Note 14 - Stock-based Compensation

12 Months Ended

Mar. 29, 2015

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

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

NOTE 14.    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. Exar’s ESPP is intended to qualify under Section 423(b) of the U.S. Internal Revenue Code and was initially approved by our stockholders at our 1989 annual shareholder meeting. 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 March 29, 2015		1,346
Fiscal year ending March 30, 2014		1,372
Fiscal year ending March 31, 2013		1,392
Issued:
Fiscal year ending March 29, 2015		26	$	10.01
Fiscal year ending March 30, 2014		20		11.38
Fiscal year ending March 31, 2013		26		8.38

Equity Incentive Plans

At the annual meeting of stockholders on September 18, 2014 (the “Annual Meeting”), our stockholders approved the Exar Corporation 2014 Equity Incentive Plan (“2014 Plan”). The 2014 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.

Prior to the Annual Meeting, we maintained the Exar Corporation 2006 Equity Incentive Plan (the “2006 Plan”) and the Sipex Corporation 2006 Equity Incentive Plan (the “Sipex 2006 Plan”). As of June 30, 2014, a total of 6,555,492 shares of our common stock were then subject to outstanding awards granted under the 2006 Plan and the Sipex 2006 Plan, and an additional 669,008 shares of our common stock were then available for new award grants under the 2006 Plan. As part of the stockholder approval of the 2014 Plan at the Annual Meeting, we agreed that no new awards will be granted under the 2006 Plan and the Sipex 2006 Plan, although awards made under these plans prior to the Annual Meeting will remain subject to the terms of each such plan.

The maximum number of shares of our common stock that may be issued or transferred pursuant to awards under the 2014 Plan equals the sum of: (1) 5,170,000 shares, plus (2) the number of any shares subject to stock options granted under the 2006 Plan and the Sipex 2006 Plan and outstanding as of the date of the Annual Meeting which expire, or for any reason are cancelled or terminated, after the date of the Annual Meeting without being exercised, plus (3) the number of any shares subject to restricted stock and restricted stock unit awards granted under the 2006 Plan and the Sipex 2006 Plan that are outstanding and unvested as of the date of the Annual Meeting which are forfeited, terminated, cancelled, or otherwise reacquired after the date of the Annual Meeting without having become vested. Awards other than a stock option or stock appreciation right granted under the 2014 Plan are counted against authorized shares available for future issuance on a basis of two shares for each share subject to the award. As of March 29, 2015, there were approximately 4.9 million shares available for future grant under the 2014 Plan.

The following table summarizes information about our stock options outstanding at March 29, 2015:

				Options Outstanding						Options Exercisable
Range of				Number Outstanding As of March 29,		Weighted Average Remaining Contractual Terms		Weighted Average Exercise		Number Exercisable As of March 29,		Weighted Average Exercise
Exercise Prices				2015		(in years)		Price per Share		2015		Price per Share
	$1.57	-	$6.43		1,951,070		3.32	$	6.12		1,493,854	$	6.04
	6.60	-	8.51		1,693,928		4.29		7.85		909,929		7.79
	8.57	-	9.55		1,583,739		5.95		9.22		361,184		9.15
	9.57	-	11.64		1,594,345		5.86		10.55		358,156		10.73
	11.79	-	13.93		786,540		5.67		12.82		195,320		13.15
Total					7,609,622		4.86		8.77		3,318,443		7.78

Stock Option Activities

A summary of stock option transactions during the periods indicated below 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 (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		2,540,010			8.32
Exercised		(875,459	)		6.92
Cancelled		(903,781	)		9.67
Forfeited		(893,744	)		6.41
Balance at March 31, 2013		6,212,333		$	7.48		5.04	$	19,199		1,481
Granted		2,482,650			11.89
Exercised		(784,864	)		7.14
Cancelled		(10,834	)		10.92
Forfeited		(685,437	)		8.02
Balance at March 30, 2014		7,213,848		$	8.98		5.02	$	21,301		2,170
Granted		2,624,778			8.70
Exercised		(864,222	)		7.05
Cancelled		(291,769	)		12.36
Forfeited		(1,073,013	)		10.45
Balance at March 29, 2015		7,609,622		$	8.77		4.86	$	14,377		2,850
Vested and expected to vest, March 29, 2015		7,114,744		$	8.69		4.81	$	13,941
Vested and exercisable, March 29, 2015		3,318,443		$	7.78		3.96	$	9,100

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 $10.30, $11.71 and $10.50 as of March 29, 2015, March 30, 2014 and March 31, 2013, respectively. These are the values which would have been received by option holders if all option holders exercised their options and sold the underlying shares 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 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. In January 2014, we granted 140,000 performance-based stock options to our CEO. The options are scheduled to vest at the end of fiscal year 2017 if certain predetermined financial measures are met. We recorded $338,000, $260,000 and $260,000 of compensation expense for these options in fiscal years 2015, 2014 and 2013, respectively. The assumptions used to value the options are presented below under “Valuation Assumptions.”

