Note

Stock-Based Compensation

The Company recorded

$590,165

and

$1,183,911

of compensation expense related to current and past option grants, restricted stock grants and the Company’s Employee Stock Purchase Plan (“ESPP”) for the

three

and

six

months ended

March

31,

2017,

respectively. For the

three

months ended

March

31,

2017,

$535,464

of this expense is included in selling, general and administrative expense, and

$54,701

is included in cost of sales. For the

six

months ended

March

31,

2017,

$1,074,510

of this expense is included in selling, general and administrative expense, and

$109,401

is included in cost of sales. The Company recorded

$246,426

and

$473,193

of compensation expense related to current and past equity awards for the

three

and

six

months ended

March

31,

2016,

respectively. For the

three

months ended

March

31,

2016,

$224,156

of this expense was included in selling, general and administrative expense, and

$22,270

was included in cost of sales. For the

six

months ended

March

31,

2016,

$429,037

of this expense was included in selling, general and administrative expense, and

$44,156

was included in cost of sales. As of

March

31,

2017,

$6,324,696

of total unrecognized compensation expense related to non-vested equity awards is expected to be recognized over a period of approximately

7.6

years.

There were

stock options granted during the

six

month periods ended

March

31,

2017

March

31,

2016.

The following is a summary of stock option activity during the

six

months ended

March

31,

2017:

	Number of options			Weighted average exercise price
Outstanding at September 30, 2016		54,800		$	3.13
Granted		-			-
Exercised		(15,750	)		3.98
Cancelled or Forfeited		-			-
Outstanding at March 31, 2017		39,050		$	2.78

The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. As of

March

31,

2017,

the weighted average remaining contractual term for all outstanding and exercisable stock options was

3.2

years and their aggregate intrinsic value was

$533,632.

During the

six

months ended

March

31,

2017,

the Company received proceeds of

$28,459

from the exercise of stock options. During the

six

months ended

March

31,

2016,

exercised stock options totaled

57,050

shares, resulting in

$84,738

of proceeds to the Company.

Restricted Stock

The Company’s

2007

Stock Compensation Plan permits its Compensation Committee to grant stock-based awards, including stock options and restricted stock, to key employees and non-employee directors. The Company has made restricted stock grants that vest over

one

ten

years.

During the

six

month period ended

March

31,

2017,

the Company granted non-employee directors restricted stock awards totaling

3,795

shares of common stock, with a vesting term of approximately

one

year and a fair value of

$16.45

per share.

During the

six

month period ended

March

31,

2016,

the Company granted non-employee directors restricted stock awards totaling

2,712

shares of common stock, with a vesting term of approximately

one

year and a fair value of

$14.73

per share. The Company also granted outgoing non-employee directors fully-vested stock awards totaling

1,356

shares of common stock, with a fair value of

$14.73

per share. Additionally, the Company granted employees restricted stock awards totaling

8,500

shares of common stock, with a vesting term of

five

years and a fair value of

$13.64

per share during the

six

month period ended

March

31,

2016.

Restricted stock transactions during the

six

month period ended

March

31,

2017

are summarized as follows:

	Number of shares			Weighted average grant date fair value
Unvested shares at September 30, 2016		563,570		$	14.26
Granted		3,795			16.45
Vested		(5,262	)		14.66
Forfeited		(7,526	)		14.91
Unvested at March 31, 2017		554,577		$	14.26

Employee Stock Purchase Plan

Clearfield, Inc.’s ESPP allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees subject to certain eligibility requirements. Terms of the ESPP provide that participating employees

may

purchase the Company’s common stock on a voluntary after-tax basis. Employees

may

purchase the Company’s common stock at a price that is no less than the lower of

85%

of the fair market value of

one

share of common stock at the beginning or end of each stock purchase period or phase. The ESPP is carried out in

six

month phases, with phases beginning on

January

and

July

of each calendar year. For the phases that ended on

December

31,

2016

and

December

31,

2015,

employees purchased

11,144

and

10,352

shares at a price of

$15.21

and

$11.40

per share, respectively. After the employee purchase on

December

31,

2016,

131,978

shares of common stock were available for future purchase under the ESPP.