12. BENEFIT AND INCENTIVE PLANS (INCLUDING SHARE-BASED PAYMENTS)

The Company has several stock-based compensation plans in effect under which incentive stock options and non-qualified stock options (collectively “stock options”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and stock appreciation rights have been granted to employees and directors. After amendment on July 28, 2011 the maximum number of shares that may be delivered pursuant to awards granted under the LTIP is 2,000,000 plus: (i) any shares that have been authorized but not issued pursuant to previously established plans of the Company as of June 30, 2009, up to a maximum of an additional 500,000 shares; (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of June 30, 2009 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 3,844,576 shares. The maximum number of incentive stock options that may be granted under the LTIP is 1,500,000. No participant may receive awards under the LTIP in any calendar year for more than 1,000,000 share equivalents. The Company has ceased issuing stock options and restricted stock awards under previously established stock option and restricted stock plans, and has ceased issuing SARs, and instead is using the LTIP to issue stock options and RSUs. The Compensation Committee and management continue to evaluate means to effectively promote share ownership by employees and directors while offering industry-competitive compensation packages, including appropriate use of stock-based compensation awards.

Long Term Incentive Plan

Under the LTIP, the Compensation Committee of the Board of Directors is authorized to grant awards of stock options, restricted stock or restricted stock units, or other stock-based awards. The Committee is authorized under the LTIP to delegate its authority in certain circumstances. The purpose of this plan is to promote the interests of the Company and its shareholders by providing officers, directors and key employees with additional incentives and the opportunity, through stock ownership, to better align their interests with the Company's and enhance their personal interest in its continued success. The maximum number of shares that may be delivered pursuant to awards granted under the LTIP is 2,000,000 plus: (i) any shares that have been authorized but not issued pursuant to previously established plans of the Company as of June 30, 2009, up to a maximum of an additional 500,000 shares; (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of June 30, 2009 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 3,844,576 shares. The maximum number of incentive stock options that may be granted under the LTIP is 1,500,000. No participant may receive awards under the LTIP in any calendar year for more than 1,000,000 shares equivalents. As of February 29, 2012, awards amounting to 843,395 share equivalents may be granted under the LTIP.

Employee and Director Stock Option Plans

Under the Company's various plans, the Compensation Committee of the Board of Directors had been authorized to grant options to purchase shares of common stock. Stock options under inducement plans were offered only to new employees, and all options were granted at prices not less than the fair market value on the date of grant. The grant date fair values of stock options are recorded as compensation expense ratably over the vesting period of each award, as adjusted for forfeitures of unvested awards. Stock options generally vest over four or five-year periods, and expire no later than ten years from the date of grant. Following shareholder approval of the LTIP, the Company ceased issuing awards under previously established stock option plans.

Stock option plan activity is summarized below (in thousands, except per share data):

	Fiscal 2012 Shares			Weighted Average Exercise Price per Share		Fiscal 2011 Shares			Weighted Average Exercise Price per Share
Options outstanding, beginning of year		3,075		$	22.75		3,480		$	22.31
Granted		359		$	23.46		423		$	25.26
Exercised		(307	)	$	18.07		(523	)	$	18.81
Canceled, forfeited or expired		(195	)	$	29.08		(305	)	$	27.95
Options outstanding, end of year		2,932		$	22.90		3,075		$	22.75
Options exercisable, end of year		2,021		$	22.85		1,976		$	22.46

The following table summarizes information relating to outstanding and exercisable options as of February 29, 2012 (shares in thousands):

Range of Exercise Prices	Weighted Average Remaining Lives		Options Outstanding		Weighted Average Exercise Prices		Options Exercisable		Weighted Average Exercise Prices
$10.56 - $17.62		4.4		663	$	16.41		544	$	16.52
$18.29 - $22.35		5.4		907	$	20.32		660	$	20.38
$22.40 - $27.76		7.6		802	$	25.26		320	$	25.49
$27.90 - $36.13		4.6		560	$	31.38		497	$	31.36
		5.6		2,932	$	22.90		2,021	$	22.85

The following table summarizes information relating to currently outstanding and exercisable options:

