis.
|
Stock
Options
As of the date of this prospectus, we
have 52,850 outstanding stock options that represent potential future cash proceeds to our company of $528,500. On December 9,
2011, our Board of Directors authorized an amendment to its Stock Option Plan to increase the number of issuable shares from 6,000
to 50,000 and authorize the grant of 10,000 options to two board members and a total of 36,070 to our employees including 20,000
options to executive officers, at an exercise price of $10.00 per share with each grant to vest 25% per year over four years for
each year with which the grantee is still employed by or serving as our director (with all unvested options automatically expiring
on the date of termination of employment by or service as a director) and all unvested options immediately vesting upon a change
of control due to a merger or acquisition of us. On December 19, 2013, the Board of Directors of Optex Systems Holdings, Inc.
authorized an amendment to its Stock Option Plan to increase the number of issuable shares from 50,000 to 75,000 and authorized
the grant of 20,000 options to three board members and a grant of 5,000 to an Optex Systems Holdings officer. The options have
an exercise price of $10.00 per share with each grant to vest 25% per year over four years for each year with which the grantee
is still employed by or serving as a director of Optex Systems Holdings, Inc. (with all unvested options automatically expiring
on the date of termination of employment by or service as a director of Optex Systems Holdings, Inc.) and all unvested options
immediately vesting upon a change of control due to a merger or acquisition of the Company. The holders of options are not required
to exercise their rights at any time and we are unable to predict the amount and timing of any future option exercises. We reserve
the right to temporarily reduce the exercise prices of our options from time to time in order to encourage the early exercise
of the options. As of the date of this prospectus, 57,850 of the stock options had vested and 5,000 were exercised.
56
Delaware Anti-takeover
Statute
We are subject to the provisions of section 203 of the Delaware
General Corporation Law regulating corporate takeovers. In general,
those provisions prohibit a Delaware corporation from engaging in
any business combination with any interested stockholder for a
period of three years following the date that the stockholder
became an interested stockholder, unless:
—
the transaction is approved by the board of directors before the
date the interested stockholder attained that status;
—
upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced;
or
—
on
or after the date the business combination is approved by the board
of directors and authorized at a meeting of stockholders by at
least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
Section 203 defines “business combination” to include
the following:
—
any merger or consolidation involving the corporation and the
interested stockholder;
—
any sale, transfer, pledge or other disposition of 10% or more of
the assets of the corporation involving the interested
stockholder;
—
subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
—
any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
—
the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by any of these entities or
persons.
A Delaware corporation may opt out of this provision either with an
express provision in its certificate of incorporation or bylaws
approved by its stockholders. However, we have not opted out, and
do not currently intend to opt out, of this provision. The statute
could prohibit or delay mergers or other takeover or change in
control attempts and, accordingly, may discourage attempts to
acquire us.
Certificate of
Incorporation and By-laws
Our Certificate of Incorporation and by-laws include provisions
that may have the effect of delaying or preventing a change of
control or changes in our management. These provisions include:
—
the right of the board of directors to elect a director to fill a
vacancy created by the resignation of a director or the expansion
of the board of directors;
—
the requirement for advance notice for nominations of candidates
for election to the board of directors or for proposing matters
that can be acted upon at a stockholders’ meeting (as set
forth in Article II Section IV of the Bylaws which require notice
to be given least ten (10) and not more than sixty (60) days prior
to each meeting, and notice of each special meeting shall also
state the purpose or purposes for which it has been called);
and
—
the right of our board of directors to alter our bylaws without
stockholder approval.
Also pursuant to the reorganization, we amended our bylaws which
provided for a fiscal year end on December 31 to a fiscal year
ending on the Sunday nearest September 30.
Transfer
Agent
Our transfer agent is Equity Stock Transfer of New York, NY.
