Note 12 - Stock-Based Compensation

9 Months Ended

Dec. 29, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

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 December29,2013		Nine Months Ended December29,2013
	Shares of Common Stock		Shares of Common Stock		Weighted Average Price per Share
Authorized to issue		4,500
Reserved for future issuance		1,379
Issued				13	$	11.47

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 (“2006 Plan”) and the Sipex Corporation (“Sipex”) 2006 Equity Incentive Plan (“Sipex Plan”), the latter of which was assumed in connection with the August 2007 acquisition of Sipex.

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 the level of performance. Grants under the Sipex Plan are only available to former Sipex’s employees or employees we 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 December 29, 2013, there were 2.0 million shares available for future grant under all our equity incentive plans.

Stock Option Activities

Our stock option transactions during the nine months ended December 29, 2013 were indicated below:

	Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)		In-the-money Options Vested and Exercisable (in thousands)
Balance at March 31, 2013		6,212,333		$	7.48		5.04	$	19,199	$	1,481
Granted		1,460,300			12.38
Exercised		(535,832	)		7.12
Forfeited		(522,341	)		7.89
Cancelled		(10,834	)		10.92
Balance at December 29, 2013		6,603,626		$	8.56		5.07	$	21,985	$	2,062
Vested and expected to vest, December 29, 2013		6,184,803		$	8.46		5.00	$	21,073
Vested and exercisable, December 29, 2013		2,197,258		$	7.40		3.67	$	9,544

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 $11.63 and $10.50 as of December 29, 2013 and March 31, 2013, 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. We recorded $65,000 and $195,000 of compensation expense for these options in the three and nine months ended December 29, 2013, respectively. We recorded $65,000 and $195,000 of compensation expense for these options in the three and nine months ended December 30, 2012, respectively.

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

	Three Months Ended				Nine Months Ended
	December29, 2013		December30, 2012		December29, 2013		December30, 2012
Intrinsic value of options exercised	$	805	$	304	$	2,699	$	879

RSU Activities

Our RSU transactions during the nine months ended December 29, 2013 are summarized as follows:

	Shares			Weighted Average Grant- Date Fair Value		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Unvested at March 31, 2013		732,204		$	7.73		1.72	$	7,688
Granted		469,995			11.83
Issued and released		(311,406	)		9.48
Cancelled		(33,666	)		9.55
Unvested at December 29, 2013		857,127		$	9.27		1.65	$	9,968
Vested and expected to vest, December 29, 2013		761,615					1.60	$	8,858

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.

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 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 and nine months ended December 29, 2013, we recorded $119,000 and $641,000, respectively, of compensation expense for these awards. In the three and nine months ended December 30, 2012, we recorded $112,000 and $336,000, respectively, of compensation expense for these awards.

During fiscal year 2014, we granted 50,000 performance-based RSUs to certain executives. The RSUs are scheduled to start vesting in the three equal annual installments at the end of fiscal 2014 through 2017 with three year vesting periods if certain predetermined financial measures are met. In addition, the annual vesting requires continued service through each of the vesting dates. During the three and nine months ended December 29, 2013, we recorded $91,000 and $239,000 of compensation expense for these awards, respectively.

In August 2013, we announced the Fiscal Year 2014 Management Incentive Program (“2014 Incentive Program”). Under this 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. In the three and nine months ended December 29, 2013, we recorded $0.2 million and $1.5 million of stock compensation expense related to the 2014 Incentive Program, respectively.

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				Nine Months Ended
	December29, 2013		December30, 2012		December29, 2013		December30, 2012
Cost of sales	$	165	$	175	$	519	$	289
Research and development		566		328		1,395		437
Selling, general and administrative		1,826		986		5,353		2,284
Total Stock-based compensation expense	$	2,557	$	1,489	$	7,267	$	3,010

The amount of stock-based compensation cost capitalized in inventory was immaterial 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 period indicated below as follows:

	December29, 2013
	Amount (in thousands)		Weighted Average Expected Remaining Period (in years)
Options	$	8,180		2.7
RSUs		5,322		2.3
Total Stock-based compensation expense	$	13,502

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						Nine Months Ended
	December29, 2013			December30, 2012			December29, 2013			December30, 2012
Expected term of options (years)		4.5			4.4		4.4	–	4.5	4.2	–	4.5
Risk-free interest rate		1.01	%		0.5	%	0.60%	–	1.12%	0.5%	–	0.6%
Expected volatility		32	%		41	%	32%	–	35%	41%	–	42%
Expected dividend yield		–			–			–			–
Weighted average estimated fair value	$	3.74		$	2.81		$	3.56		$	2.76