Stock-Based Compensation

The Company has adopted equity incentive plans that provide for the grant to employees and directors of stock-based awards, including without limitation, stock options, restricted shares, and restricted stock units of Adept common stock. In addition, certain of these plans permit the grant of non-statutory stock-based awards to consultants and non-employee directors. Adept historically primarily granted options under its existing stock plans, but commenced in fiscal 2009 to grant shares of restricted stock to executive and certain non-executive key employees as incentive compensation subject to performance criteria, and in the third quarter of fiscal 2013, expanded use of performance-based awards. Option awards granted have an exercise price equal to the market price of the Company's stock on the date of grant, except for the CEO option grant described below with a price exceeding the grant date market price of the Company's common stock. Option awards generally have ten-year contractual terms. The Company also has an employee stock purchase plan (“ESPP”) that allows employees to purchase a limited number of shares of its common stock at a discount of 15% of the market value at certain plan-defined dates that are established at six-month intervals.

Adept has an ESPP and two equity compensation plans currently in effect, which are the 2003 Stock Option Plan and 2005 Equity Incentive Plan. As of March 30, 2013, there were 386,682 shares available for issuance under the 2008 Employee Stock Purchase Plan and the outstanding options, restricted shares, and available shares remaining for issuance are as follows:



Plan	Subject to Outstanding Options and Restricted Stock	Available shares for grant and issuance
2003 Stock Option Plan	236,593	144,310
2005 Equity Incentive Plan	732,788	734,658

Options are also outstanding pursuant to four equity compensation plans which have expired or been terminated. These include the 1993 Stock Option Plan which has 8,855 shares subject to outstanding options; the 1995 Director Stock Option Plan which has 600 shares subject to outstanding options; the 2001 Stock Option Plan which has 49,500 shares subject to outstanding options; and the 2004 Director Option Plan which has 107,000 shares subject to outstanding options.

Under all plans, for employee grants, vesting of options is generally monthly in equal installments over a four period, except for performance awards granted during the third quarter of fiscal 2013. Restricted stock grants made to Adept executive officers and other senior management and key employees under annual performance programs and discretionary grants pursuant to the 2005 Equity Incentive Plan prior to the third quarter of fiscal 2013 are subject to vesting quarterly over two years following the end of the relevant fiscal year of performance. Initial director grants made prior to March 2010 vest one-fourth on the first anniversary of the grant, then monthly in equal installments thereafter for three years. Annual non-employee director grants made prior to March 2010 vest monthly in equal installments over a four year period. In March 2010, the Board revised director compensation so that annual option grants of 6,000 shares to non-employee directors made after March 2010 vest in full on the date of the annual meeting of stockholders following the meeting at which the director is elected and the annual grant is made, and the initial option grant of 10,000 shares to non-employee directors vests in the amount of 50% of the grant on the first annual meeting of stockholders following the initial appointment or election of the director and the remaining 50% vests at the second annual meeting of stockholders of the Company following the initial appointment or election of the director. In March 2010, the Board of Directors authorized a one-time option grant with 100% vesting to occur at the 2010 annual meeting of stockholders to reflect the increase in equity compensation for the 2010 year of service on the Board of Directors.

During the quarter ended March 30, 2013, a subcommittee of the Compensation Committee approved the termination of the Company's Fiscal 2013 Performance Plan, and its replacement with the Fiscal 2013 Management Incentive Plan (the “2013 Incentive Plan”), providing for potential performance-based cash compensation for the Company's executive officers and certain other key employees for achievement of fiscal 2013 goals.

Additionally during the quarter ended March 30, 2013, options and restricted stock were awarded with vesting based upon achievement of corporate financial objectives and individual performance objectives to further incentivize corporate performance through alignment with the interests of the stockholders of the Company.

In February 2013, the Company granted its new President and Chief Executive Officer options to purchase up to 75,000 shares of common stock at an exercise price of $4.60, vesting upon achievement of specified Adept financial and new product and customer sales performance targets, with vested options generally remaining exercisable for ten years and after separation until the earlier of September 30, 2016 and the date on which the Company's Series A redeemable convertible preferred stock is no longer outstanding.

The Company granted 10,600 shares of restricted stock to vest upon achievement of individual third and fourth fiscal quarter 2013 performance objectives, the Company's achievement of the corporate objectives under the 2013 Incentive Plan for the third and fourth fiscal quarters, and achievement of the positive adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") threshold defined by the 2013 Incentive Plan. These grants are separate from, but incorporate many terms of, the 2013 Incentive Plan.

During March 2013, the Company also granted 10,815 shares of restricted common stock to vest on the first anniversary of grant in March 2014 if the recipients achieve their respective individual performance objectives prior to such date and 50,000 shares of restricted common stock to technical personnel vesting on June 30, 2013 if certain operational performance objectives are met by that date.

During March 2013, the Company also granted restricted stock awards for 98,200 shares for retention incentive purposes vesting in full on the first anniversary of grant in the third quarter of fiscal 2014.

For all grants, the Company recognizes the fair value of stock-based compensation as an expense in the calculation of net income (loss), which is recognized ratably over the vesting period of the individual equity instruments. All stock compensation recorded during the nine months ended March 30, 2013 has been accounted for as an equity instrument.

