10.

Stockholders’ Equity

Preferred stock

During fiscal 2013, the Company had a stockholder rights plan (“the Plan”). In November 2013, the Plan was amended such that it expired in November 2013.

The Plan provided for the issuance of Series A junior participating preferred stock to each stockholder of record under certain circumstances. None of the Series A junior participating preferred stock were outstanding on September 30, 2013 and 2012. The Plan provided for a dividend distribution of one preferred share purchase right (the “Right”) on each outstanding share of common stock, payable on shares outstanding as of March 20, 2009 (the “Record Date”). All shares of common stock issued by the Company after the Record Date have been issued with such Rights attached. Subject to limited exceptions, the Rights would become exercisable if a person or group acquired 20% or more of the Company’s common stock or announced a tender offer for 20% or more of the Company’s common stock (a “Trigger Event”).

If and when the Rights become exercisable, each Right would entitle stockholders, excluding the person or group causing the Trigger Event (an “Acquiring Person”), to buy a fraction of a share of Series A junior participating preferred stock at a fixed price. In certain circumstances following a Trigger Event, each Right would entitle its owner, who is not an Acquiring Person, to purchase at the Right’s then current exercise price, a number of shares of common stock having a market value equal to twice the Right’s exercise price. Rights held by any Acquiring Person would become void and not be exercisable to purchase shares at the discounted purchase price.

The Board of Directors may redeem the Rights at $0.0001 per Right at any time before a person has acquired 20% or more of the outstanding common stock. The Rights would expire on March 20, 2019, subject to a periodic review of the Plan by a committee of independent directors.

Common stock

Fiscal 2013. In August 2012, the Company filed with the SEC a shelf registration statement on Form S-3 to sell an aggregate of up to $100.0 million in common stock, preferred stock, debt securities and warrants. Included in this shelf registration on Form S-3 is a prospectus relating to a financing facility with Cowen and Company, LLC (“Cowen”), providing for the sale of up to $25.0 million worth of shares of our common stock from time to time into the open market at prevailing prices in accordance with the terms of a sales agreement entered into with Cowen in August 2012. During fiscal 2013, the Company issued 7,935,395 shares of common stock under the sales agreement at an average price of $3.15 per share raising proceeds of approximately $25.0 million ($24.4 million after offering expenses, including commissions).

In July 2013, the Company filed with the SEC a shelf registration statement on Form S-3 to sell an aggregate of up to $150.0 million in common stock, preferred stock, debt securities and warrants. Included in this shelf registration on Form S-3 is a prospectus relating to a financing facility with Cowen, providing for the sale of up to an additional $25.0 million worth of shares of our common stock from time to time into the open market at prevailing prices in accordance with the terms of a sales agreement entered into with Cowen in August 2012 and amended in July 2013. During fiscal 2013, the Company issued 5,030,070 shares of common stock under the sales agreement at an average price of $4.97 per share raising proceeds of approximately $25.0 million ($24.4 million after offering expenses, including commissions).

During fiscal 2013, the Company issued 510,188 shares of common stock in connection with restricted stock units which were awarded to directors and vested at September 30, 2012, but were restricted until the resignation of the directors, 336,349 shares of common stock in connection with the vesting of restricted stock units and 1,033,833 shares of common stock in connection with the exercise of stock options resulting in proceeds of approximately $1.5 million.

During fiscal 2013, restricted stock unit awards for a total of 176,839 shares awarded to directors vested, but the issuance and delivery of these shares are deferred until the director resigns.

Fiscal 2012. On July 30, 2009, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), providing for the sale of up to 12,500,000 shares of common stock from time to time in the open market at prevailing prices. Pursuant to the Sales Agreement, sales of common stock are made in such quantities and on such minimum price terms as the Company may set from time to time. During fiscal 2012, 3,668,656 shares of common stock were sold under the Sales Agreement at an average price of $2.81 per share raising proceeds of approximately $10.3 million ($10.1 million after offering expenses, including commissions). As of September 30, 2012, a total of 12,355,166 shares of common stock were sold under the Sales Agreement at an average price of $2.83 per share raising gross proceeds of approximately $35.0 million ($33.8 million after offering expenses, including commissions).