57
UNDERWRITING
We have entered into an underwriting
agreement with Joseph Gunnar & Co., LLC (the “representative”) acting as the representative for the underwriters
named below. Subject to the terms and conditions of the underwriting agreement and other than the shares and/or warrants covered
by the over-allotment option described below, the underwriters named below have agreed to purchase, and we have agreed to sell
to the underwriters, the number of Class A units and number of Class B units at the public offering price, less the underwriting
discounts and commissions, as set forth on the cover page of this prospectus and as indicated below:
Underwriter
|
|
Class
A Units
|
|
|
Joseph
Gunnar & Co., LLC
|
|
1,250,000
|
|
400
|
Axion
Capital Management, Inc.
|
|
1,041,900
|
|
|
The
underwriters are committed to purchase all of the units offered by this prospectus if any such units are taken, other than
those shares and warrants covered by the over-allotment option described below. The obligations of the underwriters may be
terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the
underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and
warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and
legal opinions.
The representative has advised us that
the underwriters propose to offer the units directly to the public at the public offering price set forth on the cover of this
prospectus. In addition, the underwriters may offer some of the units to other securities dealers at such price less a concession
of up to $0.048 per Class A unit. After the offering to the public, the offering price and other selling terms may be changed
by the representative without changing our proceeds from the underwriters’ purchase of the units.
The following table summarizes the public offering price,
underwriting discounts and commissions and proceeds before expenses
to us assuming both no exercise and full exercise of the
underwriters’ option to purchase additional shares and
warrants.
|
|
Per
Class A Unit
|
|
Per
Class B Unit
|
|
Total
Without
Over-Allotment
|
|
Total
With Over-
Allotment
|
Public
Offering price
|
|
$
|
1.20
|
|
$
|
5,000.00
|
|
$
|
4,750,280.00
|
|
$
|
5,462,822
|
Underwriting
discounts and commissions
|
|
$
|
0.084
|
|
$
|
350.00
|
|
$
|
332,519.60
|
|
$
|
382,397.54
|
Proceeds,
before expenses, to us
|
|
$
|
1.116
|
|
$
|
4,650
|
|
$
|
4,417,760.40
|
|
$
|
5,080,424.46
|
In
addition, we have agreed to pay to the representative a non-accountable expense allowance equal to 1% of the aggregate gross proceeds
of this offering. In addition, we have agreed to reimburse the representative for fees and expenses of legal counsel to the representative
in an amount not to exceed $75,000, fees and expense related to use of book building, prospectus tracking and compliance software
for the offering in the amount of $29,500, up to $2,500 for the costs associated with bound volumes of the public offering materials
as well as commemorative mementos, and out-of-pocket fees and expenses of the representative for marketing and roadshows for the
offering not to exceed $20,000, of which $2,500 has been advanced prior to the date hereof, subject to compliance with FINRA Rule
5110(f)(2)(D)(i).
We estimate that the total expenses
of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding
underwriting discounts and commissions, will be approximately $365,000, all of which are payable by us.
Over-Allotment
Option
We have granted to the underwriters
an option, exercisable no later than 45 calendar days after the date of the underwriting agreement to purchase up to 593,785 shares
of common stock and/or warrants to purchase 593,785 shares of common stock (15% of the shares (including the number of shares
of Common Stock issuable upon conversion of the Series C convertible preferred stock) and 15% of the warrants sold in this offering)
at a price of $1.19 per share and $0.01 per warrant, less underwriting discount, to cover over-allotments. The over-allotment
option may be used to purchase shares of common stock and/or warrants in any combination thereof, as determined by the representative.
The underwriters may exercise this option only to cover over-allotments, if any, made in connection with this offering. To the
extent the option is exercised and the conditions of the underwriting agreement are satisfied, we will be obligated to sell to
the underwriters, and the underwriters will be obligated to purchase, these additional shares of common stock and/or warrants
to purchase common stock.
