J. 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 March 31, 2013. On October 17, 2012, the Company’s shareholders approved an increase in the number of shares authorized 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 2,232 shares available for future grant under the 2005 Plan at March 31, 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 vested over periods up 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 remains 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. 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. There were 52 and 58 shares issued under the ESPP during the nine months ended March 31, 2013 and 2012. Shares available for future purchase under the ESPP totaled 307 at March 31, 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)
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		(56	)		6.17
Cancelled		(284	)		14.48

Outstanding at March 31, 2013		2,116		$	13.43		2.82

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 by the Company. The replacement stock options granted were determined based on a conversion ratio provided in the Merger Agreement. The 271 of stock options granted in the table above reflect the replacement of the unvested Micronetics stock options as of August 8, 2012.

STOCK OPTION ASSUMPTIONS

The following table sets forth the weighted-average key fair value results and assumptions for stock options granted during the three and nine months ended March 31, 2013 and 2012:


	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012
Weighted-average fair value of options granted		— (	*)		— (	*)		3.80			— (*	)
Option life(1)		— (	*)		— (	*)		4.5 years			— (*	)
Risk-free interest rate(2)		— (	*)		— (	*)		0.7	%		— (*	)
Stock volatility(3)		— (	*)		— (	*)		58	%		— (*	)
Dividend rate		— (	*)		— (	*)		0	%		— (*	)

(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.

(*)	No stock options were granted by the Company during these periods.

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		1,320			9.47
Vested		(425	)		12.17
Forfeited		(115	)		11.14

Outstanding at March 31, 2013		2,055		$	10.82

STOCK-BASED COMPENSATION EXPENSE

The Company recognized the full expense of its share-based payment plans in the consolidated statements of operations for the three and nine months ended March 31, 2013 and 2012 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 included in the Company’s consolidated statements of operations:


	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012
Cost of revenues	$	105		$	83		$	335		$	241
Selling, general and administrative		1,486			1,013			5,095			4,261
Research and development		310			246			835			692

Share-based compensation expense before tax		1,901			1,342			6,265			5,194
Income taxes		(690	)		(463	)		(2,295	)		(1,846	)

Net compensation expense	$	1,211		$	879		$	3,970		$	3,348