

2.	Stock-Based Compensation

The Company has adopted equity incentive plans that provide for the grant to employees of stock-based awards, including 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 paid consultants and outside directors. To date, Adept has generally granted options under its existing stock plans and, commencing in fiscal 2009, has increasingly granted shares of restricted stock to executive and some non-executive employees as incentive compensation in lieu of stock options. Option awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Those 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 employee stock purchase plan and two equity compensation plans in effect and used by Adept at June 30, 2013, including the 2003 Stock Option Plan and 2005 Equity Incentive Plan as described in Note 8 to the Notes to Consolidated Financial Statements. As of June 30, 2013, the outstanding options and available shares for issuance under these plans are:



Plan	Subject to Outstanding Options and Restricted Stock	Available shares for grant and issuance
2003 Stock Option Plan	135,969	205,144
2005 Equity Incentive Plan	573,919	905,473

Options are also outstanding pursuant to three equity compensation plans which have expired or been terminated. These include the 1995 Director Stock Option Plan, the 2001 Stock Option Plan, and the 2004 Director Option Plan, which have, respectively, 600, 27,000 and 107,000 shares subject to outstanding options.

Under all of these plans, for employee grants, vesting of non-performance options is generally monthly in equal installments over a four year period except for performance awards granted during the third quarter of fiscal 2013. Performance restricted stock made to Adept executive officers and other senior management employees for performance under performance programs pursuant to the 2005 Equity Incentive Plan 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. Under the director option plan, prior to March 2010, initial director grants vest one-fourth on the first anniversary of the grant, then monthly in equal installments thereafter for three years. Prior to March 2010, annual non-employee director grants vest monthly in equal installments over a four year period. In March 2010, Adept’s Board of Directors revised the terms of future director option grants, which provided for the vesting of annual option grants of 6,000 shares to non-employee directors to vest in full on the date of the annual meeting of stockholders following the meeting at which the director is elected, and revised the vesting of the initial option grant of 10,000 shares to non-employee directors who have served for at least six months to vest in the amount of 50% of the grant on the first annual meeting of stockholders following the appointment or election of the director and the remaining 50% to vest at the second annual meeting of stockholders of the Company following the 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. The Company recognizes the fair value of stock compensation as an expense in the calculation of net income (loss). Stock compensation expense is recognized ratably over the vesting period of the individual equity instruments. All stock compensation recorded has been accounted for as an equity instrument.

During the quarter ended March 30, 2013, a subcommittee of the Compensation Committee approved the termination of the Company's Fiscal 2013 Performance Plan, which contemplated restricted stock awards, and its replacement with a 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 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 under the 2013 Incentive Plan. These grants are separate from, but incorporate many terms of, the 2013 Incentive Plan. Achievements of this incentive were not met.

The Company also granted 10,815 shares of restricted common stock to vest on the first anniversary of grant on March 8, 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. Performance objectives were met and these shares were fully vested as of June 30, 2013.

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

The Company recorded $0.8 million and $1.3 million of stock-based compensation expense on its consolidated statements of operations and comprehensive loss for the years ended June 30, 2013 and 2012, respectively, for its stock plans, ESPP and MobileRobots acquisition-related equity grants for which continued employment is a condition for release. Stock compensation expense for fiscal 2013 and 2012 includes $0 and $95,000, respectively, of accelerated stock compensation expense related to employee terminations that were part of the Company’s restructuring activities, and has been classified as restructuring expense. 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 under the equity incentive plans for the years ended June 30, 2013 and 2012 were $2.31 and $2.52, respectively, for employees and non-employee directors. The weighted average grant-date fair value of the shares subject to purchase under the ESPP for the years ended June 30, 2013 and 2012 were $1.21 and $1.46, respectively, using the following weighted average assumptions:



	Year Ended June 30, 2013				Year Ended June 30, 2012
	Equity Incentive and Stock Option Plans		Purchase Plan		Equity Incentive and Stock Option Plans		Purchase Plan
Average risk free interest rate	0.55	%	0.13	%	0.67	%	0.10	%
Expected life (in years)	6.23		0.49		5.77		0.49
Expected volatility	80	%	67	%	82	%	62	%
Dividend yield	—	%	—	%	—	%	—	%

The dividend yield of zero is based on the fact that the Company has never paid cash dividends, is restricted from paying cash dividends on its common stock by its credit facility and by the terms of its preferred stock, 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 observed and expected time to post-vesting exercise and forfeitures of options or ESPP shares by Adept’s employees. The expected life in years is based on the historic time to post-vesting exercise and forfeitures of the options or ESPP shares. The purchase period for the ESPP commencing September 1, 2009 was extended two months in order to adjust the purchase periods in 2010 to begin on May 1 and November 1 going forward.