During fiscal 2012, the Company received proceeds of approximately $7.8 million from the exercise of warrants to purchase 5,445,061 shares of the Company’s common stock. The warrants had been issued in connection with the Company’s registered securities offering in April 2008 at an exercise price of $1.43 per share.

During fiscal 2012, the Company issued 204,176 shares of common stock in connection with the vesting of restricted stock units and 1,673,811 shares of the Company’s common stock upon the exercise of outstanding options resulting in proceeds of approximately $1.3 million.

During fiscal 2012, restricted stock unit awards for a total of 187,083 shares awarded to directors vested, but the issuance and delivery of these shares are deferred until the director resigns.

Fiscal 2011. In November 2010, the Company completed a common stock offering raising $88.0 million in gross proceeds and approximately $83.0 million in net proceeds to the Company after deducting underwriting discounts, commissions and offering expenses. In connection with the offering, 20 million shares of common stock were sold at a public offering price of $4.40 per share.

During fiscal 2011, 2,147,000 shares of common stock were sold under the Sales Agreement at an average price of $3.78 per share raising proceeds of $8.1 million ($7.9 million after offering expenses, including commissions).

During fiscal 2011, the Company issued 252,941 shares of common stock in connection with the vesting of restricted stock units. In connection with the vesting, an officer exercised his option to pay for minimum required withholding taxes associated with the vesting of restricted stock by surrendering 1,446 shares of common stock at an average market price of $3.92 per share.

Also during fiscal 2011, the Company issued 814,454 shares of common stock upon the exercise of outstanding options resulting in proceeds of approximately $638,000.

Warrants

During fiscal 2013, the Company received proceeds of approximately $1.0 million from the exercise of warrants to purchase 710,109 shares of the Company’s common stock. The warrants had been issued in connection with the Company’s registered securities offering in April 2008 at an exercise price of $1.43 per share.

During fiscal 2012, the Company issued warrants to purchase 491,007 shares of the Company’s common stock at an exercise price of $2.78 per share in connection with the financing transaction in May 2012. (See Note 7, “Notes Payable.”) In fiscal 2013, 437,050 of these warrants were exercised in a cashless transaction resulting in the issuance of 72,185 shares of the Company’s common stock. As of September 30, 2013, 53,957 warrants remain outstanding and exercisable. The warrants expire in May 2022.

A following table summarizes all warrant activity for fiscal 2013 and 2012:


	Shares of Common Stock Purchasable Upon Exercise of Warrants			Weighted Average Exercise Price per Share		Range of Exercise Prices
Outstanding at September 30, 2011		6,155,170		$	1.43	$	1.43
Issued		491,007		$	2.78	$	2.78
Exercised		(5,445,061	)	$	1.43	$	1.43

Outstanding at September 30, 2012		1,201,116		$	1.98	$	1.43-$2.78
Exercised		(1,147,159	)	$	1.94	$	1.43-$2.78

Outstanding at September 30, 2013		53,957		$	2.78	$	2.78

Employee equity incentive plans

The Company currently has one equity incentive plan, which is the 2005 Equity Incentive Plan (the “2005 Plan”). The Amended and Restated 1994 Stock Option Plan (the “1994 Plan”), the Amended and Restated 1998 Stock Option Plan (the “1998 Plan”), the 2000 Stock Option Plan (the “2000 Plan”) and the 2003 Equity Incentive Plan (the “2003 Plan” and, together with the 1994 Plan, 1998 Plan, 2000 Plan and 2005 Plan, the “Plans”) are expired and the Company no longer grants share-based awards from these plans. All of the Plans were approved by the stockholders, except for the 2003 Plan, which was approved solely by the Board of Directors. Share-based awards are subject to terms and conditions established by the Compensation Committee of the Company’s Board of Directors. The Company’s policy is to issue new common shares upon the exercise of stock options, conversion of share units or purchase of restricted stock.

