Stock-Based Compensation

STOCK OPTION PLANS

The number of shares authorized for issuance under the Company’s 2005 Stock Incentive Plan, as amended and restated (the “2005 Plan”), is 7,764 shares at June 30, 2013. On October 17, 2012, the Company's shareholders approved an increase in the number of authorized shares for issuance under the 2005 Plan to 7,592 shares, an increase of 1,500 shares. The 2005 Plan will be increased by any future cancellations, forfeitures or terminations (other than by exercise) under the Company’s 1997 Stock Option Plan (the “1997 Plan”). The 2005 Plan provides for the grant of non-qualified and incentive stock options, restricted stock, stock appreciation rights and deferred stock awards to employees and non-employees. All stock options are granted with an exercise price of not less than 100% of the fair value of the Company’s common stock at the date of grant and the options generally have a term of seven years. There were 2,258 shares available for future grant under the 2005 Plan at June 30, 2013.

The number of shares authorized for issuance under the 1997 Plan was 8,650 shares, of which 100 shares could be issued pursuant to restricted stock grants. The 1997 Plan provided for the grant of non-qualified and incentive stock options and restricted stock to employees and non-employees. All stock options were granted with an exercise price of not less than 100% of the fair value of the Company’s common stock at the date of grant. The options typically vest over periods of zero to four years and have a maximum term of 10 years. Following shareholder approval of the 2005 Plan on November 14, 2005, the Company’s Board of Directors determined that no further grants of stock options or other awards would be made under the 1997 Plan, and the 1997 Plan subsequently expired in June 2007. The foregoing does not affect any outstanding awards under the 1997 Plan, which remain in full force and effect in accordance with their terms.

EMPLOYEE STOCK PURCHASE PLAN

The number of shares authorized for issuance under the Company’s 1997 Employee Stock Purchase Plan, as amended and restated (“ESPP”), is 1,400 shares, including a 300 share increase approved by the Company’s shareholders on October 21, 2011. Under the ESPP, rights are granted to purchase shares of common stock at 85% of the lesser of the market value of such shares at either the beginning or the end of each six-month offering period. The ESPP permits employees to purchase common stock through payroll deductions, which may not exceed 10% of an employee’s compensation as defined in the ESPP. The number of shares issued under the ESPP during fiscal years 2013, 2012 and 2011 was 104, 104 and 89, respectively. Shares available for future purchase under the ESPP totaled 256 at June 30, 2013.

STOCK OPTION AND AWARD ACTIVITY

The following table summarizes activity of the Company’s stock option plans since June 30, 2011:



	Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value as of 6/30/2013
Outstanding at June 30, 2011	2,293		$	14.35	3.88
Granted	—		—
Exercised	(72	)	6.48
Cancelled	(36	)	23.70
Outstanding at June 30, 2012	2,185		$	14.46	2.89
Granted	271		4.75
Exercised	(74	)	5.88
Cancelled	(312	)	14.83
Outstanding at June 30, 2013	2,070		$	13.44	2.60	$	1,668
Vested and expected to vest at June 30, 2013	2,060		$	13.47	2.58	$	1,628
Exercisable at June 30, 2013	1,955		$	13.93	2.29	$	1,175

The intrinsic value of the options exercised during fiscal years 2013, 2012 and 2011 was $90, $534 and $2,979, respectively. Non-vested stock options are subject to the risk of forfeiture until the fulfillment of specified conditions. As of June 30, 2013, there was $354 of total unrecognized compensation cost related to non-vested options granted under the Company’s stock plans that is expected to be recognized over a weighted-average period of 1.66 years from June 30, 2013. As of June 30, 2012, there was $110 of total unrecognized compensation cost related to non-vested options granted under the Company’s stock plans that was expected to be recognized over a weighted-average period of 0.3 years from June 30, 2012.

