Note

Stock-Based Compensation

The Company recorded

$590,419

and

$1,774,330

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

nine

months ended

June 30, 2017,

respectively. For the

three

months ended

June 30, 2017,

$535,719

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

$54,700

is included in cost of sales. For the

nine

months ended

June 30, 2017,

$1,610,229

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

$164,101

is included in cost of sales. The Company recorded

$370,465

and

$843,658

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

three

and

nine

months ended

June 30, 2016,

respectively. For the

three

months ended

June 30, 2016,

$336,310

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

$34,155

was included in cost of sales. For the

nine

months ended

June 30, 2016,

$765,347

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

$78,311

was included in cost of sales. As of

June 30, 2017,

$5,750,033

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

7.3

years.

There were

stock options granted during the

nine

month periods ended

June 30, 2017

June 30, 2016.

The following is a summary of stock option activity during the

nine

months ended

June 30, 2017:

	Number of options			Weighted average exercise price
Outstanding at September 30, 2016		54,800		$	3.13
Granted		-			-
Exercised		(15,850	)		3.97
Cancelled or Forfeited		-			-
Outstanding at June 30, 2017		38,950		$	2.79

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

June 30, 2017,

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

3.0

years and their aggregate intrinsic value was

$405,657.

During the

nine

months ended

June 30, 2017,

the Company received proceeds of

$28,718

from the exercise of stock options. During the

nine

months ended

June 30, 2016,

exercised stock options totaled

172,450

shares, resulting in

$473,651

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

nine

month period ended

June 30, 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

nine

month period ended

June 30, 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

259,555

shares of common stock, with a vesting term of

three

five

years and a fair value of

$17.43

per share during the

nine

month period ended

June 30, 2016.

Restricted stock transactions during the

nine

month period ended

June 30, 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		(88,814	)		17.36
Forfeited		(7,952	)		15.05
Unvested at June 30, 2017		470,599		$	13.68

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

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 1

and

July 1

of each calendar year. For the phases that ended on

June 30, 2017

and

December 31, 2016,

employees purchased

14,723

and

11,144

shares at a price of

$11.22

and

$15.21

per share, respectively. After the employee purchase on

June 30, 2017,

117,255

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