The 2009 Equity Incentive Plan, the 2011 Equity Incentive Plan and the 2013 Equity Incentive Plan

On September 10, 2009, our stockholders approved the 2009 Equity Incentive Plan, or the 2009 Plan, under which 900,000 shares of our common stock are reserved for the grant of stock options and other equity incentives. On September 16, 2011, our stockholders approved the 2011 Equity Incentive Plan, or the 2011 Plan, under which 600,000 shares of our common stock are reserved for the grant of stock options and other equity incentives. On August 30, 2013, our stockholders approved the 2013 Equity Incentive Plan, or the 2013 Plan, under which 2,000,000 shares of our common stock are reserved for the grant of stock options and other equity incentives. The 2009 Plan, the 2011 Plan and the 2013 Plan are referred to as the Plans.

Under the Plans, nonqualified and incentive stock options may be granted to employees, consultants and non-employee directors. Generally, the per share exercise price shall not be less than 100% of the fair market value of a share on the grant date. The Board of Directors has the full power to determine the provisions of each option issued under the Plans. While we may grant options that become exercisable at different times or within different periods, we have primarily granted options that vest over four years. The options, once granted, expire ten years from the date of grant.

Stock awards, denominated restricted stock under the 2009 Plan and the 2011 Plan, may be granted to any employee, director or consultant under the Plans. Pursuant to a stock award, we will issue shares of common stock. Shares that are subject to the restriction will be released from restriction if certain requirements, including continued performance of services, are met.

Awards of stock appreciation rights, or SARs, may be granted to employees, consultants and nonemployee directors pursuant to the Plans. A SAR is payable on the difference between the market price at the time of exercise and the exercise price at the date of grant. In any event, the exercise price of a SAR shall not be less than 100% of the fair market value of a share on the grant date and shall expire no later than ten years from the grant date. Upon exercise, the holder of a SAR shall be entitled to receive payment either in cash or a number of shares by dividing such cash amount by the fair market value of a share on the exercise date.

Restricted stock units, denominated performance units in the 2009 Plan, may be granted to employees, consultants and nonemployee directors under the Plans. Each restricted stock unit shall have a value equal to the fair market value of one share. After the applicable performance period has ended, the holder will be entitled to receive a payment, either in cash or in the form of shares, based on the number of restricted stock units earned over the performance period, to be determined as a function of the extent to which the corresponding performance goals or other vesting provisions have been achieved.

The 1999 Equity Incentive Plan and the 1999 Non-Employee Directors' Equity Incentive Plan

Prior to May 2009, stock options were granted under the 1999 Equity Incentive Plan and the 1999 Non-Employee Directors' Equity Incentive Plan, or the 1999 Plans, for not less than 85% of fair market value at the time of grant. Once granted, the options expire ten years from the date of grant. Options granted to employees under the 1999 Equity Incentive Plan typically vested over four years. The initial option grants under the 1999 Non-Employee Directors' Equity Incentive Plan typically vested over four years and subsequent annual grants vested over one year. The 1999 Plans expired in May 2009 and no additional grants may be made thereunder.

We granted restricted stock unit awards, or RSUs, under the 1999 Equity Incentive Plan. Pursuant to a RSU award, we delivered shares of our common stock if certain requirements, including continued performance of services, were met. All of the RSUs granted under the 1999 Equity Incentive Plan have vested or terminated.

The Zilog 2004 Omnibus Stock Incentive Plan, or the Zilog 2004 Plan, was approved by the stockholders of Zilog in 2004, and was amended and approved by the stockholders of Zilog in 2007. In connection with the acquisition of Zilog, our Board of Directors approved assumption of the Zilog 2004 Plan. Employees of Zilog and persons first employed by our company after the closing of the acquisition of Zilog were eligible to receive grants under the Zilog 2004 Plan. Under the 2004 Plan, non-statutory stock options were granted. At the time of the assumption of the Zilog 2004 Plan by our company, up to 652,963 shares of our common stock were available for grant under the plan.

In general, the options and shares granted pursuant to the Zilog 2004 Plan are exercisable at such time or times, and subject to such terms and conditions (including the vesting schedule, period of exercisability and expiration date) as the plan administrator, generally the Compensation Committee of our Board of Directors, determined in the applicable option agreement. The exercise price per share, payable upon the exercise of an option, was established by such administrator at the time of the grant and is not less than the par value per share of common stock on the date of the grant and, in the case of an incentive stock option, generally is not less than 100% of the fair market value per share on the date of grant. The Zilog 2004 Plan expired in February 2014 and no additional grants may be made thereunder.