During fiscal 2013, 2012, and 2011, the Company granted share-based awards under both the 2003 Plan and the 2005 Plan. Under the 2003 Plan and 2005 Plan, options to purchase shares, restricted stock units, restricted stock and other share-based awards may be granted to the Company’s directors, employees and consultants. Effective March 2013, the Company is no longer able to issue grants from the 2003 Plan. Under the Plans, as of September 30, 2013, the Company had an aggregate of 12,439,448 shares of common stock reserved for issuance. Of those shares, 11,505,566 were subject to outstanding options and other awards and 933,882 shares were available for future grants of share-based awards. The Company may also issue share-based awards outside of the Plans. As of September 30, 2013, there were 221,900 options to purchase shares of common stock that were issued outside of the Plans (inducement option grants). None of the share-based awards are classified as a liability as of September 30, 2013.

2005 Equity Incentive Plan. On March 17, 2005, the Company’s stockholders approved the adoption of the 2005 Plan that initially provided for the issuance of up to 500,000 shares of common stock, plus an annual increase beginning in fiscal 2006 equal to the lesser of (a) 1% of the shares of common stock outstanding on the last day of the immediately preceding fiscal year, (b) 325,000 shares of common stock, or (c) such lesser number of shares of common stock as the Board of Directors shall determine. Pursuant to the provisions of annual increases, the number of authorized shares of common stock for issuance under the 2005 Plan increased by 273,417 shares effective November 16, 2005, 317,084 shares effective November 30, 2006, and an additional 325,000 shares effective for each date of December 4, 2007, November 6, 2008, November 11, 2009, November 10, 2010, November 10, 2011 and November 15, 2012 to a total of 3,040,501 shares. In February 2006, the Company’s stockholders eliminated the limitation on the number of shares of common stock that may be issued as restricted stock under the 2005 Plan. The 2005 Plan allows the Company to grant options, restricted stock awards and stock appreciation rights to the Company’s directors, officers, employees and consultants. As of September 30, 2013, 933,882 shares of common stock remained available for issuance under the 2005 Plan.

Stock Options. Stock options are granted with an exercise price equal to the current market price of the Company’s common stock at the grant date and have 10-year contractual terms. For option awards, typically 25% of the option shares vest and become exercisable on the first anniversary of the grant date and the remaining 75% of the option shares vest and become exercisable quarterly in equal installments thereafter over three years. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plans). Summaries of stock options outstanding and changes during fiscal 2013 are presented below.


	Number of Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value
Outstanding at September 30, 2012		8,142,468		$	2.67
Granted		2,151,507		$	2.89
Exercised		(1,033,833	)	$	1.45
Forfeited		(437,101	)	$	3.08

Outstanding at September 30, 2013		8,823,041		$	2.85		7.4	$	14,106,009

Vested and expected to vest in the future at September 30, 2013		8,566,637		$	2.85		7.3	$	13,748,940

Exercisable at September 30, 2013		4,621,266		$	2.83		6.3	$	8,232,487

The weighted average grant-date fair values of options granted during fiscal 2013, 2012, and 2011 were $1.95, $1.89 and $3.18 per share, respectively. The total intrinsic value of options exercised during fiscal 2013, 2012 and 2011 was $2.2 million, $3.7 million and $2.5 million, respectively, based on the differences in market prices on the dates of exercise and the option exercise prices. As of September 30, 2013, the total unrecognized compensation cost related to options was approximately $8.1 million, which is expected to be recognized over a weighted-average period of 2.5 years, based on the vesting schedules.

The fair value of each option award is estimated on the date of grant using the Black-Scholes model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s common stock and other factors. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.

