7.Share-based Compensation

Shares reserved for issuance

The Company had reserved for issuance for the periods noted (in thousands):

	December 31, 2016		June 30, 2016
2014 Employee Stock Purchase Plan		8,897		10,001
Employee stock options and awards outstanding		10,450		10,609
2013 Employee Plan shares available for grant		1,553		5,401
Total shares reserved for issuance		20,900		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				Six Months Ended
	December 31, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Cost of product revenue	$	122	$	277	$	190	$	572
Cost of service revenue		186		277		418		644
Research and development		906		1,165		1,968		2,795
Sales and marketing		1,180		1,291		2,321		2,719
General and administrative		987		935		1,959		1,886
Total share-based compensation expense	$	3,381	$	3,945	$	6,856	$	8,616

During the three months ended December 31, 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, but accounts for them as incurred.

The following table summarizes stock award activity for the six months ended December 31, 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		3,148			3.90
Vested		(1,164	)		4.25
Cancelled		(326	)		2.88
Non-vested stock awards outstanding at December 31, 2016		5,882		$	3.49	$	29,587

The following table summarizes stock option activity for the six months ended December 31, 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		(944	)		3.43
Cancelled		(873	)		4.56
Options outstanding at December 31, 2016		4,568		$	4.15		3.79	$	4,742
Exercisable at December 31, 2016		3,419		$	4.49		3.36	$	2,490
Vested and expected to vest at December 31, 2016		4,568		$	4.15		3.79	$	4,742

There were 4,800 stock options granted during the three and six months ended December 31, 2015.

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 price 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.

There were no shares granted under the Company’s 2014 Employee Stock Purchase Plan (“ESPP”) during the three months ended December 31, 2016 and 2015.

	Stock Option Plan						Employee Stock Purchase Plan
	Three Months Ended			Six Months Ended			Six Months Ended
	December 31, 2015			December 31, 2015			December 31, 2016			December 31, 2015
Expected life	4.0 years			4.0 years			1.21 years			1.25 years
Risk-free interest rate		1.78	%		1.78	%		0.33	%		0.29	%
Volatility		52	%		52	%		58	%		58	%
Dividend yield		—	%		—	%		—	%		—	%