The Zilog 2002 Omnibus Stock Incentive Plan, or the Zilog 2002 Plan, was adopted in 2002. In connection with the acquisition of Zilog, our Board of Directors approved the assumption of the Zilog 2002 Plan with respect to the shares available for grant as stock options. Employees of Zilog and persons first employed by our company after the closing of the acquisition of Zilog were eligible to receive grants under the Zilog 2002 Plan. At the time of the assumption of the Zilog 2002 Plan by our company, up to 366,589 shares of our common stock were available for grant under the plan.

Stock options granted under the Zilog 2002 Plan were permitted to be: (i) incentive stock options or nonqualified stock options or (ii) EBITDA-linked options and/or non-EBITDA linked options. We did not grant any EBITDA-linked options and none are outstanding. In general, non-EBITDA-linked options granted pursuant to the Zilog 2002 Plan was exercisable at such time or times and subject to such terms and conditions (including the vesting schedule, period of exercisability and expiration date) as determined by the plan administrator in the applicable award agreements or thereafter. The exercise price per share payable upon the exercise of an option was established by such administrator at the time of grant. The term of each non-EBITDA-linked option was determined at the time of grant and does not exceed ten years. The Zilog 2002 Plan expired in May 2012 and no additional grants may be made thereunder.

In May 1999, the Board of Directors approved the 1999 Employee Stock Purchase Plan, or the Purchase Plan, and reserved 500,000 shares of common stock for issuance under the Purchase Plan. Under the Purchase Plan, all eligible employees may purchase our common stock at a price equal to 85% of the lower of the fair market value at the beginning of the offer period or the semi-annual purchase date. Stock purchases are limited to 15% of an employee's eligible compensation. On July 31, 2007 and July 9, 2010, the Board of Directors amended the Purchase Plan and on each occasion reserved an additional 350,000 shares of common stock for issuance under the Purchase Plan. During the year ended March 31, 2014, there were 98,865 shares purchased under the Purchase Plan, leaving approximately 87,490 shares available for purchase under the plan in the future.

The authoritative guidance provided by FASB requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award.

Compensation cost for equity incentive awards is based on the grant-date fair value estimated in accordance with the authoritative guidance provided by FASB. We use the straight-line attribution method to recognize share-based compensation costs over the service period of the award.

The fair value of issuances under our Purchase Plan is estimated on the issuance date and using the Black-Scholes options pricing model, consistent with the requirements of the authoritative guidance provided by FASB.

The following table summarizes the effects of share-based compensation expenses recognized on our consolidated statement of operations resulting from options granted under our equity incentive plans and rights to acquire stock granted under our Purchase Plan (in thousands):

	Year Ended March 31,
Statement of Operations Classifications	2014		2013		2012

Cost of goods sold	$	457	$	398	$	376
Research, development and engineering		978		1,030		917
Selling, general and administrative		1,350		2,023		2,486
Stock-based compensation effect on income before taxes		2,785		3,451		3,779
Benefit from income taxes		1,071		1,287		1,375
Net stock-based compensation effects on net income	$	1,714	$	2,164	$	2,404

As of March 31, 2014, there were $6.0 million of total unrecognized compensation costs related to stock options granted. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.7 years.

The weighted average estimated values of employee stock option grants and rights granted under the Purchase Plan, as well as the weighted average assumptions that were used in calculating such values during fiscal 2014, 2013 and 2012, were based on estimates at the date of grant as follows:

		Stock Options						Purchase Plan
		Year Ended March 31,						Year Ended March 31,
		2014		2013		2012		2014		2013		2012
Weighted average estimated per share
	fair value of grant	$	5.31	$	5.26	$	6.42	$	2.75	$	3.22	$	3.14
Risk-free interest rate			1.8%		1.1%		1.3%		0.1%		0.2%		0.2%
Expected term in years			6.05		6.34		5.85		0.50		0.50		0.50
Volatility			54.9%		55.3%		55.7%		37.0%		46.4%		51.6%
Dividend yield (1)			1.0%		0%		0%		0%		0%		0%

(1) Prior to October 1, 2013, the fair value of our equity awards was based on 0% dividend yield.

