Note 12 - Stock-Based Compensation

3 Months Ended

Jun. 29, 2014

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

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

NOTE 12. 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. Our ESPP is non-compensatory.

The following table summarizes our ESPP transactions during the fiscal period presented (in thousands, except per share amounts):

	As of June 29, 2014		Three Months Ended June 29, 2014
	Shares of Common Stock		Shares of Common Stock		Weighted Average Price
Authorized to issue		4,500
Reserved for future issuance		1,365
Issued				7	$	11.26

Equity Incentive Plans

We currently have two equity incentive plans, in which shares are available for future issuance, the Exar Corporation 2006 Equity Incentive Plan (the “2006 Plan”) and the Sipex Corporation (“Sipex”) 2006 Equity Incentive Plan (the “Sipex Plan”), the latter of which was assumed in connection with the August 2007 acquisition of Sipex.

The 2006 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. Restricted stock units ("RSU”) granted under the 2006 Plan are counted against authorized shares available for future issuance on a basis of two shares for every RSU issued. The 2006 Plan allows for performance-based vesting and partial vesting based upon the level of performance. Grants under the Sipex Plan are only available to former Sipex’s employees or employees of Exar hired after the Sipex acquisition. At our annual meeting on September 15, 2010, our stockholders approved an amendment to the 2006 Plan to increase the aggregate share limit under the 2006 Plan by an additional 5.5 million shares to 8.3 million shares. At June 29, 2014, there were 0.7 million shares available for future grant under all our equity incentive plans.

Stock Option Activities

Our stock option transactions during the three months ended June 29, 2014 are summarized as follows:

	Outstanding			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 March 30, 2014		7,213,848		$	8.98		5.02	$	21,301		2,170
Granted		45,700			10.87
Exercised		(105,751	)		6.99
Cancelled		(133	)		15.67
Forfeited		(385,098	)		10.12
Balance at June 29, 2014		6,768,566		$	8.96		4.84	$	16,701		2,277
Vested and expected to vest, June 29, 2014		6,284,514		$	8.84		4.75	$	16,137
Vested and exercisable, June 29, 2014		2,526,817		$	7.68		3.55	$	8,955

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 $11.08 and $11.71 as of June 29, 2014 and March 30, 2014, respectively. These are the values which would have been received by option holders if all option holders exercised their options 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 market based 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 $112,000 and $65,000 of compensation expense for these options in the three months ended June 29, 2014 and June 30, 2013, respectively.

Options exercised for the periods indicated below were as follows (in thousands):

	Three months Ended
	June 29, 2014		June 30, 2013
Intrinsic value of options exercised	$	430	$	822

RSU Activities

Our RSU transactions during the three months ended June 29, 2014 are summarized as follows:

	Shares			Weighted Average Grant- Date Fair Value		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Unvested at March 30, 2014		1,177,126		$	10.94		1.62	$	13,784
Granted		150,813			12.87
Issued and released		(147,648	)		9.80
Cancelled		(59,332	)		11.84
Unvested at June 29, 2014		1,120,959		$	11.30		1.61	$	12,420
Vested and expected to vest, June 29, 2014		965,301					1.54	$	10,696

The aggregate intrinsic value of RSUs represents the closing price per share of our 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 fiscal year 2013 through 2015 with three year vesting periods if certain predetermined financial measures are met. If the financial measures are not met, each installment will be forfeited at the end of its respective fiscal year. We recorded $734,000 and $52,000 of compensation expense for these awards in the three months ended June 29, 2014 and June 30, 2013, respectively.

In the first quarter of fiscal 2014, we granted 50,000 PRSUs to certain executives. The PRSUs were scheduled to vest in three equal installments at the end of fiscal year 2014 with a three-year vesting period if certain performance measures are met. We recorded stock compensation recovery of $120,000 in the three month ended June 29, 2014 as a result of partially meeting the performance measurements by the executives and recorded $47,000 of stock compensation expense for these awards in the three months ended June 30, 2013.

In July 2013, as part of the acquisition of Cadeka, we agreed to pay retention bonus to certain former Cadeka employees and the bonus will be settled in RSUs subject to fulfillment of the service period. We recorded $394,000 of compensation expense for these awards in the three months ended June 29, 2014. The expense is reported in the other non-current obligations line in the condensed consolidated balance sheet as the total amount of bonus is to be settled in 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 condensed 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. The expense is reported in the other current liabilities line in the condensed consolidated balance sheet as the total amount of bonus is to be settled in 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 condensed consolidated statement of operations. We recorded $5,000 of compensation expense for these awards in the three months ended June 29, 2014.

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 $178,000 of compensation expense for these awards in the three months ended June 29, 2014.

In January 2014, we granted 82,500 PRSUs to certain former Stretch employees. 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. We recorded $0 of compensation expense in the three months ended June 29, 2014 related to these PRSUs as the vesting of such PRSUs was not deemed probable.

Stock-Based Compensation Expense

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

	Three Months Ended
	June 29, 2014		June 30, 2013
Cost of sales	$	260	$	142
Research and development		812		140
Selling, general and administrative		2,055		805
Total Stock-based compensation expense	$	3,127	$	1,087

The amount of stock-based compensation cost capitalized in inventory was immaterial for all periods presented.

Unrecognized Stock-Based Compensation Expense

The following table summarizes unrecognized stock-based compensation expense related to stock options and RSUs for the period indicated below:

	June 29, 2014
	Amount (in thousands)		Weighted Average Expected Remaining Period (in years)
Options	$	9,349		2.5
Performance Options		606		2.0
RSUs		5,650		2.2
PRSUs		1,882		2.3
Total Unrecognized Stock-based compensation expense	$	17,487

Valuation Assumptions

We estimate the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. 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’s judgment which include the expected term of the stock-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.

We used the following weighted average assumptions to calculate the fair values of options granted during the fiscal periods presented:

	Three Months Ended
	June 29, 2014			June 30, 2013
Expected term of options (years)		4.5			4.4
Risk-free interest rate		1.3	%		0.6	%
Expected volatility		32	%		35	%
Expected dividend yield		─			─
Weighted average estimated fair value	$	3.12		$	3.20