Note H - Stock Options and Benefit Plans

Under the Company's Amended and Restated 2004 Equity Incentive Plan, directors, officers and key employees of the Company may be granted options to purchase shares of the Company's common stock. Options to purchase the Company's common stock also remain outstanding under the Company's 1994 Employee Stock Incentive Plan, although the Company no longer has the ability to issue additional awards under this plan.

Share-based compensation expense totaling $358,000, $430,000, and $378,000 was recognized for 2011, 2010, and 2009, respectively.

At January 1, 2012, the Company had $792,000 of unrecognized compensation cost related to share-based payments which is expected to be recognized over a weighted-average period of approximately 3.0 years.

The Company uses the Black-Scholes option pricing model to estimate the fair value of share-based awards and used the following weighted-average assumptions for the indicated periods:


					Years Ended
		January 1			January 2			January 3
		2012			2011			2010
Dividend yield		0	%		0	%		0	%
Volatility factor (historical)		.5341			.5161			.5118
Risk-free interest rate		1.03	%		1.17	%		2.11	%
Expected life of options (in years)		4.8			4.8			4.8
Weighted-average grant date fair value	$	2.50		$	1.97		$	1.86

The expected life of stock options granted during all periods presented was calculated in accordance with the simplified method described in SEC Staff Accounting Bulletin ("SAB") Topic 14.D.2 in accordance with SAB 110. This approach was utilized due to the significant fluctuations in the Company's stock price during the relevant periods.

A summary of stock options under the Company's option plans is as follows:


									Weighted
									Average
									Exercise
Options	Shares			Option Prices					Price
Outstanding at December 28, 2008	1,036,450		$	2.24	-	$	15.00	$	8.62
Issued	235,000			4.10	-		4.69		4.12
Exercised	0			0	-		0		0
Expired or canceled	(210,200	)		2.24	-		8.22		4.41
Outstanding at January 3, 2010	1,061,250			2.24	-		15.00		8.46
Issued	54,500			4.09	-		4.59		4.44
Exercised	(30,000	)		2.25	-		3.88		2.85
Expired or canceled	(254,250	)		3.44	-		15.00		13.19
Outstanding at January 2, 2011	831,500			2.24	-		15.00		6.95
Issued	223,000			5.50	-		5.50		5.50
Exercised	(29,875	)		2.24	-		4.25		2.46
Expired or canceled	(9,000	)		4.09	-		13.33		8.16
Outstanding at January 1, 2012	1,015,625		$	3.15	-	$	15.00	$	6.75

Stock options exercisable and shares available for future grant are as follows:


	January 1	January 2	January 3
	2012	2011	2010
Stock options exercisable	603,563	437,125	542,625
Shares available for grant	16,119	230,119	31,369

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between the Company's closing stock price and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options. This amount changes based on the fair market value of the Company's stock and totaled $830,000 and $420,000 at January 1, 2012, and January 2, 2011, respectively. The total intrinsic value of options exercised was $91,000 and $65,000 for 2011 and 2010, respectively. No options were exercised in 2009. The Company had non-cash

transactions involving options which were exercised under net-share settlements totaling $13,000 and $50,000 in 2011 and 2010, respectively.

The following table summarizes the Company's non-vested stock option activity for the year ended January 1, 2012:


				Weighted
				Average
	Number of			Grant-Date
	Shares			Fair Value
Non-vested stock options at January 2, 2011	394,375		$	2.41
Granted	223,000		$	2.50
Vested	(204,313	)	$	2.90
Forfeited	(1,000	)	$	1.89
Non-vested stock options at January 1, 2012	412,062		$	2.22

The following table summarizes information about the Company's stock options outstanding at January 1, 2012:


			Options Outstanding				Options Exercisable
				Weighted				Weighted
			Number	Average		Weighted	Number	Average		Weighted
			Outstanding at	Remaining		Average	Exercisable	Remaining		Average
	Range of		January 1	Contractual		Exercise	at January 1	Contractual		Exercise
	Exercise Prices		2012	Life		Price	2012	Life		Price
$	3.15 - $ 6.10		632,625	5.3 years	$	4.94	220,563	4.3 years	$	4.68
	7.61 -	9.50	296,500	3.9 years		8.49	296,500	3.9 years		8.49
	13.09 -	15.00	86,500	2.5 years		14.07	86,500	2.5 years		14.07
$	3.15 - $15.00		1,015,625	4.6 years	$	6.75	603,563	3.8 years	$	7.90

Stock options exercisable at January 2, 2011 and January 3, 2010 had weighted average exercise prices of $7.05 and $9.08, respectively.

The Company has an Employee Stock Purchase Plan under which 75,547 shares of the Company's common stock are available for issuance. No shares have been issued under the plan since 1997.

The Company has Salary Continuation Agreements which provide retirement and death benefits to executive officers and certain other members of management. The expense recognized under these agreements was $622,000, $493,000, and $498,000 in 2011, 2010, and 2009, respectively.

The Company has a Savings Incentive and Salary Deferral Plan under Section 401(k) of the Internal Revenue Code which allows qualifying employees to defer a portion of their income on a pre-tax basis through contributions to the plan. All Company employees with at least 1,000 hours of service during the twelve month period subsequent to their hire date, or any calendar year thereafter, and who are at least 21 years of age are eligible to participate. For each dollar of participant contributions, up to 3% of each participant's salary, the Company makes a minimum 25% matching contribution to the plan. The Company's matching contributions totaled $69,000, $64,000, and $69,000 for fiscal years 2011, 2010, and 2009, respectively.

The Company also has a non-qualified deferred compensation plan under which executive officers and certain senior managers may defer receipt of their compensation, including up to 25% of applicable salaries and bonuses, and be credited with Company contributions under the same matching formula and limitations as the Company's Savings Incentive and Salary Deferral Plan. Amounts that are deferred under this plan, and any Company matching contributions, are increased by earnings and decreased by losses based on the performance of one or more investment measurement funds elected by the participants from a group of funds which the plan administrator has determined to make available for this purpose. Participant account balances totaled $110,000 and $103,000 at January 1, 2012 and January 2, 2011, respectively.