Share-based Compensation

Shares reserved for issuance

As of September 30, 2015, the Company had reserved for issuance (in thousands):



	September 30, 2015	June 30, 2015
2014 Employee Stock Purchase Plan	11,000	12,000
Employee stock options and awards outstanding	14,617	15,273
Employee stock options and awards available for grant	4,767	5,450
Total shares reserved for issuance	30,384	32,723

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, 2015		September 30, 2014
Cost of product revenue	$	296	$	283
Cost of service revenue	367		291
Research and development	1,629		1,644
Sales and marketing	1,428		1,557
General and administrative	951		1,038
Total share-based compensation expense	$	4,671	$	4,813

During the three months ended September 30, 2015 and 2014, the Company did not capitalize any share-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 units which vests over a fixed period.

The following table summarizes stock award activity for the three months ended September 30, 2015 (in thousands, except grant date fair value):



	Number of Shares (000’s)		Weighted- Average Grant- Date Fair Value		Aggregate Fair Market Value ($000's)
Non-vested stock awards outstanding at June 30, 2015	4,597		$	3.82
Granted	2,291		$	2.94
Vested	(44	)	$	2.67	$	118
Cancelled	(187	)	$	4.55
Non-vested stock awards outstanding at September 30, 2015	6,657		$	3.51

The following table summarizes stock option activity under all plans for the three months ended September 30, 2015 (in thousands, except per share and contractual term):



	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, 2015	10,604		$	4.03	3.79	$	410
Granted	—		$	—
Exercised	(24	)	$	2.36
Cancelled	(2,620	)	$	3.70
Options outstanding at September 30, 2015	7,960		$	4.14	4.62	$	1,484
Exercisable at September 30, 2015	4,713		$	4.17	3.31	$	582
Vested and expected to vest at September 30, 2015	7,516		$	4.14	4.49	$	1,381

The weighted-average grant-date fair value of options granted during the three months ended September 30, 2014 was $2.39. There were no options granted during the three months ended September 30, 2015. The weighted-average fair value of shares purchased under the Company’s 2014 ESPP and the 1999 ESPP during the three months ended September 30, 2015 and 2014, was $1.97 and $1.50, respectively.

The Company uses the straight-line method for expense attribution, and the Company estimates forfeitures and only recognizes expense for those shares expected to vest. The Company’s estimated forfeiture rate for fiscal 2016 is based on the Company’s historical forfeiture experience and is 13% for non-executives and 19% for executives.

The fair value of each stock option grant under the Company's 2013 Plan and 2005 Plan 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 grants with market conditions, on the date of the grant. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behavior. The risk-free rate is based upon the estimated life of the option and is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a blended rate of the implied volatilities from traded options on the Company’s stock and historical volatility on the Company’s stock.

The fair value of each share purchase option under the Company's 2014 ESPP and 1999 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 expected term of the 2014 ESPP and the 1999 ESPP represents the term of the offering period of each option. The risk-free rate is based upon the estimated life and is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a blended rate of the implied volatilities from traded options and historical volatility on the Company’s stock.



	Stock Option Plans				Employee Stock Purchase Plans
	Three Months Ended				Three Months Ended
	September 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Expected life	0.0 years		5.0 years		1.25 years		0.25 years
Risk-free interest rate	—	%	1.52	%	0.29	%	0.02	%
Volatility	—	%	54	%	58	%	53	%
Dividend yield	—	%	—	%	—	%	—	%