Stock-Based Compensation

3 Months Ended

Jul. 01, 2012

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

NOTE 12. 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):

	As of July 1, 2012		Three Months Ended July 1, 2012
	Shares of Common Stock		Shares of Common Stock		Weighted Average Price
Authorized to issue		4,500
Reserved for future issuance		1,412
Issued				6	$	7.67

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 Corporation. 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 Plan are only available to former Sipex Corporation’s employees or employees of Exar hired after the Sipex Corporation 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 July 1, 2012, there were 5.0 million shares available for future grant under all our equity incentive plans.

Stock Option Activities

Our stock option transactions during the three months ended July 1, 2012 are summarized as follows:

	Outstanding			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 April 1, 2012		6,345,307		$	7.23		4.67	$	9,474		1,193
Granted		716,200			8.02
Exercised		(312,007	)		6.67
Cancelled		(24,151	)		7.17
Forfeited		(628,898	)		6.29
Balance at July 1, 2012		6,096,451		$	7.45		4.53	$	6,658		2,490
Vested and expected to vest, July 1, 2012		5,411,621		$	7.53		4.29	$	5,763
Vested and exercisable, July 1, 2012		2,490,125		$	8.48		2.21	$	1,558

(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 $8.13 and $8.40 as of July 1, 2012 and April 1, 2012, 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 Chief Executive Officer, President and Director (“CEO”). The options are scheduled to vest in four equal annual installments at the end of fiscal years 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 the three months ended July 1, 2012, we recorded $65,000 of compensation expense for these options.

Options exercised for the periods indicated below were as follows (in thousands):

	July 1, 2012		July 3, 2011
Intrinsic value of options exercised	$	398	$	5

RSU Activities

Our RSU transactions during the three months ended July 1, 2012 are summarized 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 April 1, 2012		604,655		$	7.13		2.38	$	5,079	$	3,537
Granted		161,254			8.29
Issued and released		(39,005	)		7.54
Cancelled		(79,250	)		6.96
Unvested at July 1, 2012		647,654		$	7.41		2.10	$	5,265	$	3,506
Vested and expected to vest, July 1, 2012		491,898					1.98	$	3,999

(1) The aggregate intrinsic value of RSUs represents the closing price per share of our 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 schedule requires continued service through each annual vesting date. During the three months ended July 1, 2012 and July 3, 2011, compensation expense of $0 and $27,000 were recorded, respectively, to reflect the achievement of these performance targets.

In March 2012, we granted 300,000 performance-based RSUs to our CEO. The RSUs are scheduled to start vesting in three equal annual 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 the three months ended July 1, 2012, we recorded $112,000 compensation expense for these awards.

In April 2012, we granted 29,000 bonus RSUs to our CEO. The RSUs shall vest 25% on the date that is six months after the commencement of the fiscal year 2013; 25% on the last day of fiscal year 2013; and the remaining 50% when and if our Board of Directors determines that certain targets under the Fiscal Year 2013 Executive Management Incentive Program (“2013 Incentive Program”) have been met. In the three months ended July 1, 2012, we recorded $94,000 compensation expense for these awards.

In June 2012, we announced the 2013 Incentive Program. Under the 2013 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. If we believe that it is probable that the performance measures under this program will be achieved, the stock-based compensation for the awards could result in additional expense in fiscal year 2013 for performance at various levels. In the three months ended July 1, 2012, we did not record any compensation expense related to the 2013 Incentive Program.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense related to stock options and RSUs during the fiscal periods presented (in thousands):

	Three Months Ended
	July 1, 2012			July 3, 2011
Cost of sales	$	(15	)	$	59
Research and development		(126	)		302
Selling, general and administrative		315			523
Total Stock-based compensation expense	$	174		$	884

The stock-based compensation expense capitalized as inventory was not significant for all periods presented.

Unrecognized Stock-Based Compensation Expense

The following table summarizes unrecognized stock-based compensation expense related to stock options and RSUs for the three months ended July 1, 2012:

	July 1, 2012
	Amount (in thousands)		Weighted Average Expected Remaining Period (in years)
Options	$	7,522		2.97
RSUs (1)		3,506		2.95
Total Stock-based compensation expense	$	11,028

(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.

Valuation Assumptions

We estimate the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. 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’s judgment which include the expected term of the stock-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.

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

	Three Months Ended
	July 1, 2012			July 3, 2011
Expected term of options (years)		4.2			4.3
Risk-free interest rate		0.6	%		1.5	%
Expected volatility		42	%		41	%
Expected dividend yield		—			—
Weighted average estimated fair value	$	2.75		$	2.15