STOCK-BASED COMPENSATION

Stock-based awards were granted under the 2018 Omnibus Incentive Plan (the “2018 Plan”) beginning January 29, 2018 and, prior to that, were granted under the 2017 Omnibus Incentive Plan (the “2017 Plan”). Upon stockholder approval of the 2018 Plan, we ceased granting awards under any prior plan. Shares subject to awards under prior plans that are forfeited, canceled, returned to the Company for failure to satisfy vesting requirements, settled in cash or otherwise terminated without payment also will be available for grant under the 2018 Plan. The authority to grant options under the 2018 Plan and to set other terms and conditions rests with the Compensation Committee of the Board of Directors.

The 2018 Plan authorizes the issuance of up to 1,500,000 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 that have been granted under the 2018 Plan typically vest over a four-year period and will expire if unexercised after seven years from the date of grant. Restricted stock unit awards (“RSUs”) that have been granted to directors typically vest in one year. RSUs that have been granted to executives and employees typically vest in January over a four-year period. Awards may be granted under the 2018 Plan until January 28, 2028. Options under the 2018 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 units 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. Upon exercise, we issue new shares of stock. As of June 30, 2018, there were approximately 1,473,215 shares available for future grants under the 2018 Plan.

Our equity plans and corresponding forms of award agreements generally have provisions allowing employees to elect to satisfy tax withholding obligations through the delivery of shares, having us retain a portion of shares issuable under the award or paying cash to us for the withholding. During the nine months ended June 30, 2018 and 2017, our employees forfeited

13. STOCK-BASED COMPENSATION (CONTINUED)

72,918 shares and 48,076 shares, respectively in order to satisfy $0.7 million and $0.6 million, respectively of withholding tax obligations related to stock-based compensation, pursuant to terms of awards under our board and shareholder-approved compensation plans for each respective period.

Cash received from the exercise of stock options was $3.9 million and $3.3 million during the nine months ended June 30, 2018 and 2017, respectively.

We sponsor an Employee Stock Purchase Plan (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. Employee contributions to the Purchase Plan were $0.9 million and $0.7 million during both nine month periods ended June 30, 2018 and 2017. Pursuant to the Purchase Plan, 105,732 and 72,594 common shares were issued to employees during the nine months ended June 30, 2018 and 2017, respectively. Shares are issued under the Purchase Plan from treasury stock. As of June 30, 2018, 335,290 common shares were available for future issuances under the Purchase Plan.

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



	Three months ended June 30,						Nine months ended June 30,
	2018			2017			2018			2017
Cost of sales	$	49		$	52		$	145		$	168
Sales and marketing	406			348			1,131			1,033
Research and development	168			160			343			497
General and administrative	597			614			1,979			1,804
Stock-based compensation before income taxes	1,220			1,174			3,598			3,502
Income tax benefit	(249		)	(383		)	(747		)	(1,140		)
Stock-based compensation after income taxes	$	971		$	791		$	2,851		$	2,362

Stock-based compensation cost capitalized as part of inventory was immaterial as of June 30, 2018 and September 30, 2017.

Stock Options

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, 2017	3,902		$10.54
Granted	711		10.37
Exercised	(435	)	8.90
Forfeited / Canceled	(604	)	12.65
Balance at June 30, 2018	3,574		$10.35	4.3	$	10,318

Exercisable at June 30, 2018	2,350		$10.06	3.4	$	7,455

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $13.20 as of June 30, 2018, 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 the nine months ended June 30, 2018 was $0.7 million and during the nine months ended June 30, 2017 was $0.9 million.

13. 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:



	Nine months ended June 30,
	2018	2017
Weighted average per option grant date fair value	$3.76	$4.64
Assumptions used for option grants:
Risk free interest rate	2.12% - 2.88%	1.46% - 1.96%
Expected term	6.00 years	6.00 years
Expected volatility	33% - 34%	33% - 34%
Weighted average volatility	31%	34%
Expected dividend yield	0	0

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. 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.

As of June 30, 2018, the total unrecognized compensation cost related to non-vested stock options was $4.3 million and the related weighted average period over which it is expected to be recognized is approximately 2.7 years.

Non-vested Restricted Stock Units

A summary of our non-vested restricted stock units as of June 30, 2018 and changes during the nine 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, 2017	566		$	11.28
Granted	360		$	10.35
Vested	(203	)	$	11.02
Canceled	(90	)	$	11.11
Nonvested at June 30, 2018	633		$	10.86

As of June 30, 2018, the total unrecognized compensation cost related to non-vested restricted stock units was $5.4 million, and the related weighted average period over which it is expected to be recognized is approximately 1.4 years.