Quarterly report pursuant to Section 13 or 15(d)

Note 11 - Stock-based Compensation

v3.6.0.2
Note 11 - Stock-based Compensation
9 Months Ended
Jan. 01, 2017
Notes to Financial Statements  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
NOTE
1
1
.
STOCK-BASED COMPENSATION
 
Except for the stock compensation expense section, all amounts consist of both continuing and discontinued operations.
 
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 periods presented (in thousands, except per share amounts):
 
 
 
As of
 
 
Nine Months Ended
 
 
 
January 1, 2017
 
 
January 1, 2017
 
 
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
Shares of
 
 
Shares of
 
 
Average
 
 
 
Common Stock
 
 
Common Stock
 
 
Price per Share
 
Authorized to issue
   
4,500
     
 
     
 
 
Reserved for future issuance
   
1,298
     
 
     
 
 
Issued
   
 
     
19
    $
7.54
 
 
 
Equity Incentive Plans
 
At the annual meeting of stockholders on
September
18,
2014
(the “Annual Meeting”), our stockholders approved the Exar Corporation
2014
Equity Incentive Plan
(“2014
Plan”). The
2014
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.
 
Prior to the Annual Meeting, we maintained the Exar Corporation
2006
Equity Incentive Plan (the
“2006
Plan”) and the Sipex Corporation
2006
Equity Incentive Plan (the “Sipex
2006
Plan”). As of
June
30,
2014,
a total of
6,555,492
shares of our common stock were then subject to outstanding awards granted under the
2006
Plan and the Sipex
2006
Plan, and an additional
669,008
shares of our common stock were then available for new award grants under the
2006
Plan. As part of the stockholder approval of the
2014
Plan at the Annual Meeting, we agreed that no new awards will be granted under the
2006
Plan and the Sipex
2006
Plan, although awards made under these plans will remain subject to the terms of each such plan.  
 
The maximum number of shares of our common stock that
may
be issued or transferred pursuant to awards under the
2014
Plan equals the sum of:
(1)
5,170,000
shares, plus
(2)
the number of any shares subject to stock options granted under the
2006
Plan and the Sipex
2006
Plan
and outstanding as of the date of the Annual Meeting which expire, or for any reason are cancelled or terminated, after the date of the Annual Meeting without being exercised, plus
(3)
the number of any shares subject to restricted stock and restricted stock unit awards granted under the
2006
Plan and the Sipex
2006
Plan that are outstanding and unvested as of the date of the Annual Meeting which are forfeited, terminated, cancelled, or otherwise reacquired after the date of the Annual Meeting without having become vested. Awards other than a stock option or stock appreciation right granted under the
2014
Plan are counted against authorized shares available for future issuance on a basis of
two
shares for each award issued. As of
January
1,
2017,
there were
approximately
3.3
million shares available for future grants under the
2014
Plan.
 
Stock Option Activities
 
Our stock option transactions during the
nine
months ended
January
1,
2017
are summarized below:
 
 
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average
 
 
 
 
 
 
In-the-money
 
 
 
 
 
 
 
Weighted
 
 
Remaining
 
 
Aggregate
 
 
Options
 
 
 
Outstanding
 
 
Average
 
 
Contractual
 
 
Intrinsic
 
 
Vested and
 
 
 
Options /
 
 
Exercise
 
 
Term
 
 
Value
 
 
Exercisable
 
 
 
Quantity
 
 
Price per Share
 
 
(in years)
 
 
(in thousands)
 
 
(in thousands)
 
Balance at March 27, 2016
   
7,722,383
    $
7.96
     
4.40
    $
87
     
48
 
Granted
   
1,466,800
     
7.30
     
 
     
 
     
 
 
Exercised
   
(2,045,504
)    
6.97
     
 
     
 
     
 
 
Cancelled
   
(614,454
)    
9.84
     
 
     
 
     
 
 
Forfeited
   
(1,055,074
)    
7.53
     
 
     
 
     
 
 
Balance at January 1, 2017
   
5,474,151
     
8.02
     
4.66
     
16,195
     
4,787
 
                                         
Vested and expected to vest, January 1, 2017
   
4,909,103
     
8.12
     
4.50
     
14,140
     
 
 