For the fiscal years ended February 29 and 28,	2012		2011		2010
Aggregate intrinsic value of options exercisable (in thousands)	$	8,606	$	10,684	$	2,718
Total intrinsic value of options exercised (in thousands)	$	2,461	$	4,016	$	1,098
Total intrinsic value of options vested (in thousands)	$	5,273	$	6,084	$	6,889
Total remaining unrecognized compensation cost (in thousands)	$	6,338	$	8,934	$	11,623
Compensation expense recognized (in thousands)	$	5,218	$	5,589	$	6,342
Weighted average grant-date fair value per share	$	9.33	$	10.98	$	8.86
Weighted average remaining contractual life of options exercisable (in years)		4.5		4.5		4.6
Weighted average period over which the cost is expected to be recognized (in years)		1.43		1.29		1.75

The fair value of stock options granted in connection with the Company's stock incentive plans have been estimated utilizing the following assumptions:

	Fiscal Years Ended
	February 29, 2012			February 28, 2011			February 28, 2010
Dividend yield		-			-			-
Expected volatility		43-44	%		44-47	%		47-50	%
Risk-free interest rates		0.84 - 2.10	%		1.35%-2.58	%		2.13%-2.48	%
Expected lives (in years)		5.02			5.02			5.01

Restricted Stock Awards/Restricted Stock Units

The Company provides common stock awards to certain officers and key employees. The Company previously granted restricted stock awards, at its discretion, and as part of the Company's management incentive plan, from the shares available under its 2001 and 2003 Stock Option and Restricted Stock Plans and its 2005 Inducement Stock Option and Restricted Stock Plan. The shares awarded were typically earned in 25 percent, 25 percent and 50 percent increments on the first, second and third anniversaries of the award, respectively, and are distributed provided the employee has remained employed by the Company through such anniversary dates; otherwise the unvested shares are forfeited. The grant date fair value of these shares at the date of award is recorded as compensation expense ratably on a straight-line basis over the related vesting periods, as adjusted for estimated forfeitures of unvested awards. Restricted stock shares are no longer being granted from previously established restricted stock award plans. Instead, restricted stock units are currently being granted from the LTIP. Restricted stock units are typically earned in 33 percent increments on the first, second and third anniversaries of the award, respectively, and are distributed provided the employee remains employed by the Company through such anniversary dates; otherwise the unvested shares are forfeited. The grant date fair value of these shares at the date of award is recorded as compensation expense ratably on a straight-line basis over the related vesting periods, as adjusted for estimated forfeitures of unvested awards.

RSAs and RSUs activity for the twelve months ended February 29, 2012 and February 28, 2011 is set forth below (shares in thousands):

	Fiscal 2012 Shares			Weighted Average Grant-Date Fair Value		Fiscal 2011 Shares			Weighted Average Grant-Date Fair Value
RSAs and RSUs outstanding, beginning of year		424		$	23.79		90		$	25.42
Granted		507		$	23.53		462		$	23.11
Canceled or expired		(51	)	$	26.17		(81	)	$	18.55
Vested		(130	)	$	25.34		(47	)	$	29.26
Restricted stock shares outstanding, end of year		750		$	23.18		424		$	23.79

The following table summarizes information relating to RSAs and RSUs activity:

For the fiscal year ended February 29 and 28,	2012		2011		2010
Total intrinsic value of shares vested (in thousands)	$	3,256	$	1,167	$	1,202
Total fair value of shares vested (in thousands)	$	3,304	$	1,361	$	1,795
Total intrinsic value of all outstanding shares (in thousands)	$	19,190	$	11,264	$	1,762
Total unrecognized compensation cost (in thousands)	$	13,475	$	7,921	$	1,238
Weighted average period over which the unrecognized compensation cost is expected to be recognized (in years)		1.53		2.09		1.19
Weighted average grant-date fair value per share	$	23.53	$	23.11	$	16.87

