2. Stock-Based Compensation

The Company has adopted equity incentive plans that provide for the grant to employees, consultants and directors of stock-based awards, including, stock options, restricted shares, and restricted stock units of Adept common stock. Option awards granted have an exercise price equal to or greater than the market price of the Company’s stock on the date of grant and 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.

Outstanding options and restricted shares, and available shares for issuance as of September 28, 2013 were:


Plan	Subject to Outstanding Options and Restricted Stock		Available shares for grant and issuance
2005 Equity Incentive Plan		814,211		656,084

As of September 28, 2013, there were 365,140 shares available for issuance under the ESPP. Options to acquire 442,934 shares of common stock are also outstanding pursuant to four equity compensation plans which have expired or been terminated.

Employee grants under the option plans generally vest, and are expensed, monthly in equal installments over a four year period, except for performance awards which vest when achievement of the performance criteria occurs, begin to be expensed when achievement of the performance criteria is probable, and are expensed over the service period or when the criteria is met. For performance awards, the Company estimates the service period based on its analysis of when the vesting criteria (typically some or all of the following components: share price, annual revenue amounts, earnings per share, net cash, new customers) will occur. Restricted stock grants made under annual performance programs are subject to vesting quarterly over two years following the end of the relevant fiscal year of performance.

Initial and annual non-employee director grants made prior to March 2010 vest in equal installments over four years, with initial grants having a 25% cliff vest on the anniversary of the grant. Starting in 2010, annual option grants of 6,000 shares to non-employee directors 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.

All stock compensation has been accounted for as an equity instrument, and the Company recognizes the fair value of stock-based compensation as an expense ratably over the service period of the individual equity instruments.

The Company recorded $0.5 million and $0.3 million of stock-based compensation expense for the three months ended September 28, 2013 and September 29, 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 three months ended September 28, 2013 and September 29, 2012 were $1.98 and $2.42, respectively. There were no shares purchased under the ESPP for the three months ended September 28, 2013 and September 29, 2012.

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


	Three Months Ended
	September 28, 2013			September 29, 2012
	Equity Incentive and Stock Option Plans			Equity Incentive and Stock Option Plans
Average risk free interest rate		0.75	%		0.53	%
Expected life (in years)		5.75			5.97
Expected volatility		77	%		80	%
Dividend yield		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 by its credit facility and its redeemable convertible 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 the observed and expected life of options 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 three months ended September 28, 2013 and September 29, 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 adjusts stock-based compensation expense if the actual forfeiture rate is different than estimated.

A summary of stock option activity under the option plans as of September 28, 2013 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, 2013		844		$	4.39
Granted		602		$	4.52
Exercised		(52	)	$	3.36
Forfeited or Expired		(137	)	$	5.12

Outstanding at September 28, 2013		1,257		$	4.42		8.25	$	3,375

Vested/Expected to Vest at September 28, 2013		1,165		$	4.40		8.13	$	3,158

Exercisable at September 28, 2013		602		$	4.26		6.80	$	1,771

A summary of restricted stock activity as of September 28, 2013 is presented below:


Awards	Shares			Weighted Average- Grant Date Fair Value Per Share
Balance at June 30, 2013		174,068		$	3.69
Awarded		7,500			3.27
Released from restrictions		(57,449	)		3.20
Forfeited due to cancellation or for taxes		(26,115	)		3.52

Balance at September 28, 2013		98,004		$	4.00

As of September 28, 2013 , there was approximately $1.1 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 3.01 years for stock options and 0.35 years for stock awards.