We estimate the expected term of options granted based on the historical average period over which the options are exercised by employees. We estimate the volatility of our common stock based on historical volatility measures. We base the risk-free interest rate that it uses in the option valuation model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. Any dividend is at the discretion of the Board of Directors and may be paid or not in its determination. Beginning with the quarter ended December 31, 2012, we declared a quarterly dividend of $0.03 per share. Historically, we used an expected dividend yield of zero in the option valuation model because of uncertainty and the absence of a long-term record of dividend distributions. During the quarter ended December 31, 2013, we started using a dividend yield. We estimate the dividend yield based on the historical trend and our expectation of future dividends. Dividend yield is calculated based on the annualized cash dividends per share declared during the quarter and the closing stock price on the date of grant. In the case of the Purchase Plan, the dividend yield calculation will first be effective on June 1, 2014, the next expected grant date. We are required to estimate forfeitures at the time of grants and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

We recognize the estimated compensation cost of restricted stock over the vesting term. The estimated compensation cost is based on the fair value of our common stock on the date of grant.

We recognize the compensation cost relating to stock bonuses on the date of grant based on the fair value of our common stock on the date of grant, as such stock bonuses are vested immediately. We did not grant any bonus shares during fiscal 2014.

	Stock compensation activity under our equity incentive plans for fiscal 2014, 2013 and 2012 is summarized below:

		Shares Available for Grant	Options Outstanding		Weighted Average Exercise Price per Share
		Shares Available for Grant	Number of Shares (1)	Intrinsic Value(2)	Weighted Average Exercise Price per Share
				(000)

Balances, March 31, 2011 (3)		1,102,786	5,199,768	$ 23,505	$ 9.03
	New shares authorized (4)	600,000	-
	Options granted	(966,000)	966,000		$ 12.37
	Options exercised	-	(478,264)	$ 2,862	$ 7.35
	Options cancelled	11,250	(164,500)		$ 8.30
	Options expired	-	(51,000)		$ 12.61
Balances, March 31, 2012		748,036	5,472,004	$ 19,532	$ 9.75
	Plan authorization expired	(589)	-
	Options granted	(455,000)	455,000		$ 9.93
	Options exercised	-	(153,131)	$ 443	$ 7.03
	Options cancelled	7,500	(67,425)		$ 8.34
	Options expired	-	(378,975)		$ 7.31
Balances, March 31, 2013		299,947	5,327,473	$ 4,273	$ 10.04
	New shares authorized (5)	2,000,000	-
	Plan authorization expired	(47,963)	-
	Options granted	(515,000)	515,000		$ 10.63
	Options exercised	-	(572,338)	$ 1,695	$ 8.72
	Options cancelled	24,000	(34,000)		$ 11.42
	Options expired	17,500	(34,500)		$ 12.62
Balances, March 31, 2014		1,778,484	5,201,635	$ 8,658	$ 10.22

1) The number of stock options exercised includes shares that were withheld on behalf of employees to satisfy the statutory tax withholding requirements.

(2) Except for options exercised, these amounts represent the difference between the exercise price and $11.35 per share, the closing price of our stock on March 31, 2014 as reported on the NASDAQ Global Select Market, for all in-the-money, outstanding and exercisable options.

(3) Reflects the issuance of 151,766 restricted stock units prior to March 31, 2011.

(4) On September 16, 2011, our stockholders approved the 2011 Plan, under which 600,000 shares of our common stock are reserved for the grant of stock options.

(5) On August 30, 2013, our stockholders approved the 2013 Plan, under which 2,000,000 shares of our common stock are reserved for the grant of stock options.

The following table summarizes information about stock options outstanding at March 31, 2014:

Options Outstanding				Options Exercisable
Exercise Price per Share	Number of Shares Outstanding	Weighted Average Contractual Life	Weighted Average Exercise Price per Share	Number of Shares Exercisable	Weighted Average Exercise Price per Share
$5.01 - $7.75	1,023,897	4.5	$ 6.62	1,023,897	$ 6.62
$7.76 - $10.00	1,591,000	6.0	$ 9.26	997,000	$ 9.14
$10.01 - $12.50	1,680,950	6.3	$ 11.46	1,089,200	$ 11.29
$12.51 - $99.99	905,788	3.8	$ 13.65	755,788	$ 13.84
$5.01 - $99.99	5,201,635	5.4	$ 10.22	3,865,885	$ 10.00

Of the 5,201,635 options outstanding, 3,865,885 were exercisable on March 31, 2014 at a weighted average exercise price of $10.00 per share, with an intrinsic value of $7.5 million. The weighted average remaining contractual life of options outstanding and options exercisable at March 31, 2014 was 5.4 years and 4.3 years, respectively. The fair value of options that vested during the year ended March 31, 2014 was $2.4 million.