12.

Employee Equity Incentive Plans

Stock Purchase and Stock Option Plans

Equity Incentive Plans

September

10,

2009,

our stockholders approved the

2009

Equity Incentive Plan, or the

2009

Plan, under which

900,000

shares of our common stock were 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 were 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 were reserved for the grant of stock options and other equity incentives. On

August

26,

2016,

our stockholders approved the

2016

Equity Incentive Plan, or the

2016

Plan, under which

2,000,000

shares of the common stock were reserved for the grant of stock options and other equity incentives. The

2009

Plan, the

2011

Plan, the

2013

Plan and the

2016

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,

2016,

there were

112,171

shares purchased under the Purchase Plan, leaving approximately

128,070

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	2016		2015		2016		2015
	(unaudited)				(unaudited)
Cost of goods sold	$	80	$	125	$	276	$	371
Research, development and engineering (1)		254		242		840		1,032
Selling, general and administrative		488		471		1,435		1,374
Stock-based compensation effect in income before income tax provision		822		838		2,551		2,777
Provision for income tax (2)		329		293		1,021		972
Net stock-based compensation effects in net income	$	493	$	545	$	1,530	$	1,805

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

(2)	Calculated at the U.S. statutory income tax rate of 40% in fiscal 2017 and 35% in fiscal 2016.

During the

nine

months ended

December

31,

2016,

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,

2016,

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

2.8

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,

2016

and

2015,

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,						Three Months Ended December 31,						Nine Months Ended December 31,
	2016			2015		2016			2015			2016			2015			2016			2015
	(unaudited)					(unaudited)						(unaudited)						(unaudited)
Weighted average estimated fair value of grant per share	$	4.45			na	$	4.42		$	4.83		$	2.63		$	3.54		$	3.28		$	3.33
Risk-free interest rate		1.7	%		na		1.5	%		1.8	%		0.5	%		0.1	%		0.4	%		0.1	%
Expected term in years		6.41			na		6.41			6.45			0.50			0.50			0.50			0.50
Volatility		39.8	%		na		40.7	%		44.9	%		32.3	%		48.2	%		37.5	%		39.8	%
Dividend yield (3)		-			na		0.4	%		1.2	%		0.0	%		1.2	%		0.7	%		1.1	%

(1)	No stock options were granted during the quarter ended December 31, 2015.

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

(3)	No dividends were declared for the quarters ended September 30, 2016 and December 31, 2016.

Activity with respect to outstanding stock options for the

nine

months ended

December

31,

2016

was as follows:

				Weighted Average
	Number of			Exercise Price		Intrinsic
	Shares			Per Share		Value (1)
				(unaudited)		(000)
Balance at March 31, 2016		5,234,397		$	10.40
Options granted		704,000		$	10.95
Options exercised		(110,097	)	$	8.00	$	384
Options cancelled		(7,500	)	$	13.37
Options expired		(27,500	)	$	11.81
Balance at December 31, 2016		5,793,300		$	10.50

Exercisable at December 31, 2016		3,924,050		$	10.11
Exercisable at March 31, 2016		3,619,563		$	9.93

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