Note 4 - Stock Benefit Plans

12 Months Ended

Dec. 31, 2012

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 and as further amended thereafter (the “2004 Equity Incentive Plan”) and the 2006 Director Plan, as amended. As disclosed in Note 1, all share information has been adjusted to reflect the Reverse/Forward Split.

As of December 31, 2012, 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 0.1 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, 2012, the Company had an aggregate of 0.5 million shares of its common stock reserved for issuance under its 2006 Director Plan, of which 0.1 million shares were subject to outstanding options and other stock-based awards and 0.4 million 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, 2012 and for fiscal years ended December 31, 2012 and 2011, and for the Transition Period is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
	(in thousands, except exercise price and contractual terms)
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
Granted		3		$	13.32
Exercised		-		$	-
Forfeited		(5	)	$	37.60
Expired		(27	)	$	46.16
Outstanding at December 31, 2012		65		$	30.93		7.76	$	-
Options vested and expected to vest at
December 31, 2012		65		$	30.93		7.76	$	-
Options exercisable at:
December 31, 2010		69		$	36.60
December 31, 2011		68		$	33.12
December 31, 2012		46		$	31.98		7.21	$	-

There is no aggregate intrinsic value of options at December 31, 2012 and 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. The following table summarizes the Company’s options outstanding and exercisable at December 31, 2012:

			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)
$25.00	-	$30.00		45		8.56	$	28.67		26	$	28.88
$30.01	-	$35.00		15		6.42	$	32.84		12	$	32.84
$35.01	-	$40.00		-		-	$	-		-	$	-
$40.01	-	$45.00		5		5.19	$	40.72		8	$	40.72
				65						46

As of December 31, 2012, the total unamortized stock-based compensation expense related to non-vested stock options, net of estimated forfeitures, was approximately $0.1 million and this expense is expected to be recognized over a remaining weighted-average period of 1.7 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, 2012, there were 86,041 shares of service-based restricted stock awards and 16,875 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, 2012 and changes during fiscal years 2012 and 2011, and the Transition Period is as follows:

	Shares			Weighted Average Grant Date Fair Value
	(in thousands)
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		$	37.61
Vested		(10	)	$	28.97
Forfeited		-		$	28.39
Non-vested stock at December 31, 2011		15		$	29.40
Awarded		100		$	27.34
Vested		(12	)	$	29.09
Forfeited		-		$	-
Non-vested stock at December 31, 2012		103		$	23.34

All restricted stock units issued prior to December 31, 2011 were awarded at the par value of $0.001 per share (adjusted to $0.01 per share to reflect the Reverse/Forward Split). As of December 31, 2012, the total unamortized stock-based compensation expense related to non-vested restricted stock units that is expected to vest, net of estimated forfeitures, was immaterial.

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 2012 and 2011 is as follows:

	Fiscal Year Ended December 31,				Nine-Month Transition Period Ended December 31,
	2012		2011		2010(2)
	(in thousands)
Stock-based compensation expense by caption
Selling, marketing and administrative	$	1,487	$	524	$	470
Effect on income (loss) from continuing operations, net of taxes(1)	$	1,487	$	524	$	470
Stock-based compensation expense by type of award:
Stock options	$	92	$	69	$	215
Restricted stock awards and restricted stock units		1,395		455		255
Effect on income (loss) from continuing operations, net of taxes(1)	$	1,487	$	524	$	470

(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.

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 2012 and 2011, and the Transition Period, 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 2012 and 2011 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 2012 and 2011 were estimated using the following weighted-average assumptions:

	Fiscal Year Ended December 31,						Nine-Month Transition Period Ended December 31,
	2012			2011			2010
Expected life (in years)		1.1			4.3			5.5
Risk-free interest rate		0.2	%		1.5	%		1.7	%
Expected volatility		58	%		44	%		44	%
Dividend yield		-			-			-
Forfeiture rate		40	%		40	%		40	%
Weighted average fair value
Stock options	$	13.32		$	-		$	12.30
Restricted stock	$	27.34		$	28.40		$	28.30