Note 9 - Common Stock

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note Disclosure [Text Block]

9.  COMMON STOCK

2004 Long-Term Stock Incentive Plan:  The Interphase Corporation Amended and Restated Stock Option Plan and the Interphase Corporation Directors Stock Option Plan were collectively amended and restated as the “Interphase Corporation 2004 Long-Term Stock Incentive Plan,” effective May 5, 2004.  Options granted under the separate plans prior to the effective date of the amended and restated plan are subject to the terms and conditions of the separate plans in effect with respect to such options prior to the effective date, and awards granted after the effective date are subject to the terms and conditions of the 2004 Long-Term Stock Incentive Plan.  Awards granted under this plan may be (a) incentive stock options, (b) non-qualified stock options, (c) bonus stock awards, (d) stock appreciation rights, (e) performance share awards and performance unit awards, (f) phantom stock awards, and (g) any other type of award established by the Compensation Committee which is consistent with the Plan’s purposes, as designated at the time of grant.  The total amount of Common Stock with respect to which awards may be granted under the Plan is 5,250,000 shares.  The Company issues new shares upon exercise of stock options.

Amended and Restated Stock Option Plan:  The exercise price of incentive stock options must be at least equal to the fair market value of the Company’s common stock on the date of the grant, while the exercise price of nonqualified stock options may be less than fair market value on the date of grant, as determined by the Board of Directors.  The Board of Directors may provide for the exercise of options in installments and upon such terms, conditions and restrictions as it may determine.  Options generally vest ratably over a three-year or four-year period from the date of grant.  The term of option grants may be up to ten years.  Options are canceled upon the lapse of three months, in most cases, following termination of employment except in the event of death or disability, as defined.

France Stock Option Sub-Plan:  This plan was adopted in 2000 for the benefit of the Company’s former employees located in France.  This plan authorizes the issuance of options to purchase common stock of the Company at prices at least equal to the fair market value of the common stock on the date of the grant.  Unless otherwise decided at the sole discretion of the Board, the options vest (i) 75% after the expiration of a two-year period from the date of grant and (ii) 25% after the expiration of a three-year period from the date of grant.  Except for the events provided under the French tax code, the shares cannot be sold or otherwise disposed of for a period of four years from the date of grant.  The term of option grants may be up to ten years.  Options are canceled upon the lapse of three months following termination of employment except in the event of death or disability, as defined.

Amended and Restated Director Stock Option Plan:  Stock option grants pursuant to the directors’ plan vest over a period of one to three years and have a term of ten years.  The exercise prices related to these options are equal to the market value of the Company’s stock on the date of grant.

Stock Options:  During 2012, the Company issued 194,500 stock options that vest over a one to four year period and expire ten years from date of grant.  The weighted average exercise price of these stock options is $4.56.  During 2011, the Company issued 219,500 stock options that vest over a one to four year period and expire ten years from date of grant.  The weighted average exercise price of these stock options is $2.05.  Compensation expense related to these stock options was $392,000, $162,000 and $39,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

During 2012, the Company also issued 900,500 stock options with performance-based vesting conditions for the years ending December 31, 2012, 2013, 2014, 2015, and 2016, the achievement of which would result in pro rata vesting per year in February 2013, 2014, 2015, 2016, and 2017, respectively.  The weighted average exercise price of these stock options is $3.80.  During 2011, the Company issued 150,500 stock options with performance-based conditions through the year ended December 31, 2015, the achievement of which would result in vesting in February 2016.  The weighted average exercise price of these stock options is $4.32.  During 2010, the Company issued 171,000 stock options with performance-based conditions through the year end December 31, 2014, the achievement of which would result in vesting in February 2015.  The weighted average exercise price of these stock options is $1.66.  All stock options with performance-based conditions expire ten years from the date of grant.  Of the stock options outstanding at December 31, 2012, approximately 1,091,000 are subject to the achievement of certain performance conditions.  The performance conditions related to approximately 48,000 of these stock options were deemed probable as of December 31, 2012.  Compensation expense related to performance-based stock options, for which vesting was deemed probable, was $147,000 and $9,000 for the years ended December 31, 2012 and 2011, respectively.  The performance conditions related to the remaining stock options were not deemed probable at December 31, 2012; therefore, no compensation expense related to these options has been recorded in 2012.  The Company did not recognize any compensation expense related to performance-based stock options during 2010 as the performance conditions were not deemed probable.

The following table summarizes the combined stock option activity under all of the plans (in thousands, except option prices):

	Number of Options				Weighted Average Option Price	Aggregate Intrinsic Value
Balance, December 31, 2009		1,450		$	8.16	$ -
Granted		443			1.71
Exercised		-			N/A
Canceled		(423)			12.42
Balance, December 31, 2010		1,470			5.00	-
Granted		370			2.98
Exercised		(107	)		4.92
Canceled		(401	)		5.77
Balance, December 31, 2011		1,332			4.21		1,724
Granted		1,095			3.94
Exercised		(176	)		4.71
Canceled		(198	)		3.79
Balance, December 31, 2012		2,053			4.06		448
Exercisable at December 31, 2012		544		$	5.75	$	167

The following table summarizes information about options granted under the plans that were outstanding at December 31, 2012 (in thousands, except option prices):

				Options Outstanding						Options Exercisable
Range of Exercise Prices				Number Outstanding at 12/31/12		Weighted-Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number Exercisable at 12/31/12		Weighted Average Exercise Price
	$1.36	-	$4.18		1,135		8.88	$	2.45		189	$	1.71
	$4.19	-	$8.35		773		6.87		5.15		210		5.83
	$8.36	-	$11.45		145		1.23		10.89		145		10.89
Total					2,053		7.58	$	4.06		544	$	5.75

Option Valuation:  The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with weighted-average assumptions based on the grant date.