58
Underwriters’
Warrants
We have agreed to issue to the representative
common stock purchase warrants (the “Representative Warrants”) to purchase up to an aggregate number of shares of
our common stock equal to five percent (5%) of the shares of common stock sold in the offering (including shares issuable upon
conversion of the Series C preferred stock and excluding shares sold upon exercise of overallotment option and excluding shares
upon exercise of any warrants sold in this offering). The Representative Warrants and the shares underlying the Representative
Warrants will be registered on this registration statement. The Underwriter Warrants shall have an exercise price equal to $1.50
per share, which is 125% of the public offering price per share, and shall have a term of four years commencing one year from
the effective date of this offering (which period shall not extend further than five years from the effective date of this offering
in compliance with FINRA Rule 5110(f)(2)(G)), and otherwise have the same terms as the warrants sold in this offering except that
the warrants will not contain an anti-dilution provision and, pursuant to FINRA Rule 5110(g)(1), neither the Representative Warrants
nor any shares of common stock issued upon exercise of the Representative Warrants may be sold, transferred, assigned, pledged,
or hypothecated, or be subject to any hedging, short sale, derivative, put, or call transaction that would result in the effective
economic disposition of such securities by any person for a period of 180 days immediately following the date of effectiveness
or commencement of sales of this offering, except the transfer of any security (i) by operation of law or by reason of reorganization,
(ii) to any FINRA member firm participating in the offering and the officers and partners thereof, if all securities so transferred
remain subject to the lock-up restriction described above for the remainder of the time period, (iii) if the aggregate amount
of our securities held by the holder of the Representative Warrant or related persons does not exceed 1% of the securities being
offered, (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating
member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10%
of the equity in the fund, or (v) the exercise or conversion of any security, if all securities received remain subject to the
lock-up restriction set forth above for the remainder of the time period.
Lock-Up
Agreements
We and each of our officers and directors and
certain shareholders have agreed, subject to certain exceptions, not to offer, issue, sell, contract to sell, encumber, grant any
option for the sale of or otherwise dispose of any shares of our common stock or other securities convertible into or exercisable
or exchangeable for shares of our common stock for a period of 180 days after the effective date of the registration statement
of which this prospectus is a part without the prior written consent of the representative.
Price Stabilization, Short Positions
and Penalty Bids
In connection with this offering, the
underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids
and purchases to cover positions created by short sales.
|
•
|
Stabilizing
transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum and are engaged
in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.
|
|
•
|
Over-allotment
transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated
to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position.
In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares
that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than
the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment
option and/or purchasing shares in the open market.
|
|
•
|
Syndicate
covering transactions involve purchases of shares in the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for purchase in the open market as compared with the price at
which they may purchase shares through exercise of the over-allotment option. If the underwriters sell more shares than could
be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed
out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are
concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely
affect investors who purchase in the offering.
|
|
•
|
Penalty
bids permit the Representative to reclaim a selling concession from a syndicate member when the shares originally sold by
that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
|
These stabilizing transactions, syndicate
covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares of common
stock or preventing or retarding a decline in the market price of our shares of common stock. As a result, the price of our common
stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters
make any representation or prediction as to the effect that the transactions described above may have on the price of our common
stock. These transactions may be effected in the over-the-counter market or otherwise and, if commenced, may be discontinued at
any time.
In connection with this offering, underwriters
and selling group members may engage in passive market making transactions in our common stock on the OTCQB in accordance with
Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and
extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of
the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s
bid, then that bid must then be lowered when specified purchase limits are exceeded.
59
Other Terms
In
addition, we have granted a right of first refusal to the representative to act as sole investment bank, book-runner or placement
agent for any public or private equity, equity-linked or debt offering by us or any subsidiary during the twelve months following
the consummation of this offering.
We have previously paid an aggregate
fee of $8,500 to the representative for advisory services on our capital markets strategy, the listing of our common stock on
a national securities exchange, and non-deal roadshows to introduce us to institutional investors, sell-side research firms and
retail investment firms pursuant to an advisory agreement, dated May 23, 2016, between us and the representative.
The
underwriters and their affiliates may in the future provide various investment banking and other financial services for us, for
which they may receive, in the future, customary fees.
Indemnification
We have agreed to indemnify the underwriters against liabilities
relating to the offering arising under the Securities Act, the
Exchange Act and liabilities arising from breaches of some or all
of the representations and warranties contained in the underwriting
agreement. We have also agreed to contribute to payments that the
underwriters may be required to make for these liabilities.
Electronic
Distribution
A prospectus in electronic format may
be made available on the websites maintained by one or more of the underwriters or selling group members. The Representative may
agree to allocate a number of shares to underwriters and selling group members for sale to its online brokerage account holders.
Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on
the same basis as other allocations.
Other than the prospectus in electronic
format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration
statement of which this prospectus forms a part, has not been approved or endorsed by us, and should not be relied upon by investors.
60
Offer Restrictions Outside the United
States
Other than in the United States, no
action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus
in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or
sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the
offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result
in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes
are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus.
This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus
in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure
document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments
Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian
Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful
to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set
out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons
as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer,
the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian
Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months
after its transfer to the offeree under this prospectus.
Canada
The securities may be sold in Canada
only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National
Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined
in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities
must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable
securities laws.
Securities legislation in certain provinces
or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment
thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within
the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer
to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these
rights or consult with a legal advisor.
Pursuant to section 3A.3 of National
Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements
of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
China
The information in this document does
not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China
(the “PRC”) (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative
Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other
than directly to “qualified domestic institutional investors.”
European Economic Area — Belgium,
Germany, Luxembourg and Netherlands
The information in this document has
been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC
(“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member
State”), from the requirement to produce a prospectus for offers of securities.
61
An offer to the public of securities
has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the
Prospectus Directive as implemented in that Relevant Member State:
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(a)
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to
legal entities that are authorized or regulated to operate in the financial markets or,
if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
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(b)
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to
any legal entity that has two or more of (i) an average of at least 250 employees during
its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown
on its last annual unconsolidated or consolidated financial statements) and (iii) an
annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated
or consolidated financial statements);
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(c)
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to
fewer than 100 natural or legal persons (other than qualified investors within the meaning
of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent
of the Company or any underwriter for any such offer; or
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(d)
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in
any other circumstances falling within Article 3(2) of the Prospectus Directive, provided
that no such offer of securities shall result in a requirement for the publication by
the Company of a prospectus pursuant to Article 3 of the Prospectus Directive.
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France
This document is not being distributed
in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning
of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of
the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not
been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering
material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly,
may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions
have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account,
as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 and D.764-1 of the French
Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle
restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2°
and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General
Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to
the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the
French Monetary and Financial Code.
Ireland
The information in this document does
not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish
regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within
the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities
have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public
offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100
natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus
have not been approved or disapproved by the Israeli Securities Authority (the “ISA”), nor have such securities been
registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent
the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing
the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered
an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the
securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with
the Israeli securities laws and regulations.
62
Italy
The offering of the securities in the
Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ — $$ — Aga
e la Borsa, “CONSOB”) pursuant to the Italian securities legislation and, accordingly, no offering material relating
to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within
the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
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•
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to
Italian qualified investors, as defined in Article 100 of Decree No. 58 by reference
to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no.
1197l”) as amended (“Qualified Investors”); and
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•
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in
other circumstances that are exempt from the rules on public offer pursuant to Article
100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.
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Any offer, sale or delivery of the
securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor
solicits an offer from the issuer) under the paragraphs above must be:
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•
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made
by investment firms, banks or financial intermediaries permitted to conduct such activities
in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended),
Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable
laws; and
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•
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in
compliance with all relevant Italian securities, tax and exchange controls and any other
applicable laws.
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Any subsequent distribution of the
securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No.
58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may
result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities
for any damages suffered by the investors.
Japan
The securities have not been and will
not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as
amended (the “FIEL”), pursuant to an exemption from the registration requirements applicable to a private placement
of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and
the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan
or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional
Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and
acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
Portugal
This
document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários)
in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários).
The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal.
This document and any other offering material relating to the securities
have not been, and will not be, submitted to the
Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários) for approval in Portugal and,
accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under
circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions
of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities
Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any
other person.
63
Sweden
This document has not been, and will
not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document
may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed
not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella
instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined
in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the
information contained in it to any other person.
Switzerland
The securities may not be publicly
offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or
regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance
prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses
under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland.
Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made
publicly available in Switzerland.
Neither this document nor any other
offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In
particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market
Supervisory Authority.
This document is personal to the recipient
only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the securities
have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental
authority in the United Arab Emirates, nor has the Company received authorization or licensing from the Central Bank of the United
Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United
Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating
to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within
the United Arab Emirates by the Company.
