STOCK-BASED COMPENSATION

During fiscal 2015, stock-based awards were granted under the terms of the 2014 Omnibus Incentive Plan (the 2014 Plan). The authority to grant options under the 2014 Plan and set other terms and conditions rests with the Compensation Committee of the Board of Directors. We also have outstanding shares related to stock-based awards for plans in which we can no longer grant shares. These plans include the 2013 Omnibus Incentive Plan (the 2013 Plan), which expired during the second quarter of fiscal 2014, the 2000 Omnibus Stock Plan as amended and restated as of December 4, 2009 (the Omnibus Plan), which expired during the second quarter of fiscal 2013 and the Stock Option Plan as amended and restated as of November 27, 2006 (the Stock Option Plan) and Non-Officer Stock Option Plan as amended and restated as of November 27, 2006 (the Non-Officer Plan), both of which expired during the first quarter of fiscal 2007 (the Plans).

The 2014 Plan authorizes the issuance of up to 2,250,000 common shares in connection with awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based full value awards or other stock-based awards. Eligible participants include our employees, our affiliates, non-employee directors of our Company and any consultant or advisor who is a natural person and provides services to us or our affiliates. Options granted under this plan generally vest over a four year service period and will expire if unexercised after eight years from the date of grant. Restricted stock awards (RSU's) that were granted to Directors typically vest in one year. RSU's that were granted to executives and employees typically vest in November over a four-year period. Awards may be granted under the 2014 Plan until January 27, 2024 as the 2014 Plan was ratified on January 27, 2014 at the Annual Meeting of Stockholders. Options under the 2014 Plan can be granted as either incentive stock options (ISOs) or non-statutory stock options (NSOs). The exercise price of options and the grant date price of restricted stock shall be determined by our Compensation Committee but shall not be less than the fair market value of our common stock based on the closing price on the date of grant. As of September 30, 2015, there were approximately 1,369,684 shares available for future grants under the 2014 Plan.

The 2013 Plan authorized the issuance of up to 1,750,000 common shares in connection with awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based full value awards or stock awards. Eligible participants included our employees, non-employee directors, consultants and advisors. Options granted under this plan generally vested over a four year service period and will expire if unexercised after eight years from the date of grant. RSU's that were granted to Directors typically vested in one year. Awards may no longer be granted under the Incentive Plan as the plan was terminated effective January 27, 2014 at the Annual Meeting of Stockholders. Options under the 2013 Plan were granted as either ISOs or NSOs. The exercise price was determined by our Compensation Committee but could not be less than the fair market value of our common stock based on the closing price on the date of grant.

The Omnibus Plan authorized the issuance of up to 5,750,000 common shares in connection with awards of stock options, stock appreciation rights, restricted stock, performance units or stock awards. Eligible participants included our employees, non-employee directors, consultants and advisors. An authorization to issue an additional 2,500,000 common shares was ratified on January 25, 2010 at the Annual Meeting of Stockholders. Awards may no longer be granted under the Omnibus Plan as the plan was terminated as to future awards on January 28, 2013 at the Annual Meeting of Stockholders. Options under the Omnibus Plan were granted as either ISOs or non-statutory stock options NSOs. The exercise price was determined by our Compensation Committee but could not be less than the fair market value of our common stock based on the closing price on the date of grant.

Awards outstanding under the Stock Option Plan and the Non-Officer Plan included NSOs. In addition, the Stock Option Plan also included ISOs to employees and others who provided services to us, including consultants, advisers and directors. Options granted under these plans generally vested over a four year service period and will expire if unexercised after ten years from the date of grant. The exercise price for ISOs and non-employee director options granted under the Stock Option Plan was set at the fair market value of our common stock based on the closing price on the date of grant. The exercise price for NSOs granted under the Stock Option Plan or the Non-Officer Plan was set by the Compensation Committee of the Board of Directors and was set to the exercise price based on the closing price on the date of grant.

11. STOCK-BASED COMPENSATION (CONTINUED)

We recorded cash received from the exercise of stock options of $6.6 million, $3.7 million and $2.2 million during fiscal years 2015, 2014 and 2013, respectively. During fiscal 2015, there were no excess tax benefits from stock-based compensation. The excess tax benefits from stock-based compensation were minimal during fiscal 2014 and $0.1 million during fiscal year 2013. Upon exercise, we issue new shares of stock. Our award plans have provisions allowing employees to elect to pay their withholding obligation through share reduction (see Note 12).

We sponsor an Employee Stock Purchase Plan as amended and restated as of October 29, 2013, December 4, 2009 and November 27, 2006 (the Purchase Plan), covering all domestic employees with at least 90 days of continuous service and who are customarily employed at least 20 hours per week. The Purchase Plan allows eligible participants the right to purchase common stock on a quarterly basis at the lower of 85% of the market price at the beginning or end of each three-month offering period. The Purchase Plan was ratified on January 27, 2014 at the Annual Meeting of Stockholders to increase the number of shares reserved for future purchases by 800,000 shares bringing the total number of shares to 2,800,000 shares of our Common Stock that may be purchased under the plan. Employee contributions to the Purchase Plan were $0.9 million in fiscal 2015, and $1.0 million in both fiscal 2014 and 2013. Pursuant to the Purchase Plan, 123,847, 129,449, and 128,853 common shares were issued to employees during the fiscal years ended 2015, 2014 and 2013, respectively. Shares are issued under the Purchase Plan from treasury stock. As of September 30, 2015, 617,531 common shares were available for future issuances under the Purchase Plan.

