NOTE 9—STOCK- BASED COMPENSATION

The 2000 Stock Option Plan

In February 2001, the Company adopted the 2000 Stock Option Plan (the "2000 Plan"). The 2000 Plan provided for the granting of stock options and stock purchase rights to employees, consultants and directors of the Company. Options granted under the 2000 Plan could be either incentive stock options ("ISOs") or nonstatutory stock options ("NSOs"). In December 2006, the Company's board of directors authorized an additional 500,000 shares of the Company's common stock to be reserved for issuance under the 2000 Plan. As of March 31, 2008, the Company had reserved 3,500,000 shares of common stock for issuance under the 2000 Plan.

Options under the 2000 Plan could be granted for periods of up to ten years. However, in the case of ISOs granted to an optionee who, at the time the option was granted, owned stock representing more than 10% of the voting power of all classes of stock of the Company, the maximum term of an option was five years from the date of grant. The exercise price of an ISO or NSO could not be less than 100% and 85% of the estimated fair value of the shares as determined by the board of directors on the date of grant, respectively. However the exercise price of an ISO or NSO granted to a 10% or greater stockholder could not be less than 110% of the estimated fair value of the shares on the date of grant.

The 2007 Equity Incentive Plan

In January 2007, the Company's board of directors approved the 2007 Equity Incentive Plan, (the "Equity Plan"), which was subsequently approved by the Company's stockholders in March 2007. A total of 3,000,000 shares of common stock were authorized and reserved for issuance under the Equity Plan. This reserve automatically increases on April 1 of each year through 2017 by an amount equal to the smaller of (a) five percent of the number of shares of common stock issued and outstanding on the immediately preceding March 31, or (b) a lesser amount determined by the board of directors. Appropriate adjustments will be made in the number of authorized shares and other numerical limits in the Equity Plan and in outstanding awards to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in the Company's capital structure. Shares subject to awards which expire or are cancelled or forfeited will again become available for issuance under the Equity Plan. The shares available will not be reduced by awards settled in cash or by shares withheld to satisfy tax withholding obligations. Only the net number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under the Equity Plan.

To enable compensation provided in connection with certain types of awards intended to qualify as “performance-based” within the meaning of Section 162(m) of the Internal Revenue Code, the Equity Plan establishes limits on the maximum aggregate number of shares or dollar value for which awards may be granted to an employee in any fiscal year, as follows:

No more than 300,000 shares subject to stock options and stock appreciation rights.

No more than 100,000 shares subject to restricted stock and restricted stock unit awards.

For each full fiscal year of the Company contained in the performance period of the award, no more than 50,000 shares subject to performance share awards and other stock-based awards or more than $500,000 subject to performance unit awards and other cash-based awards.

In addition, to comply with applicable tax rules, the Equity Plan also limits the number of shares that may be issued upon the exercise of ISOs granted under the Equity Plan to 3,000,000, cumulatively increased on April 1 of each subsequent year through 2017, by an amount equal to the smallest of (a) five percent of the number of shares of common stock issued and outstanding on the immediately preceding March 31, (b) 1,500,000 shares, or (c) a lesser amount determined by the board of directors.

Upon the adoption of the Equity Plan in March 2007, the 2000 Plan was terminated, no further options were granted under the 2000 Plan, the 535,597 shares that remained reserved for grant under the 2000 Plan were cancelled, and all subsequent grants of stock options were made pursuant to the Equity Plan.

Awards may be granted under the Equity Plan to the Company's employees, including officers, directors, or consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. To date, options granted to non-officer employees generally vest 25% on the first anniversary and subsequent anniversaries of the date of grant, while grants to officers vest in full four years after the anniversary date of the officer's employment that is closest to the date of grant. While the Company may grant ISOs only to employees, the Company may grant NSOs, stock appreciation rights, restricted stock purchase rights or bonuses, restricted stock units, performance shares, performance units and cash-based awards or other stock-based awards to any eligible participant. Non-employee director awards may be granted only to members of the Company's board of directors who, at the time of grant, are not employees. Deferred compensation awards may be granted only to officers, directors and selected members of management or highly compensated employees.

Only members of the board of directors who are not employees at the time of grant are eligible to participate in the nonemployee director awards component of the Equity Plan. The board or the compensation committee shall set the amount and type of nonemployee director awards to be awarded on a periodic, non-discriminatory basis. Nonemployee director awards may be granted in the form of NSOs, stock appreciation rights, restricted stock awards and restricted stock unit awards. Subject to adjustment for changes in the Company's capital structure, no nonemployee director may be awarded, in any fiscal year, one or more nonemployee director awards for more than 2,000 shares. However, the annual limit may be increased by the following additions: (i) an additional 10,000 shares in the fiscal year in which the nonemployee director is first appointed or elected to the board, (ii) an additional 2,000 shares in any fiscal year in which the nonemployee director is serving as the chairman or lead director of the board, (iii) an additional 1,000 shares in any fiscal year for each committee of the board on which the nonemployee director is then serving other than as chairman of the committee, and (iv) an additional 2,000 shares in any fiscal year for each committee of the board on which the nonemployee director is then serving as chairman of the committee.

