MANAGEMENT AGREEMENT

3 Months Ended

Jun. 30, 2011

MANAGEMENT AGREEMENT

MANAGEMENT AGREEMENT

3. MANAGEMENT AGREEMENT

        In March 2007, we entered into a management services agreement (the "Management Agreement") with ZelnickMedia Corporation ("ZelnickMedia"), whereby ZelnickMedia provides us with certain management, consulting and executive level services. Strauss Zelnick, the President of ZelnickMedia, serves as our Executive Chairman and Chief Executive Officer and Karl Slatoff, a partner of ZelnickMedia, serves as our Chief Operating Officer. The Management Agreement expires in October 2012 and provides for an annual management fee of $2,500 and a maximum bonus of $2,500 per fiscal year based on the Company achieving certain performance thresholds. In consideration for ZelnickMedia's services under the Management Agreement, we recorded consulting expense (a component of general and administrative expenses) of $938 and $1,771 for the three months ended June 30, 2011 and 2010, respectively.

        Pursuant to the Management Agreement, in August 2007, we issued stock options to ZelnickMedia to acquire 2,009,075 shares of our common stock at an exercise price of $14.74 per share, which vested over 36 months and expire 10 years from the date of grant. Each month, we remeasured the fair value of the unvested portion of such options and recorded compensation expense for the difference between total earned compensation at the end of the period and total earned compensation at the beginning of the period. As a result, changes in the price of our common stock impacted compensation expense or benefit recognized from period to period. We recorded stock-based compensation related to this option grant of $981 for the three months ended June 30, 2010.

        In addition, on June 13, 2008, pursuant to an amendment to our Management Agreement, we granted 600,000 shares of restricted stock to ZelnickMedia that vested annually over a three year period and 900,000 shares of market-based restricted stock that vest over a four year period through 2012, provided that the price of our common stock outperforms 75% of the companies in the NASDAQ Industrial Index measured annually on a cumulative basis. For the three months ended June 30, 2011 and 2010, we recorded an expense of $527 and $85, respectively, of stock-based compensation (a component of general and administrative expenses) related to these grants of restricted stock.

        In May 2011, we entered into a new management agreement with ZelnickMedia pursuant to which ZelnickMedia will continue to provide management, consulting and executive level services to the Company through May 2015. As part of the new management agreement, Mr. Zelnick will continue to serve as Executive Chairman and Chief Executive Officer and Mr. Slatoff will continue to serve as Chief Operating Officer. The new management Agreement is subject to approval by the Company's stockholders at the Company's 2011 Annual Meeting. If the Company's stockholders do not approve the new management agreement, the new management agreement will be null and void, and the Company and ZelnickMedia will continue to operate under the terms and conditions of the existing Management Agreement, which expires in October 2012.

        In the event that our stockholders approve the new management agreement at our 2011 Annual Meeting, the annual management fee will remain at $2,500, subject to annual increases in the amount of 3% over the term of the agreement, and the maximum annual bonus will be increased to $3,500, subject to annual increases in the amount of 3% over the term of the agreement, based on the Company achieving certain performance thresholds. In addition, the new management agreement provides for the grant of 1,100,000 shares of restricted stock to ZelnickMedia that will vest annually over a four year period and 1,650,000 shares of market-based restricted stock that vest over a four year period.