Stock-Based Compensation

12 Months Ended

Apr. 01, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

NOTE 13.    STOCK-BASED COMPENSATION

Employee Stock Participation Plan (“ESPP”)

Our ESPP permits employees to purchase common stock through payroll deductions at a purchase price that is equal to 95% of our common stock price on the last trading day of each three-calendar-month offering period. Our ESPP is non-compensatory.

The following table summarizes our ESPP transactions during the fiscal periods presented (in thousands, except per share amounts):

	Shares of Common Stock		Weighted Average Price per Share
Authorized to issue:		4,500	$	—
Reserved for future issuance:
Fiscal year ending April 1, 2012		1,418		—
Fiscal year ending March 27, 2011		1,480		—
Fiscal year ending March 28, 2010		1,549		—
Issued:
Fiscal year ending April 1, 2012		62		6.09
Fiscal year ending March 27, 2011		69		6.41
Fiscal year ending March 28, 2010		59		6.64

Equity Incentive Plans

We currently have two equity incentive plans, in which shares are available for future issuance, the Exar Corporation 2006 Equity Incentive Plan (the “2006 Plan”) and the Sipex Corporation 2006 Equity Incentive Plan (the “Sipex Plan”) assumed in connection with the August 2007 acquisition of Sipex. The Sipex Corporation 2000 Non-Qualified Stock Option Plan expired October 31, 2010 and the Sipex Corporation 2002 Non-Qualified Stock Option Plan expired October 1, 2011.

The 2006 Plan authorizes the issuance of stock options, stock appreciation rights, restricted stock, stock bonuses and other forms of awards granted or denominated in common stock or units of common stock, as well as cash bonus awards. RSUs granted under the 2006 Plan are counted against authorized shares available for future issuance on a basis of two shares for every RSU issued. The 2006 Plan allows for performance-based vesting and partial vesting based upon level of performance. Grants under the Sipex Plans are only available to former Sipex employees or employees of Exar hired after the Sipex acquisition. At our annual meeting on September 15, 2010, our stockholders approved an amendment to the 2006 Plan to increase the aggregate share limit under the 2006 Plan by an additional 5.5 million shares to 8.3 million shares. At April 1, 2012, there were 5.3 million shares available for future grant under all our equity incentive plans.

The following table summarizes information about our stock options outstanding at April 1, 2012:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding As of April 1, 2012		Weighted Average Remaining Contractual Terms (in years)		Weighted Average Exercise Price per Share		Number Exercisable As of April 1, 2012		Weighted Average Exercise Price per Share
$3.60 - $5.97		1,537,328		5.72	$	5.94		292,790	$	5.85
6.16 - 6.43		1,652,408		6.25		6.38		142,008		6.18
6.44 - 7.42		1,276,923		5.00		6.88		447,221		6.80
7.44 - 8.57		1,414,916		2.25		8.20		1,233,286		8.30
9.04 - 15.96		463,732		1.99		12.56		463,732		12.56
		6,345,307		4.67	$	7.23		2,579,037	$	8.41

Stock Option Activities

A summary of stock option transactions during the periods indicated for all stock option plans was as follows:

	Outstanding Options / Quantity			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value(1) (in thousands)		In-the-money Options Vested and Exercisable (in thousands)
Balance at March 29, 2009		3,406,091		$	9.48		5.37	$	129		160
Granted		2,687,450			6.81
Exercised		(26,343	)		5.63
Cancelled		(262,629	)		14.22
Forfeited		(459,065	)		8.49
Balance at March 28, 2010		5,345,504		$	8.01		5.38	$	1,882		235
Granted		2,113,190			6.60
Exercised		(125,920	)		6.07
Cancelled		(308,595	)		11.02
Forfeited		(1,294,715	)		6.93
Balance at March 27, 2011		5,729,464		$	7.61		4.74	$	147		103
Granted		3,100,595			6.33
Exercised		(422,749	)		6.54
Cancelled		(526,574	)		8.15
Forfeited		(1,535,429	)		6.70
Balance at April 1, 2012		6,345,307		$	7.23		4.67	$	9,474		1,193
Vested and expected to vest, April 1, 2012		5,933,803		$	7.29		4.55	$	8,651
Vested and exercisable, April 1, 2012		2,579,037		$	8.41		2.71	$	2,027

(1) The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value, which is based on the closing price of our common stock of $8.40, $6.08 and $7.32 as of April 1, 2012, March 27, 2011 and March 28, 2010, respectively. These are the values which would have been received by option holders if all option holders exercised their options on that date.

In January 2012, we granted 480,000 performance-based stock options to our CEO. The options are scheduled to vest in four equal installments at the end of fiscal year 2013 through 2016 if certain predetermined financial measures are met. If the financial measures are not met, each installment will be rolled over to the subsequent fiscal year for vesting except for the last installment. If the financial measures are not met for two consecutive years, the options will be forfeited except for the last installment which will be forfeited at the end of fiscal year 2016. In fiscal year 2012, we recorded $65,000 of compensation expense for these options.