Vested and exercisable, January 1, 2017
   
2,491,344
    $
8.85
     
3.19
    $
5,620
     
 
 
 
 
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
$10.78
and
$5.26
as of
January
1,
2017
and
March
27,
2016,
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 then CEO. The options were scheduled to vest in
four
equal annual installments at the end of fiscal years
2013
through
2016
if certain predetermined market based financial measures were met. If the financial measures were not met, each installment would be rolled over to the subsequent fiscal year. In
January
2014,
we granted
140,000
performance-based stock options to our then CEO. The options were scheduled to vest at the end of fiscal year
2017
if certain predetermined financial measures were met. Due to the departure of our then CEO in
October
2015,
we recorded a reversal of
$34,000
of compensation expense for these options in fiscal year
2016
as the requisite service period for vesting was not completed. No additional compensation expense for these options was recorded since the termination date of our former CEO.
 
On
July
1,
2016
we granted
280,000
and
120,000
performance-based stock options to our CEO and Chief Financial Officer (“CFO”), respectively. The options vest based on the achievement of company performance targets relating to our non-GAAP earnings per share in future periods. If criteria are met, the options are scheduled to vest with
four
equal annual installments during the next
four
years, subject to the CEO’s and CFO’s continued service with us. As of
January
1,
2017,
we recorded
$0.2
million compensation expense associated with a portion of such performance-based stock options for which the vesting criteria has been determined by the Compensation Committee of the Board of Directors.
 
Options exercised for the periods indicated below were as follows (in thousands):
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
January 1,
 
 
December 27,
 
 
January 1,
 
 
December 27,
 
 
 
2017
 
 
2015
 
 
2017
 
 
2015
 
Intrinsic value of options exercised
  $
1,367
    $
39
    $
4,085
    $
637
 
 
RSU Activities
 
Our RSU transactions during the
nine
months ended
January
1,
2017
are summarized as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average
 
 
 
 
 
 
 
 
 
 
 
Weighted
 
 
Remaining
 
 
Aggregate
 
 
 
 
 
 
 
Average
 
 
Contractual
 
 
Intrinsic
 
 
 
 
 
 
 
Grant-Date
 
 
Term
 
 
Value
 
 
 
Shares
 
 
Fair Value
 
 
(in years)
 
 
(in thousands)
 
Unvested at March 27, 2016
   
590,833
    $
9.39
     
1.45
    $
3,108
 
Granted
   
622,039
     
8.63
     
 
     
 
 
Issued and released
   
(209,236
)    
8.94
     
 
     
 
 
Forfeited
   
(215,029
)    
9.68
     
 
     
 
 
Unvested at January 1, 2017
   
788,607
    $
8.83
     
1.81
    $
8,501
 
Vested and expected to vest, January 1, 2017
   
608,111
     
 
     
1.62
     
6,555
 
 
 
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 then CEO. The PRSUs were scheduled to vest in
three
equal installments at the end of fiscal year
2013
through
2015
with
three
-year vesting periods for each installment if certain predetermined financial measures were met. If the financial measures were not met, each installment would be forfeited at the end of its respective fiscal year. Due to the departure of our then CEO in
October,
2015,
we recorded a reversal of
$41,000
for these PRSUs in fiscal year
2016,
as the requisite service period required for vesting was not completed. No additional compensation expense for these options was recorded since the termination date of our former CEO.   
 
In
July
2013,
as part of the acquisition of Cadeka, in order to encourage retention of
five
former Cadeka employees, we agreed to recommend to our Board of Directors in
July
2015
a bonus, which, if approved by the Board of Directors, would be settled in RSUs subject to fulfillment of the service period. The ultimate approval of these awards was subject to the discretion of the Board of Directors. We recorded no compensation expense for these awards in the
three
and
nine
months ended
January
1,
2017.
We recorded
$0.2
million of non-cash compensation expense for these awards in the
three
and
nine
months ended
December
27,
2015.The
expense is reported in the other current liabilities line on the condensed consolidated balance sheet as the total amount of bonus was to be settled in variable number of RSUs at the completion of the requisite service period. Such non-cash compensation expense was recorded as part of stock compensation expense in the condensed consolidated statements of operations. In
July
2015,
the Board of Directors ultimately determined not to approve the granting of these RSUs. In fiscal year
2016
we paid
three
of these
five
former Cadeka employees
$75,000
in cash in exchange for a release of claims, including any claim such former employees
may
have to the RSUs described above. As a result of obtaining these releases, the proportional amount of liability net of cash payments was removed from our condensed consolidated balance sheet, with a corresponding increase in additional paid in capital. For the
two
remaining employees, an amount of
$1.2
million is included in other liabilities as of
January
1,
2017,
pending the earlier of a settlement with such former employees or the expiration of the relevant statute of limitations.
 
