Note 4 - Stock Benefit Plans

12 Months Ended

Dec. 31, 2011

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

Note 4.     Stock Benefit Plans

The Company grants stock options and other stock-based awards to employees, directors and consultants under two equity incentive plans, the 2004 Equity Incentive Plan, as amended and restated on August 20, 2008 (the “2004 Equity Incentive Plan”) and the 2006 Director Plan. As disclosed in Note 1, all share information has been adjusted to reflect the Reverse/Forward Split.

As of December 31, 2011, the Company had an aggregate of 1.8 million shares of its common stock reserved for issuance under its 2004 Equity Incentive Plan, of which 60,000 shares were subject to outstanding options and other stock-based awards and 1.7 million shares were available for future grants of options and other stock-based awards. As of December 31, 2011, the Company had an aggregate of 0.1 million shares of its common stock reserved for issuance under its 2006 Director Plan, of which 51,455 shares were subject to outstanding options and other stock-based awards and 30,517 shares were available for future grants of options and other stock-based awards.

Stock Benefit Plan Activities

Stock Options: A summary of stock option activity under all of the Company’s equity incentive plans as of December 31, 2011 and for the Transition Period and fiscal years 2011 and 2010 is as follows:

						Weighted Average
				Weighted		Remaining
				Average		Contractual		Aggregate
				Exercise		Term		Intrinsic
	Shares			Price		(Years)		Value
	(in thousands, except exercise price and contractual terms)
Outstanding at March 31, 2009		537		$	52.10
Granted		158		$	28.70
Exercised		(18	)	$	24.60
Forfeited		(51	)	$	30.80
Expired		(138	)	$	77.80
Outstanding at March 31, 2010		488		$	40.50
Granted		9		$	29.30
Exercised		(76	)	$	28.50
Forfeited		-		$	38.70
Expired		(341	)	$	44.00
Outstanding at December 31, 2010		80		$	35.61
Granted		28		$	28.73
Exercised		(1	)	$	28.60
Forfeited		(1	)	$	28.40
Expired		(12	)	$	48.32
Outstanding at December 31, 2011		94		$	31.89		5.69	$	-
Options vested and expected to vest at December 31, 2011		82		$	32.34		5.56	$	-
Options exercisable at:
March 31, 2010		384		$	43.40
December 31, 2010		69		$	36.60
December 31, 2011		68		$	33.12		5.32	$	-

There is no aggregate intrinsic value of options at December 31, 2011 as there were no options “in-the-money.” During fiscal year 2011 and the Transition Period, the aggregate intrinsic value of options exercised under the Company’s equity incentive plans was minimal. During fiscal year 2010, the aggregate intrinsic value of options exercised was $0.3 million. The following table summarizes the Company’s options outstanding and exercisable at December 31, 2011:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
	(in thousands, except exercise price and contractual life)
$25.85 - $28.40		9		6.68	$	27.47		6	$	28.40
$28.60 - $28.60		13		4.59	$	28.60		13	$	28.60
$29.10 - $29.10		25		6.40	$	29.10		4	$	29.10
$29.30 - $29.40		8		8.87	$	29.34		6	$	29.32
$32.80 - $32.80		10		6.05	$	32.80		10	$	32.80
$32.90 - $32.90		5		7.96	$	32.90		5	$	32.90
$37.80 - $37.80		10		3.59	$	37.80		10	$	37.80
$38.10 - $40.30		12		3.21	$	38.68		12	$	38.68
$40.70 - $42.40		1		4.75	$	40.98		1	$	40.98
$44.80 - $44.80		1		1.87	$	44.80		1	$	44.80
		94						68

As of December 31, 2011, the total unamortized stock-based compensation expense related to non-vested stock options, net of estimated forfeitures, was approximately $0.2 million and this expense is expected to be recognized over a remaining weighted-average period of 1.79 years.

Restricted Stock: Restricted stock awards and restricted stock units (collectively, “restricted stock”) were granted under the Company’s 2004 Equity Incentive Plan and 2006 Director Plan. As of December 31, 2011, there were 1,083 shares of service-based restricted stock awards and 14,125 shares of restricted stock units outstanding. The cost of restricted stock, determined to be the fair market value of the shares at the date of grant, is expensed ratably over the period the restrictions lapse. Certain non-employee directors received restricted stock shares that will vest immediately if the relationship between the Company and the non-employee director ceases for any reason. These non-vested shares are recognized and fully expensed as stock-based compensation expense at the date of grant.

