Share-based Compensation

3 Months Ended

Sep. 30, 2014

Share-based compensation expense recognized in the condensed consolidated financial statements by line item caption is as follows (in thousands):



	Three Months Ended
	September 30, 2014		September 30, 2013
Cost of product revenue	$	283	$	102
Cost of service revenue	291		40
Research and development	1,644		243
Sales and marketing	1,557		570
General and administrative	1,038		620
Total share-based compensation expense	$	4,813	$	1,575

During the three months ended September 30, 2014 and 2013, the Company did not capitalize any stock-based compensation expense in inventory, as the amounts were immaterial. The income tax benefit for share-based compensation expense was immaterial in the three months ended September 30, 2014 and 2013.

The weighted-average grant-date per share fair value of options granted during the three months ended September 30, 2014 and 2013 was $2.39 and $2.24, respectively. The weighted-average estimated per share fair value of shares purchased under the Company’s 1999 Employee Stock Purchase Plan (“ESPP”) during the three months ended September 30, 2014 and 2013 was $1.50 and $1.07, respectively.

The following table summarizes stock option activity under all plans for the three months ended September 30, 2014:



	Number of Shares (000’s)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (000’s)
Options outstanding at June 30, 2014	11,732		$	4.26
Granted	432		$	5.21
Exercised	(149	)	$	3.36		$	245
Cancelled	(785	)	$	4.95
Options outstanding at September 30, 2014	11,230		$	4.25	5.00	$	8,795
Exercisable at September 30, 2014	5,135		$	3.85	3.87	$	5,487
Vested and expected to vest at September 30, 2014	10,232		$	4.21	4.89	$	8,329

Stock Awards

Stock awards may be granted under the 2013 Plan on terms approved by the Board of Directors. Stock awards generally provide for the issuance of restricted stock which vests over a fixed period.

The following table summarizes stock award activity for the three months ended September 30, 2014:



	Number of Shares (000’s)		Weighted- Average Grant- Date Fair Value		Aggregate Fair Market Value ($000's)
Non-vested stock outstanding at June 30, 2014	6,000		$	4.98
Granted	124		$	5.21
Vested	(88	)	$	3.71	$	422
Cancelled	(279	)	$	4.28
Non-vested stock outstanding at September 30, 2014	5,757		$	5.04

Excluding the options assumed as part of the Enterasys acquisition, the fair value of each option award and share purchase option under the Company's ESPP is estimated on the date of grant using the Black-Scholes-Merton option valuation model with the weighted average assumptions noted in the following table.

The Company uses the Monte-Carlo simulation model to determine the fair value and the derived service period of performance-based option awards, with market conditions, on the date of the grant.



	Stock Option Plan				Employee Stock Purchase Plan
	Three Months Ended				Three Months Ended
	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Expected life	5 years		5 years		0.25 years		0.25 years
Risk-free interest rate	1.52	%	1.53	%	0.02	%	0.09	%
Volatility	54	%	64	%	53	%	32	%
Dividend yield	—	%	—	%	—	%	—	%

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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