11. Employee Equity Incentive Plans

Stock Purchase and Stock Option Plans

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.

Stock Options

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

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.

Stock Appreciation Rights

Awards of stock appreciation rights, or SARs, may be granted to employees, consultants and non-employee 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

Restricted stock units, denominated performance units in the 2009 Plan, may be granted to employees, consultants and non-employee directors under the Plan. 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.

Employee Stock Purchase Plan

The Board of Directors has approved the Amended and Restated 1999 Employee Stock Purchase Plan, or the Purchase Plan, and reserved a total of 1,550,000 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. During the nine months ended December 31, 2015, there were 97,274 shares purchased under the Purchase Plan, leaving 240,241 shares available for purchase under the Purchase Plan in the future.

Stock-Based Compensation

The following table summarizes the effects of stock-based compensation charges (in thousands):

	Three Months Ended December 31,				Nine Months Ended December 31,
Statement of Operations Classifications	2015		2014		2015		2014
	(unaudited)				(unaudited)
Cost of goods sold	$	125	$	110	$	371	$	320
Research, development and engineering expenses (1)		242		224		1,032		602
Selling, general and administrative expenses		471		415		1,374		1,205
Stock-based compensation effect in income before taxes		838		749		2,777		2,127
Provision for income taxes (2)		293		262		972		744
Net stock-based compensation effects in net income	$	545	$	487	$	1,805	$	1,383

(1)

Includes acquisition-related compensation expenses of $249,000 during the nine months ended December 31, 2015.

(2)

Calculated at the U.S. statutory federal income tax rate of 35% in fiscal 2016 and 2015.

During the nine months ended December 31, 2015, the unaudited condensed consolidated statements of operations and cash flows do not reflect any tax benefit for the tax deduction from option exercises and other awards. As of December 31, 2015, approximately $7.4 million in stock-based compensation is to be recognized for unvested stock options granted under our equity incentive plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 3 years.

The Black-Scholes option pricing model is used to estimate the fair value of options granted under our equity incentive plans and rights to acquire stock granted under our stock purchase plan. The weighted average estimated fair 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 the three and nine months ended December 31, 2015 and 2014, were based on estimates at the date of grant as follows:

	Stock Options (1)										Purchase Plan (2)
	Three Months Ended December 31,				Nine Months Ended December 31,						Nine Months Ended December 31,
	2015		2014		2015			2014			2015			2014
	(unaudited)				(unaudited)						(unaudited)
Weighted average estimated fair value of grant per share		na		na	$	4.83		$	5.54		$	3.54		$	2.90
Risk-free interest rate		na		na		1.8	%		1.8	%		0.1	%		0.1	%
Expected term in years		na		na		6.45			6.30			0.50			0.50
Volatility		na		na		44.9	%		52.2	%		48.2	%		36.9	%
Dividend yield		na		na		1.2	%		1.0	%		1.2	%		1.1	%

(1)

No stock options were granted during the quarters ended December 31, 2015 and 2014.

(2)

Under the stock purchase plan, rights to purchase shares are only granted during the first and third quarters of each fiscal year.

Activity with respect to outstanding stock options for the nine months ended December 31, 2015 was as follows:

				Weighted Average
	Number of			Exercise Price		Intrinsic Value (1)
	Shares			Per Share
				(unaudited)			(000	)

Balance at March 31, 2015		4,942,511		$	10.37
Options granted		1,124,000		$	11.72
Options exercised		(369,826	)	$	9.11	$	1,484
Options cancelled		(2,500	)	$	12.13
Options expired		(434,788	)	$	14.68
Balance at December 31, 2015		5,259,397		$	10.39

Exercisable at December 31, 2015		3,499,063		$	9.88
Exercisable at March 31, 2015		3,942,261		$	10.20

(1)

Represents the difference between the exercise price and the value of our common stock at the time of exercise.