Assumptions used in the Black-Scholes model for options granted during fiscal 2013, 2012, and 2011 were as follows:


	2013	2012	2011
Expected volatility	82.7% — 84.1%	103.7% — 108.7%	103.7% — 108.0%
Weighted-average volatility.	83.7%	107.9%	107.7%
Average expected term in years	5.4	5.8	5.8
Risk-free interest rate (zero coupon U.S. Treasury Note) .	0.8% — 1.7%	0.9% — 1.3%	1.1% — 2.5%
Expected dividend yield	0%	0%	0%

Restricted stock units (“RSU”). RSUs granted to employees generally vest based on three or four years of continuous service from the date of grant. RSUs granted to non-employee directors generally vest over the term of one year from the grant date and are not released until the awardee’s termination of service. Vesting for non-employee director grants allow for accelerated vesting of RSUs in the case of a non-employee director’s resignation where either: (i) he/she has served for at least four years as a member of the Board and is in good standing at the time of resignation, or (ii) he/she resigns for reasons related to health or family matters and is otherwise in good standing at the time of resignation. The following table summarizes the RSU activities for fiscal 2013.


	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at September 30, 2012		1,016,624		$	2.23
Granted		1,166,303		$	2.65
Vested		(513,188	)	$	2.64
Forfeited		(32,529	)	$	2.23

Unvested at September 30, 2013		1,637,210		$	2.40

The weighted average grant-date fair value of RSUs granted during fiscal 2013, 2012, and 2011 was $2.65, $2.15 and $4.12 per unit, respectively. The fair value of RSUs vested during fiscal 2013, 2012, and 2011 was approximately $1.4 million, $1.2 million and $1.1 million, respectively. As of September 30, 2013, the total unrecognized compensation cost related to unvested stock units was approximately $3.1 million, which is expected to be recognized over a weighted-average period of 2.6 years, based on the vesting schedules and assuming no forfeitures.

At September 30, 2013, there were 1,267,215 shares of restricted stock with a weighted-average grant date fair value of $2.08 per share awarded to directors that have vested but are still restricted until the directors resign. In fiscal 2013, 2012, and 2011, 176,839, 187,083 and 255,343 shares of restricted stock, respectively, vested but remained restricted.

During fiscal 2013, the Company granted performance-based RSUs to purchase 325,436 shares of common stock from the 2003 Stock Option Plan. These performance-based RSUs are included in the above unvested RSU table. The RSUs have a performance goal related to fiscal 2013 revenue that determines when vesting begins and the actual number of shares to be awarded ranging from 0% to 100% of target. Vesting is over three years beginning on the date the performance goal is achieved (“Achievement Date”), with 50% of the RSU shares vesting on the first anniversary of the Achievement Date and the remaining 50% of the RSU shares vesting annually in equal installments thereafter over two years. At September 30, 2013, the performance goal had been met and 321,436 performance RSUs are outstanding and have begun to vest.

During fiscal 2012, the Company granted performance-based RSUs to purchase 30,000 shares of common stock from the 2003 Stock Option Plan. These performance-based RSUs are included in the above unvested RSU table. The RSUs have a performance goal related to revenue that determines when vesting begins and the actual number of shares to be awarded ranging from 0% to 100% of target. Vesting is over 4 years beginning on the Achievement Date, with 25% of the RSU shares vesting on the first anniversary of the Achievement Date and the remaining 75% of the RSU shares vesting quarterly in equal installments thereafter over three years. At September 30, 2013, the performance goal had not been met and all 30,000 performance-based RSUs were outstanding.

During fiscal 2010, the Company awarded an RSU representing the right to acquire a total of 120,000 shares of common stock to a non-employee. The grant date fair value of this award was $2.08 per share. The restricted stock units vested on October 15, 2011, and were re-measured at each balance sheet date and again on the date vested at $3.22 per share.