For the 2013 and 2012 fiscal years, 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 June 30, 2013 and changes during the year 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, 2011	1,332		$	5.70
Granted	281		3.73
Exercised	(30	)	2.99
Forfeited or Expired	(110	)	9.25
Outstanding at June 30, 2012	1,473		5.11
Granted	414		3.62
Exercised	(138	)	2.95
Forfeited or Expired	(905	)	5.43
Outstanding at June 30, 2013	844		$	4.39	6.32	$	325
Vested/Expected to Vest at June 30, 2013	817		$	4.41	6.27	$	317
Exercisable at June 30, 2013	530		$	4.76	5.57	$	207

During the year ended June 30, 2013, Adept granted options for 414,000 shares of common stock with an estimated total grant date fair market value of $1.4 million. The intrinsic value of options exercised during the year ended June 30, 2013 was $107,000. Cash received from stock option exercises and ESPP purchases was $512,000 for the year ended June 30, 2013. As of June 30, 2013, there was $474,000 of total unrecognized compensation cost related to non-vested stock options granted and outstanding; that cost is expected to be recognized through fiscal year 2016, with a weighted average remaining period of 1.82 years for stock options.

A summary of restricted stock activity during fiscal year 2013 under the 2005 Equity Incentive Plan is presented below:



Awards	Shares		Weighted Average- Grant Date Fair Value Per Share
Awarded	344,415		$	3.90
Vested	(65,058	)	$	4.31
Forfeited due to cancellation or for taxes	(147,653	)	$	4.16

Adept has 468,956 shares of unregistered restricted stock issued outside of the equity incentive plans as merger consideration but accounted for as compensation due to retention criteria in connection with the acquisitions of MobileRobots and InMoTx. The 468,956 shares do not include shares issued and accounted for as consideration upon the mergers and the complete stock issuance information for each merger is discussed in Note 4 to the Notes to Consolidated Financial Statements.

The Company issued 368,956 shares of restricted stock in connection with the acquisition of MobileRobots, to vest in equal thirds on each of the first, second, and third anniversaries of the closing date of the acquisition, contingent upon the continued employment of such stockholder, subject to acceleration or forfeiture in certain circumstances, and subject to the indemnification obligations of the MobileRobots stockholders as described in Note 4 to the Notes to Consolidated Financial Statements. On April 15, 2011, one of the MobileRobots founders terminated employment with Adept. Vesting was accelerated on 173,074 shares of restricted stock issued in connection with the acquisition of MobileRobots. On September 30, 2011, the other MobileRobots founder terminated employment with Adept. Vesting was accelerated on 115,383 shares of restricted stock issued in connection with the acquisition of MobileRobots. On June 25, 2013, June 25, 2012 and June 25, 2011, 7,603, 7,603 and 65,293 shares, respectively, of restricted stock vested in the annual vesting of the shares issued pursuant to the merger agreement. As of June 30, 2013, there were no shares remaining to vest under this agreement.

The Company also made a grant of 100,000 shares of unregistered restricted stock in connection with the acquisition of InMoTx to vest on the third anniversary of the acquisition contingent upon the continued employment of the grant recipient, 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. As of June 30, 2013, there were no shares remaining to vest under this agreement.

A summary of unregistered restricted stock activity due to the acquisition of MobileRobots as of June 30, 2013, 2012 and 2011 and the acquisition of InMoTx as of June 30, 2012 and 2011 (See Note 4) is presented below:



Awards	Shares		Grant Date Fair Market Value
Balance of awards issued in acquisition of MobileRobots at June 30, 2010	368,956		$	5.10
Accelerated vesting	(173,074	)	5.10
Vested	(65,293	)	5.10
Balance of MobileRobots issuance at June 30, 2011	130,589		$	5.10
Accelerated vesting	(115,383	)	5.10
Vested	(7,603	)	5.10
Balance of MobileRobots issuance at June 30, 2012	7,603		$	5.10
Vested	(7,603	)	5.10
Balance of MobileRobots issuance at June 30, 2013	—		$	—

Issued in acquisition of InMoTx in 2011	100,000		$	4.89
Balance of awards issued in acquisition of InMoTx at June 30, 2011	100,000		$	4.89
Forfeited	(80,500	)	4.89
Vested	(19,500	)	4.89
Balance of InMoTx issuances at June 30, 2012	—		$	—

During the year ended June 30, 2013, 57,188 shares of common stock were issued under the Company’s 2008 ESPP. Shares are issued semi-annually under the ESPP on May 1 and November 1.

Total common shares outstanding at June 30, 2013 were 10,921,396.