Options exercised for the three fiscal years of 2012, 2011 and 2010 were as follows (in thousands):

	April 1, 2012		March 27, 2011		March 28, 2010
Intrinsic value of options exercised	$	79	$	100	$	29
Cash received related to option exercises		2,763		765		148
Tax benefit recorded		1,761		2,300		2,503

RSUs

We issue RSUs to employees and non-employee directors. RSUs generally vest on the first or third anniversary date from the grant date, although the RSUs issued in exchange for options tendered in our option exchange program in the third quarter of fiscal year 2009 vested in two equal annual installments. Prior to vesting, RSUs do not have dividend equivalent rights, do not have voting rights and the shares underlying the RSUs are not considered issued and outstanding. Shares are issued on the date the RSUs vest.

A summary of RSU transactions during the periods indicated for all stock option plans is as follows:

	Shares			Weighted Average Grant-Date Fair Value		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value(1) (in thousands)		Unrecognized Stock-based Compensation Cost(2) (in thousands)
Unvested at March 29, 2009		730,237		$	8.36		1.14	$	4,506	$	2,004
Granted		557,784			7.24
Issued and released		(349,409	)		6.90
Forfeited		(104,408	)		8.54
Unvested at March 28, 2010		834,204		$	8.20		1.04	$	6,106	$	4,168
Granted		399,183			6.76
Issued and released		(618,411	)		6.90
Forfeited		(57,878	)		7.52
Unvested at March 27, 2011		557,098		$	7.17		1.09	$	3,387	$	2,336
Granted		481,650			7.12
Issued and released		(271,830	)		7.25
Forfeited		(162,263	)		7.25
Unvested at April 1, 2012		604,655		$	7.13		2.38	$	5,079	$	3,537
Vested and expected to vest, April 1, 2012		520,880		$	7.13		2.08	$	4,375

(1) The aggregate intrinsic value of RSUs represents the closing price per share of our common stock at the end of the periods presented, multiplied by the number of unvested RSUs or the number of vested and expected to vest RSUs, as applicable, at the end of each period.

(2) For RSUs, stock-based compensation expense was calculated based on our stock price on the date of grant, multiplied by the number of RSUs granted. The grant date fair value of RSUs, less estimated forfeitures, was recognized on a straight-line basis, over the vesting period.

In July 2009, we granted performance-based RSUs covering 99,000 shares to certain executives, issuable upon meeting certain performance targets in fiscal year 2010 and vesting annually over a three year period beginning July 1, 2010. The annual vesting requires continued service through each annual vesting date. During fiscal years 2012 and 2011, compensation expense of $19,000 and $216,000 was recorded, respectively, to reflect the achievement of these performance targets.

In April 2010, we granted performance-based RSUs covering 56,000 shares to our then current CEO, issuable upon meeting certain performance targets in our fiscal year 2011 and vesting annually over a three year period beginning May 3, 2010.

The annual vesting requires continued service through each annual vesting date. During fiscal year 2012, due to the departure of our former CEO in November 2011, we did not recognize any compensation expense related to these awards. During fiscal year 2011, compensation expense of $239,000 was recorded for these awards.

In April 2011, we granted performance-based RSUs covering 45,000 shares to our then current Vice-President of Sales, issuable upon meeting certain performance targets in our fiscal years 2012 and 2013. Provided certain financial measures in fiscal year 2012 are met, 15,000 of these shares would have vested in three equal installments annually over the three year period beginning at the filing of our 10-K for fiscal year 2012. The remaining two installments of 15,000 shares each will vest upon meeting certain financial measures in fiscal year 2012 and fiscal year 2013, respectively. During fiscal year 2012, we did not recognize any compensation expense related to these awards as a result of not satisfying the performance conditions for the first two grants. Due to the departure of the Vice-President of Sales in May 2012, no compensation expense will be recorded for the third installment in fiscal year 2013.

In August 2011, we announced our Fiscal Year 2012 Key Personnel and Executive Incentive Program (“2012 Incentive Programs”). Under the 2012 Incentive Program, each participant’s award is denominated in stock and subject to achievement of certain financial performance goals and the participant’s annual Management by Objective goals. During fiscal year 2012, we did not recognize any compensation expense related to these awards as a result of not satisfying the performance conditions.

In March 2012, we granted 300,000 performance-based RSUs to our CEO. The RSUs are scheduled to start vesting in three equal installments at the end of fiscal year 2013 through 2015 with three year vesting periods if certain predetermined financial measures are met. If the financial measures are not met, each installment will be forfeited at the end of its respective fiscal year. In fiscal year 2012, we recorded $48,000 compensation expense for these awards.

Stock-Based Compensation Expenses

Valuation Assumptions

The assumptions used in calculating the fair value of stock-based compensation represent our estimates, but these estimates involve inherent uncertainties and the application of management judgments which include the expected term of the share-based awards, stock price volatility and forfeiture rates. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Valuation Method—we compute the fair value of stock options on the date of grant using the Black-Scholes option-pricing model.