In
October
2013,
we granted
70,000
PRSUs to certain executives. The
first
50%
of the PRSUs was 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 were met. The
second
50%
of the PRSUs was 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 were met. We recorded approximately
$5,000
and
$42,000
of compensation expense for these awards in the
three
and
nine
months ended
January
1,
2017,
respectively. We recorded
$18,000
and
$96,000
of compensation expense for these awards in the
three
and
nine
months ended
December
27,
2015,
respectively. One of the executives’ employment was terminated in fiscal year
2015.
 
 
In
August
and
December
2014,
we granted
88,448
PRSUs to certain former iML employees. The PRSUs are scheduled to start vesting in
three
equal annual installments upon achievement of certain performance measures. We modified all stock awards outstanding in
June
2016
for iML employees impacted by the sale of iML. Under the modification, a certain portion of outstanding stock awards vested at the close of the transaction based on continued employment as of that date. As a result, we recorded a
one
-time reversal of
$311,000
in stock compensation expense related to these stock awards in the
three
months ended
July
3,
2016.
The fair value of modified awards that are expected to vest is being recognized ratably over the estimated requisite service period. We recorded approximately
$0.2
million and
$0.7
million of stock compensation expense related to these modified awards in the
three
months and
nine
months ended
January
1,
2017,
respectively, which is included in discontinued operations.
 
In
July
2016,
we granted
60,000
and
30,000
PRSUs to our CEO and CFO, respectively, which vests based on the achievement of company stock price targets in future periods. If the performance criteria are met, the PRSUs will vest over a
three
-year period, with
one
-
third
of the PRSUs vesting after
12
months from the date of grant and the remaining PRSUs vesting in equal quarterly installments over the remaining
two
years, subject to the CEO’s and CFO’s continued service with Exar. The value of these awards is estimated using a Monte-Carlo simulation model using the following valuation assumptions:
 
Expected term of grants (years)
   
3
 
Risk-free interest rate
   
0.76
%
Expected volatility
   
50
%
 
For the
three
and
nine
months ended
January
1,
2017,
we recorded approximately
$56,000
and
$80,000
of stock compensation expense related to these PRSUs, respectively.  
 
In
July
2016,
we announced the Fiscal Year
2017
Management Incentive Program
(“2017
Incentive Program”). Under this program, each participant’s award is denominated in shares of our common stock and is subject to attainment of Exar’s performance goals as established by the Compensation Committee of the Board of Directors for fiscal year
2017.
We recorded a stock compensation expense of
$2.2
million in the
nine
months ended
January
1,
2017.
 
Stock-Based Compensation Expense
 
The following table summarizes stock-based compensation expense related to stock options and RSUs for continuing operations during the fiscal periods presented
(in thousands):
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
January 1,
 
 
December 27,
 
 
January 1,
 
 
December 27,
 
 
 
2017
 
 
2015
 
 
2017
 
 
2015
 
Cost of sales
  $
474
    $
98
    $
889
    $
257
 
Research and development
   
926
     
117
     
1,696
     
509
 
Selling, general and administrative
   
2,234
     
596
     
4,546
     
3,044
 
Total stock-based compensation expense
  $
3,634
    $
811
    $
7,131
    $
3,810
 
 
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, net of reversals,
as of
January
1,
2017:
 
 
 
January 1, 2017
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Average
 
 
 
 
 
 
 
Remaining
 
 
 
Amount
 
 
Recognition
 
 
 
(in thousands)
 
 
Period (in years)
 
Options
  $
4,887
     
2.59
 
RSUs
   
4,557
     
2.58
 
PRSUs
   
630
     
1.69
 
Total unrecognized stock-based compensation expense
  $
10,074