Stock-based compensation cost capitalized as part of inventory was immaterial as of September 30, 2015, 2014 and 2013.

Stock-based compensation expense is included in the consolidated results of operations as follows (in thousands):



	Fiscal years ended September 30,
	2015			2014			2013
Cost of sales	$	356		$	345		$	183
Sales and marketing	1,197			1,179			1,261
Research and development	785			735			772
General and administrative	1,963			2,071			1,556
Stock-based compensation before income taxes	4,301			4,330			3,772
Income tax benefit	(1,493		)	(1,491		)	(1,192		)
Stock-based compensation after income taxes	$	2,808		$	2,839		$	2,580

The following table summarizes our stock option activity (in thousands, except per common share amounts):



	Options Outstanding		Weighted Average Exercised Price	Weighted Average Contractual Term (in years)	Aggregate Intrinsic Value (1)
Balance at September 30, 2014	6,029		$10.61
Granted	810		8.12
Exercised	(739	)	8.87
Forfeited / Canceled	(1,300	)	11.55
Balance at September 30, 2015	4,800		$10.21	4.8	$	9,163

Exercisable at September 30, 2015	3,540		$10.66	4.1	$	5,575

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $11.79 as of September 30, 2015, which would have been received by the option holders had all option holders exercised their options as of that date.

The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. The total intrinsic value of all options exercised during each of the twelve months ended September 30, 2015, 2014 and 2013 was $0.9 million, $0.5 million and $0.5 million, respectively.

11. STOCK-BASED COMPENSATION (CONTINUED)

The table below shows the weighted average fair value, which was determined based upon the fair value of each option on the grant date utilizing the Black-Scholes option-pricing model and the related assumptions:



	Fiscal years ended September 30,
	2015		2014		2013
Weighted average per option grant date fair value	$	2.98	$	4.35	$	3.77
Assumptions used for option grants:
Risk free interest rate	1.57% - 1.85%		1.76% - 2.02%		0.88% - 1.78%
Expected term	6.00 years		6.00 years		6.25 years
Expected volatility	32% - 36%		38% - 40%		40%
Weighted average volatility	35%		40%		40%
Expected dividend yield	0		0		0

The fair value of each option award granted during the periods presented was estimated using the Black-Scholes option valuation model that uses the assumptions noted in the table above. Expected volatilities are based on the historical volatility of our stock. We use historical data to estimate option exercise and employee termination information within the valuation model; separate groups of grantees that have similar historical exercise behaviors are considered separately for valuation purposes. The expected term of options granted is derived from the vesting period and historical information and represents the period of time that options granted are expected to be outstanding. The risk-free rate used is the zero-coupon U.S. Treasury bond rate in effect at the time of the grant whose maturity equals the expected term of the option.

We use historical data to estimate pre-vesting forfeiture rates. The pre-vesting forfeiture rate used in fiscal 2015 was 6.0%. As of September 30, 2015 the total unrecognized compensation cost related to non-vested stock-based compensation arrangements, net of expected forfeitures, was $3.6 million and the related weighted average period over which it is expected to be recognized is approximately 2.7 years.

At September 30, 2015, the weighted average exercise price and remaining life of the stock options are as follows (in thousands, except remaining life and exercise price):



Options Outstanding					Options Exercisable
Range of Exercise Prices	Options Outstanding	Weighted Average Remaining Contractual Life (In Years)	Weighted Average Exercise Price		Number of Shares Vested	Weighted Average Exercise Price
$7.40 - $8.03	777	5.32	$	7.74	439	$	8.01
$8.04 - $9.35	1,006	6.10	$	8.79	521	$	8.98
$9.36 - $9.95	751	4.94	$	9.69	709	$	9.69
$9.96 - $10.81	1,119	6.05	$	10.66	724	$	10.68
$10.82 - $13.41	883	2.00	$	12.41	883	$	12.41
$13.42 - $14.75	27	3.22	$	14.35	27	$	14.35
$14.76 - $15.23	237	2.05	$	15.23	237	$	15.23
$7.40 - $15.23	4,800	4.81	$	10.21	3,540	$	10.66

The total grant date fair value of shares vested was $2.9 million in fiscal 2015, $0.8 million in fiscal 2014 and $3.1 million in fiscal 2013.

11. STOCK-BASED COMPENSATION (CONTINUED)

A summary of our non-vested restricted stock units as of September 30, 2015 and changes during the twelve months then ended is presented below (in thousands, except per common share amounts):



	Number of Awards		Weighted Average Grant Date Fair Value
Nonvested at September 30, 2014	171		$	9.35
Granted	503		$	8.27
Vested	(91	)	$	9.66
Canceled	(40	)	$	7.77
Nonvested at September 30, 2015	543		$	8.41

As of September 30, 2015, the total unrecognized compensation cost related to non-vested restricted stock units was $3.2 million and the related weighted average period over which it is expected to be recognized is approximately 1.4 years.