8.  Stock-Based Compensation

Grants Outside of the 2000 Plan

As of June 30, 2012, the Company had outstanding 3,300,000 non-qualified common stock options issued outside of the Amended and Restated 2000 Equity Incentive Plan (the “2000 Plan”). The Company granted 250,000 of these stock options during the first quarter of Fiscal 2012 and 3,050,000 of the options prior to Fiscal 2008, with exercise prices equal to the fair market value of the Company’s common stock on the grant date as inducement grants to new officers and employees of the Company. Included in the 3,300,000 options were 2,000,000 options granted to the Company’s President and Chief Executive Officer, 850,000 options granted to the Company’s Executive Vice President of Sales and Marketing, 250,000 options granted to the Company’s Senior Vice President of Program Management and 200,000 options granted to the Company’s Senior Vice President of Human Resources. Although the options were not granted under the 2000 Plan, they are governed by terms and conditions identical to those under the 2000 Plan. All options are subject to the following vesting provisions: one-fourth vest one year after the issuance date and 1/48th vest on the first day of each full month thereafter, so that all options will be vested on the first day of the 48th month after the grant date. All outstanding options have a contractual term of ten years.

Valuation and Expense Information

For the first quarter of Fiscal 2013 and Fiscal 2012, the Company recognized stock-based compensation expense of $0.3 million and $0.4 million, respectively. The following table summarizes, by statement of operations line item, stock-based compensation expense (in thousands):

There were no stock options granted during the first quarter of Fiscal 2013. The Company calculated the estimated fair value of each stock option granted during the first quarter of Fiscal 2012 on the date of grant using the Black-Scholes option-pricing model and the following weighted-average assumptions:

The Company’s computation of expected volatility for the first quarter of Fiscal 2012 was based on historical volatility. The expected life, or term, of options granted is derived from historical exercise behavior and represents the period of time that stock option awards are expected to be outstanding. Management has selected a risk-free rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the options’ expected term. Included in the calculation of stock-based compensation expense is the Company’s estimated forfeiture rate. Stock-based compensation expense is based on awards that are ultimately expected to vest and accordingly, stock-based compensation expense recognized in the first quarter of Fiscal 2013 and 2012 has been reduced by estimated forfeitures. Management’s estimate of forfeitures is based on historical forfeitures.

Information relating to all outstanding stock options, except for rights associated with the 2000 Employee Stock Purchase Plan, is as follows:

There were no stock options granted during the first quarter of Fiscal 2013. The weighted average per share grant date fair value of options granted during the first quarter of Fiscal 2012 was $1.77. There were no stock options exercised during the first quarter of Fiscal 2013 or Fiscal 2012. The Company recorded expense of approximately $0.2 million associated with its stock options during the first quarter of each of Fiscal 2013 and Fiscal 2012. As of June 30, 2012, there was approximately $1.2 million of total compensation cost related to unvested stock option awards that is expected to be recognized as expense over a weighted average period of 2.0 years.

During the first quarter of Fiscal 2013 and Fiscal 2012, the Company issued a total of 22,162 and 14,681 shares of stock, respectively, to non-employee directors who elected to take payment of all or any portion of the directors’ fees in stock in lieu of cash. The shares of stock were valued based on the closing price of the Company’s common stock on the date of grant and the weighted average grant date fair value for these shares during the first quarter of Fiscal 2013 and Fiscal 2012 was $1.00 and $1.67, respectively.

A summary of restricted stock unit activity for the first quarter of Fiscal 2013 is as follows:

The restricted stock units were valued based on the closing price of the Company’s common stock on the date of issuance and compensation cost is recorded on a straight-line basis over the vesting period. The related compensation expense recognized has been reduced by estimated forfeitures. The Company’s estimate of forfeitures is based on historical forfeitures.

The total fair value of restricted stock units vested and issued by the Company during the first quarter of Fiscal 2013 and 2012 was approximately $0.1 million and $0.4 million, respectively. The Company recorded expense of approximately $0.1 million and $0.2 million associated with its restricted stock awards and units during the first quarter of Fiscal 2013 and Fiscal 2012, respectively. As of June 30, 2012, there was approximately $0.8 million of total compensation cost related to unvested restricted stock units that is expected to be recognized as expense over a weighted average period of 2.2 years.

Contingent Grants

On June 6, 2012, options to purchase 1,708,330 shares of common stock and 427,080 RSUs were granted to the Company’s eligible executives, contingent on stockholder approval of the amendment and restatement of the 2000 Plan at the Annual Meeting scheduled to be held on August 30, 2012. The exercise price of the 1,708,330 options will be the market price of the Company’s stock on the date of stockholder approval of the amendment and restatement of the 2000 Plan. None of the June 6, 2012 grants are included in the tables in this footnote because they are not effective until the stockholder approval contingency is met.