In the event of a change in control as described in the Equity Plan, the acquiring or successor entity may assume or continue all or any awards outstanding under the Equity Plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a change in control or exercised or settled prior to the change in control will terminate effective as of the time of the change in control. The administrator may provide for the acceleration of vesting of any or all outstanding awards upon such terms and to such extent as it determines, except that the vesting of all nonemployee director awards will automatically be accelerated in full. The Equity Plan also authorizes the administrator, in its discretion and without the consent of any participant, to cancel each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the participant with respect to each vested share subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share of common stock in the change in control transaction over the exercise price per share, if any, under the award.

The 2007 Employee Stock Purchase Plan

In January 2007, the board of directors approved the 2007 Employee Stock Purchase Plan (the "2007 Purchase Plan") which was subsequently approved by the Company's stockholders in March 2007. A total of 500,000 shares of the Company's common stock was authorized and reserved for sale under the 2007 Purchase Plan. In addition, the 2007 Purchase Plan provides for an automatic annual increase in the number of shares available for issuance under the plan on April 1 of each year beginning in 2008 and continuing through and including April 1, 2017 equal to the lesser of (1) one percent of the number of issued and outstanding shares of common stock on the immediately preceding March 31, (2) 250,000 shares or (3) a number of shares as the board of directors may determine. Appropriate adjustments will be made in the number of authorized shares and in outstanding purchase rights to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in our capital structure. Shares subject to purchase rights which expire or are canceled will again become available for issuance under the 2007 Purchase Plan.

The Company's employees and employees of any parent or subsidiary corporation designated by the administrator will be eligible to participate in the 2007 Purchase Plan if they are customarily employed by us for more than 20 hours per week and more than five months in any calendar year. However, an employee may not be granted a right to purchase stock under the 2007 Purchase Plan if: (1) the employee immediately after such grant would own stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock or of any parent or subsidiary corporation, or (2) the employee's rights to purchase stock under all of our employee stock purchase plans would accrue at a rate that exceeds $25,000 in value for each calendar year of participation in such plans.

The 2007 Purchase Plan is designed to be implemented through a series of sequential offering periods, generally six (6) months in duration beginning on the first trading day on or after May 1 and November 1 of each year. The administrator is authorized to establish additional or alternative sequential or overlapping offering periods and offering periods having a different duration or different starting or ending dates, provided that no offering period may have a duration exceeding 27 months.

Amounts accumulated for each participant under the 2007 Purchase Plan are used to purchase shares of the Company's common stock at the end of each offering period at a price generally equal to 85% of the lower of the fair market value of our common stock at the beginning of an offering period or at the end of the offering period. Prior to commencement of an offering period, the administrator is authorized to reduce, but not increase, this purchase price discount for that offering period, or, under circumstances described in the 2007 Purchase Plan, during that offering period. The maximum number of shares a participant may purchase in any six-month offering period is the lesser of (i) that number of shares determined by multiplying (x) 1,000 shares by (y) the number of months (rounded to the nearest whole month) in the offering period and rounding to the nearest whole share or (ii) that number of whole shares determined by dividing (x) the product of $2,083.33 and the number of months (rounded to the nearest whole month) in the offering period and rounding to the nearest whole dollar by (y) the fair market value of a share of our common stock at the beginning of the offering period. Prior to the beginning of any offering period, the administrator may alter the maximum number of shares that may be purchased by any participant during the offering period or specify a maximum aggregate number of shares that may be purchased by all participants in the offering period. If insufficient shares remain available under the plan to permit all participants to purchase the number of shares to which they would otherwise be entitled, the administrator will make a pro rata allocation of the available shares. Any amounts withheld from participants' compensation in excess of the amounts used to purchase shares will be refunded, without interest.

In the event of a change in control, an acquiring or successor corporation may assume our rights and obligations under the 2007 Purchase Plan. If the acquiring or successor corporation does not assume such rights and obligations, then the purchase date of the offering periods then in progress will be accelerated to a date prior to the change in control.