Expected Term—we estimate the expected life of options granted based on historical exercise and post-vest cancellation patterns, which we believe are representative of future behavior.

Volatility—our expected volatility is based on historical data of the market closing price for our common stock as reported by NASDAQ under the symbol “EXAR” and the expected term of our stock options.

Risk-Free Interest Rate—the risk-free interest rate assumption is based on the observed interest rate of the U.S. Treasury appropriate for the expected term of the option to be valued.

Dividend Yield—we do not currently pay dividends and have no plans to do so in the future. Therefore, we have assumed a dividend yield of zero.

We have used the following weighted average assumptions to calculate the fair values of options granted during the fiscal years presented below:

	April 1, 2012			March 27, 2011			March 28, 2010
Expected term of options (years)		4.3			4.4			4.7 – 4.9
Risk-free interest rate		0.7 – 1.5	%		1.3 – 2.0	%		2.1 – 2.5	%
Expected volatility		41 - 43	%		39 –40	%		37 –38	%
Expected dividend yield		—			—			—
Weighted average estimated fair value	$	2.22		$	2.28		$	2.43

The following table summarizes stock-based compensation expense related to stock options and RSUs for fiscal years 2012, 2011 and 2010 (in thousands):

	April 1, 2012		March 27, 2011		March 28, 2010
Cost of sales	$	312	$	489	$	528
Research and development		1,707		3,241		2,324
Selling, general and administrative		2,472		3,651		3,113
Total stock-based compensation expense	$	4,491	$	7,381	$	5,965

The amount of stock-based compensation cost capitalized in inventory was immaterial at each of the fiscal years presented.

During the fiscal year 2012, we modified stock options and performance-based RSUs held by our then current CEO upon his termination to accelerate the vesting of any portion of each equity award that was scheduled to vest on or within 12 months after November 7, 2011 (the “Severance Date”) and to exercise the vested portion of stock options on or within twelve months after the Severance Date, which is in accordance with the separation agreement. As a result of the modifications in fiscal year 2012, we recorded additional stock-based compensation expense of approximately $114,000.

Unrecognized Stock-based Compensation Expense

The following table summarizes unrecognized stock-based compensation expense related to stock options and RSUs for the periods indicated as follows:

	April 1, 2012				March 27, 2011				March 28, 2010
	Amount (in thousands)		Weighted Average Expected Remaining Period (in years)		Amount (in thousands)		Weighted Average Expected Remaining Period (in years)		Amount (in thousands)		Weighted Average Expected Remaining Period (in years)
Options	$	8,119		2.8	$	7,290		2.4	$	8,139		2.9
RSUs(1)		3,537		3.2		2,336		1.8		4,168		1.0
Total Stock-based compensation expense	$	11,656			$	9,626			$	12,307

(1) For RSUs, stock-based compensation expense was calculated based on our stock price on the date of grant, multiplied by the number of RSUs granted. The grant date fair value of RSUs, less estimated forfeitures, is recognized on a straight-line basis over the vesting period.

Option Exchange Program

On October 23, 2008, we commenced a tender offer (the “Offer”) and filed a Schedule TO with the SEC pursuant to which holders of options with exercise prices equal to or greater than $11.00 per share and an expiration date after March 31, 2009 could tender their options in exchange for RSUs awards. The exchange ratio of shares subject to such eligible options to shares subject to new awards issued was 4-to-1, 5-to-1 or 6-to-1, depending on the exercise price of the option being exchanged. New awards received in exchange for eligible options are subject to a two-year vesting schedule with 50% vesting at each anniversary of the grant date.

Pursuant to the Offer, 242 eligible participants tendered, and we accepted for exchange, options to purchase an aggregate of 1,650,231 shares of our common stock, representing approximately 94% of the 1,755,691 shares subject to options that were eligible to be exchanged in the Offer as of the commencement of the Offer on October 23, 2008. On November 24, 2008, upon the terms and subject to the conditions set forth in the Offer to Exchange Certain Outstanding Options for Restricted Stock Units, filed as an exhibit to the Schedule TO, we issued RSU awards covering an aggregate of 344,020 shares of our common stock in exchange for the options surrendered pursuant to the Offer.

The new awards were granted with a price of $6.51 per share, the closing price of our common stock on November 24, 2008 as reported on NASDAQ. The fair value of the options exchanged was measured as the total of the unrecognized compensation cost of the original options tendered and the incremental compensation cost of the RSUs awarded on November 24, 2008, the date of exchange. The incremental compensation cost of $1.2 million, was measured as the excess of the fair value of the RSUs over the fair value of the options immediately before cancellation based on the share price and other pertinent factors at that date. The amount was amortized over the two year service period. Such incremental stock-based compensation expense recorded for the periods indicated below were as follow (in thousands):

	April 1, 2012		March 27, 2011		March 28, 2010
Incremental stock-based compensation expense	$	—	$	327	$	530