On August 8, 2012, the Company completed its acquisition of Micronetics. Pursuant to the terms of the Merger Agreement, all outstanding options to acquire shares of Micronetics common stock that were vested at the closing were cancelled and the holders of such options received an amount of cash equal to the product of the total number of shares previously subject to such vested options and the excess of the merger consideration over the exercise price per share. All outstanding Micronetics stock options that were unvested at the closing were replaced with stock options in the Company's common stock. The replacement stock options granted were determined based on a conversion ratio provided in the Merger Agreement. The 271 stock options granted in the table above reflect the replacement of the unvested Micronetics stock options as of August 8, 2012.

The following table summarizes the status of the Company’s non-vested restricted stock awards since June 30, 2011:



	Non-Vested Restricted Stock Awards
	Number of Shares		Weighted Average Grant Date Fair Value
Outstanding at June 30, 2011	1,187		$	11.23
Granted	585		14.30
Vested	(409	)	10.62
Forfeited	(88	)	13.14
Outstanding at June 30, 2012	1,275		$	12.71
Granted	1,327		9.47
Vested	(474	)	11.97
Forfeited	(121	)	11.24
Outstanding at June 30, 2013	2,007		$	10.82

An aggregate of 144 shares of restricted stock that were granted to employees of KOR and PDI joining the Company in connection with the acquisition of KOR in December 2011 are included in the granted figure in the table above.

An aggregate of 70 shares of restricted stock that were granted to employees of Micronetics joining the Company in connection with the acquisition of Micronetics in August 2012 are included in the granted figure in the table above.

The total fair value of restricted stock awards vested during fiscal year 2013, 2012 and 2011 was $4,488, $5,848 and $4,175, respectively.

Non-vested restricted stock awards are subject to the risk of forfeiture until the fulfillment of specified conditions. As of June 30, 2013, there was $11,588 of total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s stock plans that is expected to be recognized over a weighted-average period of 2.6 years from June 30, 2013. As of June 30, 2012, there was $10,515 of total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s stock plans that is expected to be recognized over a weighted-average period of 2.4 years from June 30, 2012.

STOCK-BASED COMPENSATION EXPENSE AND ASSUMPTIONS

The Company recognized the full expense of its share-based payment plans in the consolidated statements of operations for the fiscal years 2013, 2012 and 2011 in accordance with FASB ASC 718 and did not capitalize any such costs on the consolidated balance sheets, as such costs that qualified for capitalization were not material. Under the fair value recognition provisions of FASB ASC 718, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the service period. The following table presents share-based compensation expenses from continuing operations included in the Company’s consolidated statement of operations:



	Year Ended June 30,
	2013			2012			2011
Cost of revenues	$	433		$	349		$	263
Selling, general and administrative	6,460			5,309			4,609
Research and development	1,047			958			708
Share-based compensation expense before tax	7,940			6,616			5,580
Income taxes	(2,910		)	(2,357		)	(1,966		)
Share-based compensation expense, net of income taxes	$	5,030		$	4,259		$	3,614

There were no options granted during fiscal year 2012. The only stock options granted during fiscal year 2013 were related to the Micronetics stock option rollover at the acquisition date. The following table sets forth the weighted-average key assumptions and fair value results for stock options granted during fiscal years 2013, 2012 and 2011:



	Years Ended June 30,
	2013			2012			2011
Weighted-average fair value of options granted	$	3.80		$	—		$	7.25
Option life(1)	4.5 years			0			5.0 years
Risk-free interest rate(2)	0.73		%	—		%	1.27		%
Stock volatility(3)	58		%	—		%	63		%
Dividend rate	—		%	—		%	—		%


(1)	The option life was determined based upon historical option activity.


(2)	The risk-free interest rate for each grant is equal to the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.


(3)	The stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company’s common stock over the most recent period equal to the expected option life of the grant, the historical short-term trend of the option and other factors, such as expected changes in volatility arising from planned changes in the Company’s business operations.