3. 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. As of September 27, 2014, there were options to purchase approximately 252,000 shares of common stock available for grant under all option plans and approximately 314,000 shares available for issuance under the ESPP.

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, and/or new customers) will occur. Restricted stock grants made under performance programs are subject to vesting quarterly over two years following the end of the relevant fiscal year of performance.

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.

Employee option grants are subject to a change of control plan adopted by the Company in 2014 for equity awards that provides for acceleration and vesting in full of options in connection with a change of control transaction under certain circumstances. 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 $0.2 million and $0.5 million of stock-based compensation expense for the three months ended September 27, 2014 and September 28, 2013, respectively. 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 were $6.37 and $1.98 for the three months ended September 27, 2014 and September 28, 2013, respectively. There were no shares purchased under the ESPP for the three months ended September 27, 2014 and September 28, 2013. The weighted average grant-date fair values were calculated using the following assumptions:


	Three Months Ended
	September 27, 2014			September 28, 2013
Average risk free interest rate		1.66	%		0.75	%
Expected life (in years)		4.66			5.75
Expected volatility		78	%		77	%
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 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. The risk-free interest rate is based on the observed and expected life of options 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. Stock-based compensation expense was based on the Company’s historical experience of option cancellations prior to vesting. The Company has generally 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 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, 2014		1,158		$	5.87
Granted		126		$	10.37
Exercised		(24	)	$	4.70
Forfeited or Expired		(9	)	$	5.38

Outstanding at September 27, 2014		1,251		$	6.35		8.27	$	3,627

Vested/Expected to Vest		1,216		$	6.29		8.24	$	3,571

Exercisable		857		$	5.01		7.87	$	3,064

In 2014, the Company granted restricted stock units (“RSUs”) for up to 112,500 shares of common stock to its Chief Executive Officer (“CEO”). The RSUs vest upon the earlier of the CEO’s separation from service or a change in control. The number of shares issuable upon vesting and settlement of the RSUs, if any, will be determined based on the Company’s stock price on the vesting date and, in the case of a separation from service, the extent to which certain performance criteria has been met. No compensation expense has been recognized on these RSUs as the fair value is not determinable.

As of September 27, 2014 , there was approximately $1.6 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.