Stock Appreciation Rights Plan

In September 2004 and September 2006, the Company's Board of Directors approved Stock Appreciation Rights (“SAR”) Plans (the “Plans”), the purpose of which are to attract, retain, reward and motivate employees and consultants to promote the Company's best interests and to share in its future success. The Plans authorize the Board's Compensation Committee to grant up to six million SAR awards to eligible officers, employees and consultants (after amendment to the 2006 SARs Plan, effective April 30, 2008). Each award, when granted, provides the participant with the right to receive payment in cash, upon exercise, for the appreciation in market value of a share of SMSC common stock over the award's exercise price. On July 11, 2006, the Company's Board of Directors approved the 2006 Director Stock Appreciation Rights Plan. The Company can grant up to 200,000 Director SARs under this plan. On April 9, 2008, the Board of Directors authorized an increase in the number of SARs issuable pursuant to this plan from 200,000 to 400,000. The exercise price of a SAR is equal to the closing market price of SMSC stock on the date of grant. SAR awards generally vest over four or five-year periods, and expire no later than ten years from the date of grant. The Company has currently ceased issuing SARs to employees and Directors and is using the LTIP instead.

The Company recognizes compensation expense for SARs using a graded vesting methodology, adjusting for changes in fair value from period to period. Compensation expense also includes adjustments for any exercises of SARs to record any differences between total cash paid at settlement and previously recognized compensation expenses. Prior to the adoption of guidance now codified as ASC Topic 718, “ Compensation - Stock Compensation ” (“ASC 718”), the Company recognized compensation expense for SARs based on the excess of the award's market value over its exercise price over the term of the award.

The total unrecognized compensation cost related to SMSC's stock appreciation rights plan is $5.3 million as of February 29, 2012. The weighted average period over which the cost is expected to be recognized is 2.74 years.

Activity under Plans is summarized below (shares in thousands):

	Fiscal 2012 Shares			Weighted Average Exercise Price per Share		Fiscal 2011 Shares			Weighted Average Exercise Price per Share		Fiscal 2010 Shares			Weighted Average Exercise Price per Share
SARs outstanding, beginning of year		4,249		$	24.96		4,766		$	24.69		3,852		$	27.22
Granted		-		$	-		-		$	-		1,399		$	17.61
Exercised		(260	)	$	17.85		(229	)	$	17.29		(121	)	$	17.06
Canceled or expired		(201	)	$	26.77		(288	)	$	26.69		(364	)	$	26.72
SARs outstanding, end of year		3,788		$	25.35		4,249		$	24.96		4,766		$	24.69
SARs exercisable, end of year		2,939		$	26.52		2,600		$	26.47		2,005		$	26.58

Activity under the Stock Appreciation Rights Plan is summarized below:

For the fiscal years ended February 29 and28,	2012		2011		2010
Aggregate intrinsic value (in thousands)	$	12,912	$	17,282	$	5,125
Total fair value of SARs vested (in thousands)	$	6,045	$	9,802	$	4,713
Total cash paid in connection with SARs (in thousands)	$	2,311	$	2,286	$	485
Compensation expense recognized (in thousands)	$	2,649	$	15,937	$	8,490
Weighted average grant-date fair value per share	$	-	$	-	$	9.63
Weighted average remaining contractual life of SARs outstanding (years)		5.5		6.5		7.5
Weighted average remaining contractual life of SARs exercisable (years)		5.1		5.9		7.8

The fair value of SARs granted in connection with the Plans have been estimated utilizing the following assumptions:

	Fiscal Years Ended
	February 29, 2012			February 28, 2011			February 28, 2010
Dividend yield		-			-			-
Expected volatility		21-50	%		37%-53	%		41%-60	%
Risk-free interest rates		0.01%-1.69	%		0.04%-2.76	%		0.15%-2.83	%
Expected lives (in years)		0.00-4.70			0.02-5.62			0.50-6.20

Employee Stock Purchase Plan

The Company's 2010 Employee Stock Purchase Plan (the “Purchase Plan”), effective November 1, 2010, provides for the issuance of up to 1,100,000 shares of common stock to eligible employees. The Purchase Plan provides for eligible employees to purchase whole shares of common stock at a price of 85% of the lesser of: (a) the fair market value of a share of common stock on the first date of the purchase period or (b) the fair market value of a share of common stock on the last date of the purchase period. Stock-based compensation expense for the Purchase Plan is recognized over the vesting period of six months on a straight-line basis. As of February 29, 2012 the Company had 994,417 shares available for future grants and issuances under the Purchase Plan. The Company recognized expense of $0.2 million in fiscal 2012.