The Company has stock-based compensation plans under which it grants stock options, restricted stock awards, performance share awards, restricted stock units and deferred stock units. Accounting guidance requires all share-based payments to be recognized as an expense, based on their fair values, over the requisite service period. The Company also estimates forfeitures of awards granted, which are based on historical experience and reduce the recognized expense. The Company’s stock-based compensation expenses for the years ended September 30 were allocated to the following expense categories (in thousands):

	2019		2018		2017
Product costs	$	135	$	69	$	90
Research and development		876		801		510
Selling, general and administrative		4,066		3,937		2,872
Total stock-based compensation expense	$	5,077	$	4,807	$	3,472

As of September 30, 2019, approximately $6.9 million of total unrecognized compensation costs related to non-vested awards is expected to be recognized over a weighted average period of approximately 2.2 years.

Under the 2019 Equity Incentive Plan (“2019 Plan”), the Company is authorized to issue 1,100,000 shares, plus the number of shares pursuant to any awards granted under the 2009 Equity Incentive Plan (“2009 Plan”) that were outstanding on the effective date of the 2019 Plan that expire, are cancelled or forfeited or are settled for cash.. As of September 30, 2019, there were 1,084,492 shares available for future equity awards, including stock options, restricted stock awards, and restricted stock and deferred stock units, under the 2019 Plan.

The Company uses the Black-Scholes option pricing model to determine the weighted average grant date fair value of stock options. Weighted average per share fair values of stock options granted during fiscal 2019, 2018 and 2017 were $17.89, $10.91 and $7.63, respectively. The assumptions used as inputs in the model for the years ended September 30 were as follows:

	2019			2018			2017
Risk-free interest rates		2.75	%		2.18	%		1.74	%
Expected life	4.5 years			4.8 years			4.6 years
Expected volatility		34	%		33	%		34	%
Dividend yield		0	%		0	%		0	%

The risk-free interest rate assumption was based on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award. The expected life of options granted is determined based on the Company’s experience. Expected volatility is based on the Company’s stock price movement over a period approximating the expected term. Based on management’s judgment, dividend rates are expected to be 0.0% for the expected life of the options.

Non-qualified stock options are granted at fair market value on the grant date. Non-qualified stock options expire in seven years or upon termination of employment or service as a Board member. With respect to members of the Board, non-qualified stock options generally become exercisable on a pro-rata basis over the one-year period following the date of grant. With respect to employees, non-qualified stock options generally become exercisable with respect to 25% of the shares on each of the first four anniversaries following the grant date. The stock-based compensation table above includes stock option expenses recognized related to these awards, which totaled $2.2 million, $1.6 million and $1.3 million during fiscal 2019, 2018 and 2017, respectively.

As of September 30, 2019, the aggregate intrinsic value of the option shares outstanding and option shares exercisable was $13.8 million and $9.0 million, respectively. As of September 30, 2019, the average remaining contractual life of options outstanding and options exercisable was 4.4 years and 3.5 years, respectively. The total pre-tax intrinsic value of options exercised during fiscal 2019, 2018 and 2017 was $0.3 million, $12.1 million and $0.1 million, respectively. The intrinsic value represents the difference between the exercise price and the fair market value of the Company’s common stock on the last day of the respective fiscal year end.

The following table summarizes all stock options activity and stock options outstanding and exercisable under the stock option plans during fiscal 2019, 2018 and 2017:

	Number of Shares			Weighted Average Exercise Price
Outstanding at September 30, 2016		827,325		$	21.30
Granted		229,039			24.08
Exercised		(6,819	)		13.89
Forfeited and expired		(47,640	)		30.65
Outstanding at September 30, 2017		1,001,905			21.54
Granted		269,961			34.08
Exercised		(450,495	)		19.46
Forfeited and expired		(110,825	)		30.18
Outstanding at September 30, 2018		710,546			26.28
Granted		179,669			55.09
Exercised		(12,604	)		22.03
Forfeited and expired		(6,435	)		42.28
Outstanding at September 30, 2019		871,176			32.18
Exercisable at September 30, 2019		418,873		$	24.71

The Company has entered into restricted stock agreements with certain key employees, covering the issuance of common stock (“Restricted Stock”). Under accounting guidance, these shares are considered to be non-vested shares. The Restricted Stock is released to the key employees if they are employed by the Company at the end of the vesting period. Restricted stock awards generally vest at a 33% rate on each of the first three anniversaries following the grant date. Compensation expense is recognized on a straight-line basis over the vesting term based on the fair value of the common shares on the date of grant. The stock-based compensation table above includes Restricted Stock expenses recognized related to these awards, which totaled $1.7 million, $1.0 million and $0.5 million during fiscal 2019, 2018 and 2017, respectively.