Options exercised for the fiscal years ended on the dates indicated below were as follows (in thousands):

	March 29, 2015		March 30, 2014		March 31, 2013
Intrinsic value of options exercised	$	2,543	$	3,887	$	1,443
Cash received related to option exercises		6,095		9,493		6,059
Tax benefit recorded		1,655		6,669		1,927

RSUs

We issue RSUs to employees and non-employee directors that are generally subject to vesting requirements. RSUs generally vest on the first or third anniversary date from the grant date. 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 incentive plans is as follows:

	Shares			Weighted Average Grant-Date Fair Value		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Unvested at April 1, 2012		604,655		$	7.13		2.38	$	5,079
Granted		331,894			8.40
Issued and released		(125,095	)		7.10
Forfeited		(79,250	)		6.96
Unvested at March 31, 2013		732,204		$	7.73		1.72	$	7,688
Granted		828,995			13.06
Issued and released		(346,407	)		9.38
Forfeited		(37,666	)		9.52
Unvested at March 30, 2014		1,177,126		$	10.94		1.62	$	13,784
Granted		509,370			9.34
Issued and released		(414,242	)		10.28
Forfeited		(199,329	)		11.87
Unvested at March 29, 2015		1,072,925		$	10.26		1.50	$	11,051
Vested and expected to vest, March 29, 2015		829,673					1.42	$	8,546

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.

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 (“PRSUs”) to our CEO. The PRSUs are scheduled to start vesting in three equal installments at the end of each fiscal year 2013 through 2015 with three year vesting periods if certain predetermined financial measures are met. If the financial measures are not met for a particular fiscal year, the installment for that fiscal year will be forfeited at the end of its respective fiscal year. In fiscal years 2015, 2014 and 2013, we recorded $1.2 million, $0.7 million and $0.4 million compensation expense, respectively for these awards.

In April 2012, we granted 29,000 bonus RSUs to our CEO. The RSUs vested 50% on the date that is six months after the commencement of the fiscal year 2013 and 50% on the last day of fiscal year 2013. In fiscal year 2013, we recorded $250,000, of compensation expense for these awards.

In June 2012, we announced the Fiscal Year 2013 Management Incentive Program (“2013 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 for the fiscal year. In fiscal year 2013, we recorded $1.2 million of stock compensation expense related to the 2013 Incentive Program as a result of achieving performance targets at various levels.

In July 2013, as part of the acquisition of Cadeka, we agreed to pay retention bonuses to certain former Cadeka employees and the bonus will be settled in RSUs subject to fulfillment of the applicable service period. In fiscal years 2015 and 2014, we recorded $1.7 million and $1.2 million of non-cash compensation expense, respectively. The expense is reported in the other current obligations line in the consolidated balance sheet as the total amount of the bonuses is to be settled in a variable number of RSUs at the completion of the requisite service period. Such non-cash compensation expense is recorded as part of stock compensation expense in the consolidated statement of operations.

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 for the fiscal year. The expense is reported in the other current liabilities line in the consolidated balance sheet as the total amount of bonus is to be settled in a variable number of RSUs at the completion of the requisite service period. Such non-cash compensation expense is recorded as part of stock compensation expense in the consolidated statements of operations. Due to only partially achieving the financial performance goals and the participants’ annual Management by Objectives goals, we reversed the previously recorded stock compensation of $295,000 in the second quarter of fiscal year 2015 which resulted in a net stock compensation recovery of $290,000 for fiscal year 2015.

In the first quarter of fiscal year 2014, we granted 50,000 PRSUs to certain executives. The PRSUs began vesting in three equal installments at the end of fiscal year 2014 as certain performance measures were met. In fiscal year 2015, we recorded stock compensation net recovery of $140,000 as a result of the termination of one executive’s employment. In fiscal year 2014, we recorded stock compensation expense of $331,000 related to these PRSUs.