No offer or invitation to subscribe
for securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document
nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United
Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”))
has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis
to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may
not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except
in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not
be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person
in the United Kingdom.
Any invitation or inducement to engage
in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities
has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United
Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company.
In the United Kingdom, this document
is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments
falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions)
Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net
worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together
“relevant persons”). The investments to which this document relates are available only to, and any invitation, offer
or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act
or rely on this document or any of its contents.
64
LEGAL MATTERS
The legality of the shares of common stock offered by this
prospectus will be passed upon for us by Jolie Kahn, Esq. of
Philadelphia, PA. Certain legal matters in connection with this
offering will be passed upon for the representative of the
underwriters by Ellenoff Grossman & Schole LLP, New York, New
York.
EXPERTS
The financial statements as of September 27, 2015 and September 28,
2014 incorporated in this prospectus have been so included in
reliance on the report of PMB Helin Donovan, an independent
registered public accounting firm, given on the authority of said
firm as experts in accounting and auditing.
No expert or counsel named in this prospectus as having prepared or
certified any part of this prospectus or having given an opinion
upon the validity of the securities being registered or upon other
legal matters in connection with the registration or offering of
the shares and its underlying securities was employed on a
contingency basis, or had, or is to receive, in connection with the
offering, a substantial interest, direct or indirect, in the
registrant or any of its parents or subsidiaries. Nor was any such
person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer, or employee.
WHERE YOU CAN FIND MORE
INFORMATION
We have filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the notes offered hereby.
This prospectus, which is part of the registration statement, does
not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration
statement. For further information, we refer you to the
registration statement and the exhibits and schedules filed as part
of the registration statement. If a document has been filed as an
exhibit to the registration statement, we refer you to the copy of
the document that has been filed. A copy of the registration
statement, including the exhibits and schedules thereto, may be
read and copied at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet website
that contains reports, proxy statements and other information about
issuers, like us, that file electronically with the SEC. The
address of that site is
www.sec.gov
.
65
INFORMATION INCORPORATED
BY REFERENCE
The rules of the SEC allow us to incorporate information into this
prospectus by reference. The information incorporated by reference
is considered to be a part of this prospectus. This prospectus
incorporates by reference the documents listed below:
•
our Annual Report on Form 10-K for the year ended September
27, 2015, filed on December 15, 2015;
•
our Quarterly Reports on Form 10-Q for the three months
ended December 27, 2015 filed on February 16, 2016, on Form 10-Q
for the three and six months ended March 27, 2016 filed on May 11,
2016 and on Form 10-Q for the three and nine months ended June 26, 2016 filed on August 8, 2016;
•
our
Preliminary Information Statement on Schedule 14C, filed on December 15, 2015 and
Definitive Information Statement on Schedule
14C, filed on December 28, 2015; and
•
our Current Reports on Form 8-K, filed on October 6 and November 9, 2015 and April 19 and 28, May 6, June 17, August 1,
2016 and August 10, 2016.
Any statement made in this prospectus or in a document incorporated
by reference into this prospectus will be deemed to be modified or
superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus modifies or supersedes that
statement. Any statement so modified or superseded will not be
deemed, except as so modified, to constitute a part of this
prospectus.
You can obtain any of the filings incorporated by reference into
this prospectus through us or from the SEC through the SEC’s
website at
http://www.sec.gov
.
We will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this prospectus is delivered,
upon written or oral request of such person, a copy of any or all
of the reports and documents referred to above which have been or
may be incorporated by reference into this prospectus. You should
direct requests for those documents to:
Optex Systems Holdings, Inc.
1420 Presidential Drive
Richardson, TX 75081
Our reports and documents incorporated by reference into this
prospectus may also be found in the “Investors
Relations” section of our website at
http://www.optexsys.com
.
Our website and the information contained in it or connected to it
shall not be deemed to be incorporated into this prospectus or any
registration statement of which it forms a part.
66
2,291,900
Shares of Common Stock
3,958,700
Warrants
400
Shares of Series C Convertible Preferred Stock
______________________
PROSPECTUS
______________________
Joseph
Gunnar & Co.