Micrel (MCRL)

Provide renewed incentives to our employees who participate in the option exchange. As of March 24, 2009, approximately 88% of stock options held by our employees were underwater and 82% of stock options held by those below the NEO level had a per share exercise price equal to or greater than $9.80. We believe that these stock options no longer represent effective incentives to motivate or help retain our employees. We believe that the option exchange would aid both motivation and retention of those employees participating in the option exchange, while better aligning the interests of our employees with the interests of our shareholders.

Reduce our total number of outstanding stock options, or overhang, since a smaller number of options will be granted for the surrendered stock options. The number of underwater stock options that would be eligible for the option exchange is approximately 5,170,000. Because we will be exchanging a smaller number of options for those options surrendered, our overhang and the potential dilution of shareholders’ interests provided by these awards will decrease. We believe that after the option exchange, the overhang represented by the options granted pursuant to the exchange program will represent an appropriate balance between the objectives of our equity incentive plans and our shareholders’ interest in minimizing overhang and potential dilution.

Recapture value from the compensation expense that we record with respect to certain eligible options. If this proposal is not approved by our shareholders, we will be obligated to recognize approximately $7 Million of additional compensation expense with respect to eligible options over the next four years, even if the stock options are never exercised. We believe it is not an efficient use of our resources to recognize compensation expense on options that are not perceived by our employees as providing value. By replacing options that have little or no retention or incentive value with options that will provide both retention and incentive value while not creating additional compensation expense (other than expense that might result from fluctuations in our stock price after the exchange ratios have been set but before the exchange actually occurs), we will be making efficient use of our resources.