	2012			2011			2010
Weighted average risk free interest rates		1.83	%		3.01	%		2.84	%
Weighted average life (in years)		10			10			10
Volatility		66.10	%		64.81	%		63.37	%
Expected dividend yield		-			-			-
Weighted average grant-date fair value per share of options granted		$2.87			$2.20			$1.24

Restricted Stock:  The Interphase Corporation 2004 Long-Term Stock Incentive Plan provides for grants of bonus stock awards (“restricted stock”) to its directors and certain employees at no cost to the recipient.  Holders of restricted stock are entitled to cash dividends, if any, and to vote their respective shares.  Restrictions limit the sale or transfer of these shares during a predefined vesting period, currently ranging from three to six years, and in some cases vesting is subject to the achievement of certain performance conditions. During 2012, the Company issued 9,000 restricted stock shares at a market price of $5.72.  During 2011, the Company issued 72,000 restricted stock shares at a market price of $4.41.  There were no shares of restricted stock issued during 2010.  Upon issuance of restricted stock under the plan, unearned compensation equivalent to the market value at the date of grant is recorded as a reduction to shareholders’ equity and subsequently amortized to expense over the respective restriction periods.  Compensation expense related to restricted stock was $135,000, $188,000 and $285,000 for the years ended December 31, 2012, 2011 and 2010, respectively.  As of December 31, 2012, there was $261,000 of total unamortized compensation cost related to unvested restricted stock remaining to be recognized. The expense is expected to be recognized over a weighted-average period of 2.1 years.  As of December 31, 2011, there was $479,000 of total unamortized compensation cost related to unvested restricted stock which was expected to be recognized over a weighted-average period of 3.0 years.

The following summarizes the restricted stock activity for 2012 and 2011 (in thousands, except weighted average grant date value):

	Restricted Stock Shares			Weighted Average Grant Date Value
Nonvested restricted stock at December 31, 2010		319		$	2.52
Granted		72			4.41
Vested		(65	)		4.63
Cancelled/Forfeited		(100	)		2.17
Nonvested restricted stock at December 31, 2011		226			2.67
Granted		9			5.72
Vested		(49	)		3.35
Cancelled/Forfeited		(74	)		1.82
Nonvested restricted stock at December 31, 2012		112		$	3.17

Shareholder Rights Plan:  The Board of Directors adopted a Shareholder Rights Plan (the “Plan”) and, under the Plan, declared a non-taxable dividend, paid at the close of business on August 9, 2011 (the “Record Date”), of one common share purchase right (a “Right”) for each outstanding share of Common Stock.  From the Record Date until the Rights become exercisable, the Rights will be attached to all outstanding shares of Common Stock and, therefore, will be represented by the certificates evidencing the shares of Common Stock and transferrable only with the shares of Common Stock.  A Right will be exercisable, upon certain conditions, to purchase one share of Common Stock from the Company at a price of $39, subject to adjustment.  The Rights will become exercisable, and separate from the shares of Common Stock, upon the earlier of:

(1) ten business days following the date of the first public announcement (the “Stock Acquisition Date”) that a person or a group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock (an “Acquiring Person”), or

(2) ten business days (or such later date as the Board of Directors may determine) following the commencement of a tender or exchange offer that, if consummated, would result in a person or group of persons becoming an Acquiring Person.

Upon a Stock Acquisition Date, each holder of a Right (other than an Acquiring Person) will be entitled to receive, upon exercise of the Right, shares of Common Stock at a 50% discount.  Also, if, at any time following a Stock Acquisition Date, the Company is acquired in a merger or business combination and its Common Stock is exchanged or converted, or if 50% or more of the Company’s assets, cash flow or earning power is sold or transferred, then each holder of a Right (other than an Acquiring Person) will be entitled to receive, upon exercise of the Right, shares of the acquirer’s common stock at a 50% discount.  Further, at any time after a person or group of persons becomes an Acquiring Person, but before any person or group of persons becomes the beneficial owner of 50% or more of the outstanding shares of Common Stock, the Company may cause each exercisable Right to be exchanged for one share of Common Stock.  The Rights will expire at the close of business on July 29, 2021, or such other date as the Board of Directors may determine under certain circumstances.  The Board of Directors may terminate the Plan or cause the Company to redeem the Rights, at a price of $0.001 per Right, at any time before the earlier of a Stock Acquisition Date or the expiration of the Rights.  The Company has reserved 90,315,210 shares of Common Stock for possible issuance upon exercise of Rights under the Plan.