In October 2013, we granted 70,000 PRSUs to certain executives. The first 50% of the PRSUs are scheduled to start vesting in three equal installments at the end of fiscal year 2015 with a three-year vesting period if certain performance measures are met. The second 50% of the PRSUs are scheduled to start vesting in three equal installments at the end of fiscal year 2016 with a three-year vesting period if certain performance measures are met. We recorded net stock compensation expense of $247,000 related to these awards in fiscal year 2015. One of the executives’ employment was terminated in fiscal year 2015.

In December 2013, we granted 100,000 RSUs to our CEO. The RSUs were scheduled to vest in two equal installments at the end of fiscal years 2016 and 2017. In October 2014, the second installment of 50,000 RSUs was modified to 50,000 PRSUs. These modified PRSUs were scheduled to vest at the end of fiscal year 2017 if certain predetermined financial measures are met. For fiscal year 2015, we record $10,000 stock compensation expense related to these modified PRSUs.

In January 2014, we granted 82,500 PRSUs to certain former Stretch employees. The PRSUs were scheduled to start vesting in three equal installments at the end of fiscal year 2015 with a three-year vesting period if certain performance measures were met. In fiscal year 2015 we did not record stock compensation expense related to these PRSUs as the performance measures were deemed not met.

In August 2014, we announced the Fiscal Year 2015 Management Incentive Program (“2015 Incentive Program”). Under this program, each participant’s award is denominated in shares of our common stock and is subject to attainment of Exar’s performance goals as established by the Compensation Committee of the Board of Directors for fiscal year 2015. We recorded a stock compensation expense of $1,965,000 in fiscal year 2015 related to these awards.

In August and December 2014, we granted 88,448 PRSUs to certain former iML employees. The PRSUs are scheduled to start vesting in three equal annual installments upon achievement of certain performance measures. In fiscal year 2015, we recorded $88,000 of stock compensation expense related to these PRSUs.

In January 2015, the employment of two of our executives terminated. As part of their termination agreements, we agreed their outstanding stock awards would continue to vest during the 12 month period following termination while they provided consulting services to us and that their vested stock options would remain exercisable for 12 month after they ceased providing consulting services. We also granted total of 60,000 RSUs with a vesting period of twelve months. In addition, we granted RSUs valued at $479,000 to one of the executives which were fully vested in February 2015. We recorded stock compensation expense of $1,519,000 related to these awards in fiscal year 2015.

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, except for market based performance awards which are valued under a Monte Carlo valuation method.

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 Global Select Market (“NASDAQ”) and/or New York Stock Exchange, Inc. (“NYSE”) 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 used the following weighted average assumptions to calculate the fair values of options granted during the fiscal years presented below:

	March 29, 2015			March 30, 2014			March 31, 2013
Expected term of options (years)		4.53 – 4.70			4.40 – 4.49			4.36
Risk-free interest rate		1.1 – 1.3	%		0.6 – 1.1	%		0.5 – 0.6	%
Expected volatility		32 - 33	%		32 - 35	%		37 - 42	%
Expected dividend yield		—			—			—
Weighted average grant date fair value	$	2.80		$	3.40		$	2.80

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

	March 29, 2015		March 30, 2014		March 31, 2013
Cost of sales	$	1,105	$	714	$	469
Research and development		2,661		1,974		789
Selling, general and administrative		9,848		6,164		3,530
Total stock-based compensation expense	$	13,614	$	8,852	$	4,788

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

Unrecognized Stock-based Compensation Expense

The following table summarizes unrecognized stock-based compensation expense related to stock options and RSUs for the fiscal years ending on the date indicated below as follows:

	March 29, 2015				March 30, 2014				March 31, 2013
	Amount (in thousands)		Weighted Average Remaining Recognition Period (in years)		Amount (in thousands)		Weighted Average Remaining Recognition Period (in years)		Amount (in thousands)		Weighted Average Remaining Recognition Period (in years)
Options	$	8,579		2.3	$	9,958		2.7	$	6,269		2.8
Performance Options		380		1.9		242		2.2		502		2.6
RSUs		3,568		2.3		5,970		2.2		1,557		2.5
PRSUs		1,751		2.1		3,047		2.5		1,814		3.4
Total Stock-based compensation expense	$	14,278			$	19,217			$	10,142