The Company recorded $670,000 and $1.0 million of stock-based compensation expense on its unaudited condensed consolidated statements of comprehensive loss for the nine months ended March 30, 2013 and March 31, 2012, respectively, for its stock plans, ESPP, and acquisition-related equity issuances. The Company did not record an income-tax benefit for the stock compensation expense because of the extent of its net operating loss carry-forwards. The Company utilized the Black-Scholes option pricing model for estimating the fair value of the stock-based compensation. The weighted average grant-date fair values of the options granted to employees and non-employee directors under the equity incentive plans for the nine months ended March 30, 2013 and March 31, 2012 were $2.33 and $2.52, respectively. The weighted average grant-date fair values of the shares subject to purchase under the ESPP for the nine months ended March 30, 2013 and March 31, 2012 were $1.31 and $1.05, respectively.

The weighted average grant-date fair values were calculated using the following weighted average assumptions:



	Nine Months Ended
	March 30, 2013			March 31, 2012
	Equity Incentive and Stock Option Plans	Purchase Plan		Equity Incentive and Stock Option Plans	Purchase Plan
Average risk free interest rate	0.56%	0.16	%	0.67%	0.06	%
Expected life (in years)	6.24	0.49		5.77	0.49
Expected volatility	80%	62	%	82%	58	%
Dividend yield	0%	0	%	0%	0	%

The dividend yield of zero is based on the fact that the Company has never paid cash dividends on its common stock, is restricted from paying cash dividends on its common stock by its credit facility, and has no present intention to pay cash dividends on its common stock. Expected volatility is based on the historical volatility of Adept’s common stock over the period commensurate with the expected life of the options or ESPP shares. The risk-free interest rate is based on the observed and expected life of options or ESPP shares by Adept’s employees and is indexed to the Treasury Constant Maturity rate. The expected life in years is based on the historic time to post-vesting exercise and forfeitures of the options or ESPP shares.

For the nine months ended March 30, 2013 and March 31, 2012, stock-based compensation expense was based on the Company’s historical experience of option cancellations prior to vesting. The Company has assumed an annualized forfeiture rate of 5% for each period for its options. The Company records additional expense if the actual forfeiture rate is lower than estimated and records a recovery of prior expense if the actual forfeiture rate is higher than estimated.

A summary of stock option activity under the option plans as of March 30, 2013 and changes during the nine months then ended is presented below:



Options	Shares (in thousands)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at June 30, 2012	1,473		$	5.11
Granted	369		$	3.68
Exercised	(64	)	$	2.89
Forfeited or Expired	(643	)	$	5.30
Outstanding at March 30, 2013	1,135		$	4.67	5.98	$	19
Vested/Expected to Vest at March 30, 2013	1,105		$	4.68	5.90	$	19
Exercisable at March 30, 2013	767		$	5.07	4.69	$	18

A summary of restricted stock activity under the 2005 Equity Incentive Plan as of March 30, 2013 and changes during the nine months then ended is presented below:



Awards	Shares		Weighted Average- Grant Date Fair Value Per Share
Awarded	344,415		3.90
Vested	(37,546	)	4.31
Forfeited due to cancellation or for taxes	(103,176	)	4.27

As of March 30, 2013, there was $1.0 million of total unrecognized compensation cost related to non-vested stock options and restricted stock awards granted and outstanding; the cost of which is expected to be recognized through fiscal 2017, with a weighted average remaining period of 1.74 years for stock options and 0.63 years for stock awards.

In fiscal 2010 and fiscal 2011, Adept issued an aggregate of 468,956 shares of unregistered restricted stock outside of the equity incentive plans in connection with the acquisitions of MobileRobots Inc. ("MobileRobots") and InMoTx, Inc. ("InMoTx"), which were accounted for as compensation as vesting was contingent upon continued service. The 468,956 shares do not include shares issued and accounted for as merger consideration, and the complete stock issuance information for each merger is discussed in Note 15 to the Notes to Condensed Consolidated Financial Statements.

The Company issued 368,956 shares of restricted stock in connection with the acquisition of MobileRobots, to vest one-third on each of the first, second and third anniversaries of the closing date of the acquisition, contingent upon the continued employment of stockholders receiving such shares, subject to acceleration or forfeiture in certain circumstances, and subject to the indemnification obligations of the MobileRobots stockholders as described in Note 15 to the Notes to Condensed Consolidated Financial Statements. On April 15, 2011, one of the MobileRobots founders terminated employment with Adept and vesting was accelerated on 173,074 shares of restricted stock issued in connection with the acquisition of MobileRobots. On June 25, 2012 and June 25, 2011, 7,603 and 65,293 shares, respectively, of restricted stock vested in the annual vesting of the shares issued pursuant to the merger agreement. On September 30, 2011, another MobileRobots founder terminated employment with Adept, and vesting was accelerated on 115,383 shares of restricted stock. As of March 30, 2013, there were 7,603 shares issued in connection with the merger remaining to vest under the MobileRobots acquisition agreement.

In fiscal 2011, the Company also made a grant of 100,000 shares of restricted stock in connection with the acquisition of InMoTx to its chief technology officer to vest on the third anniversary of the acquisition, contingent upon his continued employment and subject to acceleration or forfeiture in certain circumstances. On September 20, 2011, the InMoTx chief technology officer entered into a separation agreement with the Company to terminate employment on January 31, 2012. Of the 100,000 shares issued, 80,500 shares were forfeited on September 20, 2011, and 19,500 shares vested on June 30, 2012, upon satisfactory completion of the requirements set forth in the separation agreement. As of June 30, 2012, there were no shares remaining to vest under this agreement.

During the nine months ended March 30, 2013, 35,646 shares of common stock were issued under the Company's 2008 Employee Stock Purchase Plan. Shares are issued semi-annually under the ESPP in April and November.

Total common shares outstanding at March 30, 2013 were 10,865,597.