Stock option plan and stock-based compensation

During 2003, the Company’s Board of Directors (the "Board") established the 2003 Stock Plan, as amended (the “2003 Plan”). As of June 30, 2018, there were 89,000,000 shares authorized under the 2003 Plan and 1,799,258 shares were reserved for future issuance. As of September 30, 2017, there were 85,000,000 shares authorized under the 2003 Plan, and 2,088,004 shares were reserved for future issuance. The 2003 Plan includes incentive stock options that are subject to the rules and regulations of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options. The option price, number of shares and grant date are determined at the discretion of the Board. As long as the optionholder performs services for the Company, the options generally vest over 48 months, with cliff vesting after one year and monthly vesting thereafter. All options are exercisable for a period not to exceed ten years from the date of grant.

In July 2018, the Board adopted the 2018 Equity Incentive Plan (the "2018 Plan") and ceased granting awards under the 2003 Plan. The 2018 Plan became effective in connection with the IPO. The Company reserved 21,200,000 shares of its common stock for issuance under the 2018 Plan. Any remaining shares available for issuance under the 2003 Stock Plan on the effective date of the 2018 Plan were added to the shares of common stock reserved for issuance under the 2018 Plan.

Stock option activity was as follows:



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Weighted Average Intrinsic Value
					(in years)	(in thousands)
Outstanding at September 30, 2017	45,817,252		$	9.20	6.9	$	199,663
Granted	7,676,414		$	15.09
Exercised	(1,735,750	)	$	3.31
Forfeited	(3,387,668	)	$	13.05
Outstanding at June 30, 2018	48,370,248		$	10.08	6.7	$	243,060

At June 30, 2018
Options exercisable	30,582,952		$	7.70	5.4	$	226,453
Options vested and expected to vest	45,413,361		$	9.80	6.6	$	240,964

As of June 30, 2018 and September 30, 2017, the Company had $73.5 million and $74.9 million, respectively, of unrecognized stock-based compensation expense which is expected to be recognized over a weighted-average period of 2.7 and 2.8 years, respectively.

The Company’s policy for issuing stock upon stock option exercise is to issue new common stock.

Total stock-based compensation expense by function category was as follows:



	Three Months Ended				Nine Months Ended
	June 30, 2018		July 1, 2017		June 30, 2018		July 1, 2017
(In thousands)
Cost of revenue	$	49	$	65	$	156	$	179
Research and development	3,651		3,529		10,417		10,136
Sales and marketing	4,391		3,899		12,414		11,172
General and administrative	2,242		2,045		6,410		5,474
Total stock-based compensation expense	$	10,333	$	9,538	$	29,397	$	26,961