The following table summarizes stock option activities:



			Weighted
		Number of Shares	Average	Weighted
	Shares	Underlying	Remaining	Average
	Available for	Options	Contractual	Exercise		Intrinsic
	Grant	Outstanding	Life (Years)	Price		Value
Balance at March 31, 2013	4,867,458	6,336,319			4.46
Options reserved	1,353,260	-			-
Granted	(784,303)	784,303			6.45
Exercised	-	(816,957)			3.10	$	2,629,982
Forfeited	149,085	(159,685)			6.04
Balance at March 31, 2014	5,585,500	6,143,980			5.13
Options reserved	1,377,699	-			-
Granted	(791,903)	791,903			5.20
Exercised	-	(119,085)			3.88		262,253
Forfeited	42,647	(42,647)			5.49
Balance at March 31, 2015	6,213,943	6,774,151			5.16
Options reserved	1,156,419	-			-
Granted	(969,913)	969,913			4.42
Exercised	-	(76,745)			4.19		46,977
Forfeited	31,614	(41,614)			4.82
Balance at March 31, 2016	6,432,063	7,625,705		$	5.08
Options vested and exercisable		5,246,088	3.70	$	5.02	$	939,846
Options vested and expected to vest		7,574,414	5.14	$	5.08	$	1,150,077

The options outstanding and by exercise price at March 31, 2016 are as follows:



				Number of	Options Outstanding			Options Exercisable
				Shares	Weighted		Weighted Average		Weighted
				Underlying	Average		Remaining	Number	Average
				Options	Exercise		Contractual	Vested and	Exercise
Exercise Price				Outstanding	Price		Life (Years)	Exercisable	Price
$	2.43	-	3.40	895,204	$	3.17	5.06	586,394	$	3.05
$	3.43	-	4.00	1,118,969	$	3.81	3.10	1,118,969	$	3.81
$	4.17	-	4.81	935,478	$	4.41	5.75	670,261	$	4.33
$	4.90	-	4.98	793,963	$	4.95	7.92	298,150	$	4.91
$	5.13	-	5.34	625,513	$	5.23	8.49	62,626	$	5.22
$	5.50			783,433	$	5.50	0.63	783,433	$	5.50
$	5.59	-	6.00	899,930	$	5.77	5.24	568,526	$	5.80
$	6.28	-	6.63	808,219	$	6.48	6.08	645,440	$	6.47
$	6.82	-	7.00	651,376	$	6.90	5.76	398,669	$	6.92
$	9.20			113,620	$	9.20	4.83	113,620	$	9.20
				7,625,705	$	5.08	5.17	5,246,088	$	5.02

Stock-based compensation

The Company recognized $1,850,000, $2,077,000 and $2,228,000 of stock-based compensation expense for the years ended March 31, 2016, 2015 and 2014, respectively, as follows:



	Year Ended March 31,
	2016		2015		2014
	(In thousands)
Cost of revenues	$	320	$	401	$	386
Research and development		858		941		970
Selling, general and administrative		672		735		872
Total	$	1,850	$	2,077	$	2,228

Stock-based compensation expense in the years ended March 31, 2016, 2015 and 2014 included $136,000, $153,000 and $152,000, respectively, related to the Company's Employee Stock Purchase Plan.

No tax benefit was recognized in either fiscal 2016 or fiscal 2015 due to a full valuation allowance. There were no windfall tax benefits realized from exercised stock options recognized in fiscal 2016 or fiscal 2015. The reversal of previously recognized windfall tax benefits realized from exercised stock options was $33,000 in fiscal 2014. Compensation cost capitalized within inventory at March 31, 2016 was not material. As of March 31, 2016, the Company's total unrecognized compensation cost was $2.9 million, which will be recognized over the weighted average period of 2.13 years. The Company calculated the fair value of stock based awards in the periods presented using the Black-Scholes option pricing model and the following weighted average assumptions:



	Year Ended March 31,
	2016				2015				2014
	(In thousands)
Stock Option Plans:
Risk-free interest rate	1.41	-	1.57	%	1.47	-	1.7	%	0.91	-	1.61	%
Expected life (in years)			5.00				5.00				5.00
Volatility	36.3	-	38.0	%	40.4	-	44.8	%	45.5	-	48.4	%
Dividend yield			-	%			-	%			-	%
Employee Stock Purchase Plan:
Risk-free interest rate	0.09		0.15	%			0.05	%	0.07	-	0.09	%
Expected life (in years)			0.50				0.50				0.50
Volatility	26.3	-	27.9	%	30.8	-	38.0	%	30.4	-	32.8	%
Dividend yield			-	%			-	%			-	%

The weighted average fair value of options granted during the years ended March 31, 2016, 2015 and 2014 was $1.52, $2.08 and $2.73, respectively.