Share-based Compensation

As of December 31, 2014, the Company had 19,315,115 shares available for issuance, of which 12,000,000 shares are available under the 2014 Employee Stock Purchase Plan, which was approved by the shareholders on November 12, 2014, 466,187 shares are available under the 1999 Employee Stock Purchase Plan and 6,848,968 shares are available under the 2013 Stock Plan.

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



	Three Months Ended				Six Months Ended
	December 31, 2014		December 31, 2013		December 31, 2014		December 31, 2013
Cost of product revenue	$	275	$	198	$	558	$	300
Cost of service revenue	272		—		563		40
Research and development	1,544		898		3,188		1,141
Sales and marketing	1,566		1,279		3,123		1,850
General and administrative	1,092		1,083		2,131		1,702
Total share-based compensation expense	$	4,749	$	3,458	$	9,563	$	5,033

During the three and six months ended December 31, 2014 and 2013, the Company did not capitalize any stock-based compensation expense in inventory, as the amounts were immaterial.

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 six months ended December 31, 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	828		$	3.83
Vested	(1,805	)	$	5.25	$	6,689
Cancelled	(358	)	$	4.28
Non-vested stock outstanding at December 31, 2014	4,665		$	4.72

The following table summarizes stock option activity under all plans for the six months ended December 31, 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	5.13	6,846
Granted	1,063		$	4.21
Exercised	(381	)	$	3.29		$	329
Cancelled	(1,074	)	$	5.14
Options outstanding at December 31, 2014	11,340		$	4.20	4.96	$	1,618
Exercisable at December 31, 2014	5,373		$	3.86	3.99	$	1,225
Vested and expected to vest at December 31, 2014	10,396		$	4.17	4.87	$	1,573

The weighted-average grant-date per share fair value of options granted during the three months ended December 31, 2014 and 2013 was $1.66 and $2.35, 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 December 31, 2014 and 2013 was $1.17 and $1.35, respectively.

The weighted-average grant-date per share fair value of options granted during the six months ended December 31, 2014 and 2013 was $1.96 and $2.33, respectively. The weighted-average estimated per share fair value of shares purchased under the Company’s ESPP during the six months ended December 31, 2014 and 2013 was $1.33 and $1.21, respectively.

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.

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.



	Stock Option Plan				Employee Stock Purchase Plan				Stock Option Plan				Employee Stock Purchase Plan
	Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
	December 31, 2014		December 31, 2013		December 31, 2014		December 31, 2013		December 31, 2014		December 31, 2013		December 31, 2014		December 31, 2013
Expected life	4.8 years		4.0 years		0.25 years		0.25 years		4.7 years		4.0 years		0.25 years		0.25 years
Risk-free interest rate	1.67	%	1.14	%	0.03	%	0.11	%	1.61	%	1.20	%	0.02	%	0.10	%
Volatility	54	%	55	%	63	%	47	%	54	%	56	%	57	%	41	%
Dividend yield	—	%	—	%	—	%	—	%	—	%	—	%	—	%	—	%