A summary of activity for restricted stock as of December 31, 2011 and changes during the Transition Period and fiscal years 2011 and 2010 is as follows:

	Shares			Weighted Average Grant Date Fair Value
	(in thousands)
Non-vested stock at March 31, 2009		218		$	34.30
Awarded		181		$	28.50
Vested		(126	)	$	36.40
Forfeited		(101	)	$	28.60
Non-vested stock at March 31, 2010		172		$	30.10
Awarded		8		$	29.30
Vested		(45	)	$	32.80
Forfeited		(127	)	$	29.10
Non-vested stock at December 31, 2010		8		$	29.40
Awarded		17		$	0.01
Vested		(10	)	$	28.97
Forfeited		-		$	28.39
Non-vested stock at December 31, 2011		15		$	29.40

As of December 31, 2011, the total unamortized stock-based compensation expense related to non-vested restricted stock that is expected to vest, net of estimated forfeitures, was approximately $0.1 million and this expense is to be recognized over a remaining weighted-average period of 1.7 years.

Stock-Based Compensation

The Company measures and recognizes stock-based compensation for all stock-based awards made to its employees and directors based on estimated fair values using a straight-line amortization method over the respective requisite service period of the awards and adjusts it for estimated forfeitures. In addition, the Company applies the simplified method to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee stock-based compensation, which is available to absorb tax shortfalls.

In May 2010, the Compensation Committee of the Board of Directors modified all employees’ unvested stock-based awards, including stock options, restricted stock awards and restricted stock units, including those with performance-based vesting (none of which affect the Company’s Interim President and Chief Executive Officer). The modification of the unvested stock-based awards was effective the earlier of (1) June 8, 2010, the date the Company consummated the Purchase Agreement with PMC-Sierra for the sale of the DPS Business and PMC-Sierra assumed certain liabilities related to the DPS Business or (2) the date in which an employee was involuntarily terminated (other than for cause) as part of the actions the Company took related to its sale of the DPS Business.  The modifications included the acceleration of unvested stock-based awards and a settlement of unvested stock-based awards in the form of a fixed cash payment, resulting in total stock-based compensation expense of $0.2 million and cash compensation expense of $1.2 million, respectively, for the Transition Period.

Stock-based compensation expense included in the Consolidated Statements of Operations for the Transition Period and fiscal 2011 and 2010 is as follows:

			Nine-Month
	Fiscal Year		Transition		Fiscal Year
	Ended		Period Ended		Ended
	December 31,		December 31,		March 31,
	2011		2010(2)		2010(3)
	(in thousands)
Stock-based compensation expense by caption
Selling, marketing and administrative	$	524	$	470	$	2,952
Effect on income (loss) from continuing operations, net of taxes(1)	$	524	$	470	$	2,952
Stock-based compensation expense by type of award:
Stock options	$	69	$	215	$	1,408
Restricted stock awards and restricted stock units		455		255		1,544
Effect on income (loss) from continuing operations, net of taxes(1)	$	524	$	470	$	2,952

(1) The total stock-based compensation, net of taxes, recorded on the Consolidated Statements of Operations and Consolidated Statements of Cash Flows for Transition Period and fiscal 2010, differs from the Consolidated Statements of Stockholders’ Equity as the Consolidated Statements of Stockholders’ Equity includes both continuing and discontinued operations.

(2) The stock-based compensation recorded in the Transition Period excluded the cash compensation expense of $1.2 million paid to employees related to the settlement of unvested stock-based awards in the form of a fixed cash payment.

(3) In fiscal 2010, the Company’s Consolidated Statements of Operations included additional compensation expense related to the accelerated vesting of certain options and shares of restricted stock or extending the period to exercise stock options after termination. Additional compensation expense recorded in fiscal 2010 included $0.9 million related to the modification of stock-based awards in connection with the Separation Agreement of Subramanian Sundaresh, the Company’s former Chief Executive Officer.

Stock-based compensation expense in the above table does not reflect any significant income tax expense, which is consistent with the Company’s treatment of income or loss from its United States operations for tax purposes. For the fiscal 2011, Transition Period and fiscal 2010, there are no income tax benefits realized for the tax deductions from option exercises of the stock-based payment arrangements. In addition, there was no stock-based compensation costs capitalized as part of an asset in the Transition Period and fiscal 2011 and 2010 as the amounts were immaterial.

Valuation Assumptions

The Company used the Black-Scholes option pricing model for determining the estimated fair value for all stock-based awards. The fair value of the stock-based awards granted in the Transition Period and fiscal 2011 and 2010 were estimated using the following weighted-average assumptions:

				Nine-Month
	Fiscal Year			Transition			Fiscal Year
	Ended			Period Ended			Ended
	December 31,			December 31,			March 31,
	2011			2010			2010(1)
Expected life (in years)		4.3			5.5			4.0
Risk-free interest rate		1.5	%		1.7	%		2.2	%
Expected volatility		44	%		44	%		49	%
Dividend yield		-			-			-
Forfeiture rate		40	%		40	%		40	%
Weighted average fair value
Stock options	$	-		$	12.30		$	11.60
Restricted stock	$	28.40		$	28.30		$	28.60

(1) The stock options granted in fiscal 2010 were made primarily during the first half of fiscal 2010, which was prior to the Company’s announcement that it would pursue a potential sale or disposition of certain of its assets or business operations. As a result, the expected term reflects the weighted-average period that the stock options were expected to remain outstanding, which was determined at the time of grant.