The following table summarizes all restricted stock awards activity during fiscal 2019, 2018 and 2017:

	Number of Shares			Weighted Average Grant Price
Balance at September 30, 2016		33,133		$	20.96
Granted		51,559			25.12
Vested		(14,497	)		21.10
Forfeited		(2,278	)		25.12
Balance at September 30, 2017		67,917			23.98
Granted		56,244			34.38
Vested		(28,717	)		23.78
Forfeited		(10,020	)		29.10
Balance at September 30, 2018		85,424			30.30
Granted		45,049			56.05
Vested		(39,195	)		28.61
Forfeited		(869	)		47.86
Balance at September 30, 2019		90,409		$	43.69

The Company has entered into performance share agreements with certain key employees, covering the issuance of common stock (“Performance Shares”). The Performance Shares vest upon the achievement of all or a portion of certain performance objectives, which must be achieved during the performance period. The Performance Shares are not issued and outstanding until the performance objectives are met. The Organization and Compensation Committee of the Board of Directors (the “Committee”) approves the performance objectives used for executive compensation programs, which objectives were cumulative earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for fiscal 2015 awards (2015 – 2017), fiscal 2016 awards (2016-2018) and fiscal 2017 awards (2016-2018). The Committee did not approve Performance Share awards in fiscal 2018 or fiscal 2019. Assuming that the minimum performance level is attained, the number of shares that may actually vest will vary based on performance from 20% (minimum) to 200% (maximum) of the target number of shares. Shares will be issued to participants as soon as practicable following the end of the performance periods, subject to Committee approval and verification of results. The per-unit compensation cost related to the shares to be granted under each performance period is fixed on the grant date, which is the date the performance period begins. Compensation expense is recognized in each period based on management’s best estimate of the achievement level of the specified performance objectives for Performance Shares for each open performance period. In fiscal 2019, the Company recognized expense of $0.4 million related to probable achievement of performance objectives for three-year Performance Shares granted in fiscal 2017. In fiscal 2018, the Company recognized expense of $1.5 million related to probable achievement of performance objectives for three-year Performance Shares granted in fiscal 2017 and 2016. In fiscal 2017, the Company recognized expense of $1.2 million related to probable achievement of performance objectives for three-year Performance Shares granted in fiscal 2017, 2016 and 2015. The stock-based compensation table above includes the Performance Shares expenses.

The fair values of the Performance Shares, at target, were $1.2 million for the grant awarded in fiscal 2017. During the year ended September 30, 2018, the resignation of an executive resulted in the forfeiture of 12,217 Performance Shares at their respective original performance targets.

The aggregate number of shares that could be awarded to key employees if the minimum, target and maximum performance goals are met, based upon the fair value at the date of grant is as follows:

The Fiscal 2017 – 2019 awards are expected to be finalized in December 2019 at an estimated 47,000 shares based on performance objective results.

Under the amended 1999 Employee Stock Purchase Plan (“Stock Purchase Plan”), the Company is authorized to issue up to 600,000 shares of common stock. All full-time and part-time U.S. employees can choose to have up to 10% of their annual compensation withheld, with a limit of $25,000, to purchase the Company’s common stock at purchase prices defined within the provisions of the Stock Purchase Plan. As of September 30, 2019 and 2018, there were less than $0.1 million of employee contributions in accrued liabilities in the consolidated balance sheets. Stock compensation expense recognized related to the Stock Purchase Plan for fiscal 2019, 2018 and 2017 totaled $0.1 million or less for each year. The stock-based compensation table above includes the Employee Stock Purchase Plan expenses.

The Company awarded 11,871 and 21,535 restricted stock units (“RSU”) in fiscal 2019 and 2018, respectively, under the 2019 Plan and the 2009 Plan to non-employee directors and certain key employees in foreign jurisdictions with forfeitures of 88 and 528 in fiscal 2019 and 2018, respectively. RSU awards are not considered issued or outstanding common stock of the Company until they vest. The estimated fair value of the RSU awards was calculated based on the closing market price of Surmodics’ common stock on the date of grant. As of September 30, 2019 and 2018, outstanding, unvested RSU’s totaled 62,242 and 60,182, respectively, with an estimated fair value of $2.8 million and $4.5 million, respectively. Compensation expense is recognized over the vesting term based on the fair value of the common shares on the date of grant. The stock-based compensation table above includes RSU expenses recognized related to these awards, which totaled $0.6 million, $0.5 million and $0.3 million in fiscal 2019, 2018 and 2017, respectively.

Directors may elect to receive their annual fees for services to the Board in deferred stock units (“DSUs”). As of September 30, 2019 and 2018, outstanding DSUs totaled 29,729 and 26,991, respectively, with an estimated fair value of $1.4 million and $2.0 million, respectively. These DSUs are fully vested when granted. Stock-based compensation expense related to DSU awards, totaled $0.1 million per year in fiscal 2019, 2018 and 2017.