6.Share-based Compensation

Shares reserved for issuance

As of September 30, 2016, the Company had reserved for issuance (in thousands):

	September 30, 2016		June 30, 2016
2014 Employee Stock Purchase Plan		8,897		10,001
Employee stock options and awards outstanding		11,467		10,609
Employee stock options and awards available for grant		2,200		5,401
Total shares reserved for issuance		22,564		26,011

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, 2016		September 30, 2015
Cost of product revenue	$	68	$	296
Cost of service revenue		232		367
Research and development		1,141		1,629
Sales and marketing		1,062		1,428
General and administrative		972		951
Total share-based compensation expense	$	3,475	$	4,671

During the three months ended September 30, 2016 and 2015, 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 Equity Incentive Plan (the “2013 Plan”) on terms approved by the Compensation Committee of the Board of Directors. Stock awards generally provide for the issuance of restricted stock units (including performance or market-based restricted stock units) which vest over a fixed period of time or based upon the satisfaction of certain performance criteria. The Company uses the straight-line method for expense attribution, and beginning with fiscal 2017, the Company does not estimate forfeitures.

The following table summarizes stock award activity for the three months ended September 30, 2016 (in thousands, except grant date fair value):

	Number of Shares			Weighted- Average Grant Date Fair Value		Aggregate Fair Market Value
Non-vested stock awards outstanding at June 30, 2016		4,224		$	3.36
Granted		2,558		$	3.72
Vested		(431	)	$	3.34	$	1,833
Cancelled		(255	)	$	2.88
Non-vested stock awards outstanding at September 30, 2016		6,096		$	3.53

The following table summarizes stock option activity for the three months ended September 30, 2016 (in thousands, except per share and contractual term):

	Number of Shares			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Options outstanding at June 30, 2016		6,385		$	4.10		3.70	$	1,416
Granted		-		$	-
Exercised		(417	)	$	3.46
Cancelled		(597	)	$	4.47
Options outstanding at September 30, 2016		5,371		$	4.11		3.53	$	4,117
Exercisable at September 30, 2016		3,999		$	4.37		2.97	$	2,249
Vested and expected to vest at September 30, 2016		5,371		$	4.11		3.53	$	4,117

There were no stock options granted during the three months ended September 30, 2016 and 2015.

The weighted-average fair value of shares granted under the Company’s 2014 Employee Stock Purchase Plan (“ESPP”) during the three months ended September 30, 2016 and 2015 was $1.00 and $0.99, respectively.

The fair value of each stock option grant under the Company's 2013 Plan and 2005 Equity Incentive 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 stock awards 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 the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on the historical volatility on the Company’s stock.

The fair value of each restricted stock award grant with performance criteria (“PSU’s”) under the Company's 2013 Plan is estimated on the date of grant using the Monte-Carlo simulation model to determine the fair value and the derived service period of stock awards with market conditions, on the date of the grant.

On August 1, 2016, the Compensation Committee of the Company approved the grant of 680,000 awards of restricted stock units to the Company’s Executive Officers, with a grant date of August 15, 2016. Fifty percent (50%) of the restricted stock units granted were in the form of PSUs and fifty percent (50%) of the restricted stock units granted were in the form of service-based restricted stock units (“RSUs”). The RSUs vest from the original grant date as to one-third (1/3) on the one year anniversary and one-twelfth (1/12) each quarter thereafter, subject to continued service to the Company The PSUs vest once the Company's stock equals or exceeds $5.00 per share for 30 consecutive trading days after January 1, 2017 ("Performance Threshold"). Once the Performance Threshold is satisfied the PSUs shall vest with respect to the number of RSUs that have vested as of the date the Performance Threshold is satisfied and thereafter shall vest on the same schedule as the RSUs, subject to continued service to the Company. If the Performance Threshold is not met by the third anniversary of the grant date the award is terminated for no consideration. In addition, the Performance Threshold shall be deemed satisfied upon the closing of a Change in Control (within the meaning of the Company’s 2013 Equity Incentive Plan) in the event the per share consideration received by the Company’s stockholders equals or exceeds $5.00 per share.

The fair value of each 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 expected term of the ESPP represents the term of the offering period of each option. The risk-free rate is based upon the estimated life and on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on the historical volatility on the Company’s stock.

	Employee Stock Purchase Plan
	Three Months Ended
	September 30, 2016			September 30, 2015
Expected life	0.5 years			1.25 years
Risk-free interest rate		0.40	%		0.29	%
Volatility		40	%		58	%
Dividend yield		—	%		—	%