Note 7. Stock-Based Compensation

The following table summarizes stock-based compensation expense by financial statement line item in the Company’s condensed consolidated statements of operations for the three and nine months ended December 31, 2016 and 2015:

	For the Three Months Ended December 31,				For the Nine Months Ended December 31,
		2016		2015		2016		2015
	(in $000's)				(in $000's)
Cost of product revenue	$	234	$	216	$	754	$	671
Research and development		900		994		4,793		2,914
Selling, general and administrative		5,340		4,929		18,974		18,146
	$	6,474	$	6,139	$	24,521	$	21,731

Stock Options

The following table summarizes the stock option activity for the nine months ended December 31, 2016:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Options			Exercise		Contractual		Value
	(in thousands)			Price		Term (years)		(in thousands)
Outstanding at beginning of period		2,244		$	20.55		5.19
Granted		152			105.00
Exercised		(604	)		13.66
Cancelled and expired		(14	)		60.25
Outstanding at end of period		1,778		$	29.79		5.46	$	147,680
Exercisable at end of period		1,293		$	17.82		4.43	$	122,671
Options vested and expected to vest at end of period		1,726		$	28.92		5.38	$	144,841

The aggregate intrinsic value of options exercised was $59.5 million for the nine months ended December 31, 2016. The total fair value of options that vested during the nine months ended December 31, 2016 was $3.9 million.

The remaining unrecognized stock-based compensation expense for unvested stock option awards at December 31, 2016 was approximately $8.3 million, net of forfeitures, and the weighted-average period over which this cost will be recognized is 2.5 years.

The Company estimates the fair value of each stock option granted at the grant date using the Black-Scholes option valuation model. The weighted average grant-date fair values and weighted average assumptions used in the calculation of fair value of options granted during the three and nine months ended December 31, 2016 and 2015 was as follows:

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
		2016			2015			2016			2015
Weighted average grant-date fair value	$	48.15		$	34.05		$	42.21		$	28.91

Valuation assumptions:
Risk-free interest rate		1.37	%		1.50	%		1.32	%		1.60	%
Expected option life (years)		4.17			4.15			4.14			4.14
Expected volatility		48.5	%		49.6	%		49.5	%		49.7	%

Restricted Stock Units

The following table summarizes activity of restricted stock units for the nine months ended December 31, 2016:

	Number of Shares			Weighted Average Grant Date Fair Value
	(in thousands)			(per share)
Restricted stock units at beginning of period		1,263		$	57.95
Granted		364		$	97.45
Vested		(495	)	$	34.68
Forfeited		(64	)	$	92.46
Restricted stock units at end of period		1,068		$	80.35

The remaining unrecognized compensation expense for outstanding restricted stock units, including performance and market-based awards, as of December 31, 2016 was $33.1 million and the weighted-average period over which this cost will be recognized is 2.2 years.

Performance and Market-Based Awards

In May 2016, performance-based awards of restricted stock units for the potential issuance of up to 190,890 shares of common stock were issued to certain executive officers and employees, all of which vest upon achievement of prescribed service milestones by the award recipients and performance milestones by the Company. As of December 31, 2016, the Company is recognizing compensation expense based on the probable outcome related to the prescribed performance targets on the outstanding awards.

In November 2016, the Company awarded an executive officer a total of up to 41,526 restricted stock units. The restricted stock units are subject to both performance-and time-based vesting. These restricted stock units will vest and result in the issuance of common stock based on continuing employment, the Company achieving positive net profits measured in the aggregate over the first four full fiscal quarters following the grant date and the relative ranking of the total shareholder return (“TSR”) of the Company’s common stock in relation to the TSR of the component companies in the S&P Health Care Equipment Select Industry Index over a three-year performance period based on a comparison of average closing stock prices in June 2015 and June 2018. The actual number of restricted stock units that may be earned ranges from 0% to 100% of the target number of shares. One-half of the restricted stock units will potentially vest in June 2018 based on performance criteria described above and the remaining half of the restricted stock units will vest one year thereafter.

The Company used a Monte Carlo simulation model to estimate the grant-date fair value of the restricted stock units. The fair value related to the restricted stock units will be recorded as stock-based compensation expense over the period from date of grant to June 2018 regardless of the actual TSR outcome reached.

The table below sets forth the assumptions used to value the award and the estimated grant-date fair value:

Risk-free interest rate		0.90	%
Dividend yield		0	%
Remaining performance period (years)		1.58
Expected volatility		50.6	%
Estimated grant date fair value (per share)	$	62.55
Target performance (number of shares)		41,526