7.Share-based Compensation

Shares reserved for issuance

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

	March 31, 2017		June 30, 2016
2014 Employee Stock Purchase Plan		7,785		10,001
Employee stock options and awards outstanding		9,352		10,609
2013 Employee Plan shares available for grant		10,241		5,401
Total shares reserved for issuance		27,378		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				Nine Months Ended
	March 31, 2017		March 31, 2016		March 31, 2017		March 31, 2016
Cost of product revenue	$	73	$	205	$	262	$	777
Cost of service revenue		56		223		475		867
Research and development		625		1,137		2,593		3,857
Sales and marketing		809		996		3,129		3,791
General and administrative		911		942		2,869		2,828
Total share-based compensation expense	$	2,474	$	3,503	$	9,328	$	12,120

During the three and nine months ended March 31, 2017 and 2016, 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 nine months ended March 31, 2017 (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		3,527			4.09
Vested		(1,476	)		3.94
Cancelled		(797	)		3.43
Non-vested stock awards outstanding at March 31, 2017		5,478		$	3.66	$	41,094

The following table summarizes stock option activity for the nine months ended March 31, 2017 (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		(1,467	)		3.75
Cancelled		(1,044	)		4.51
Options outstanding at March 31, 2017		3,874		$	4.12		4.11	$	13,143
Vested and expected to vest at March 31, 2017		3,874		$	4.12		4.11	$	13,143
Exercisable at March 31, 2017		2,919		$	4.48		3.27	$	8,841

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.

During the first quarter of fiscal 2017, the Company approved the grant of 680,000 stock awards to the Company’s Executive Officers and 771,020 stock awards to other Company employees. Fifty percent (50%) of the stock awards granted were in the form of PSUs, with grant date fair values ranging from $3.02 to $3.09, and fifty percent (50%) of the stock awards granted were in the form of service-based 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 are considered earned 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.

During the quarter ended March 31, 2017, all of the PSU grants referenced above achieved their Performance Threshold and as such, began vesting and will be released on the schedule as noted, subject to continued service to the Company.

During the quarter ended March 31, 2017, a grant of 100,000 RSUs was made to one of the Company’s Executive Officers. The award was granted under the Company’s standard terms and conditions.

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 1,114,707; 2,218,306; 999,758 and 1,999,519 shares issued under the Company’s 2014 Employee Stock Purchase Plan (“ESPP”) during the three and nine months ended March 31, 2017 and 2016, respectively.

	Employee Stock Purchase Plan						Stock Option Plan			Employee Stock Purchase Plan
	Three Months Ended						Nine Months Ended			Nine Months Ended
	March 31, 2017			March 31, 2016			March 31, 2016			March 31, 2017			March 31, 2016
Expected life	0.50 years			1.45 years			4.0 years			0.50 years			1.25
Risk-free interest rate		0.40	%		0.52	%		1.78	%		0.40	%		0.44	%
Volatility		37	%		57	%		52	%		38	%		57	%
Dividend yield		—	%		—	%		—	%		—	%		—	%