SHAREHOLDERS' EQUITY/ CAPITAL STOCK

The Company has three equity compensation plans adopted respectively in 1993, 2003 and 2012.

2003 and 2012 Stock Option and Incentive Plans

Shareholders approved the 2012 Stock Option and Incentive Plan (2012 Plan) in October 2012. The 2012 Plan made material, substantive changes to the 2003 Stock Option and Incentive Plan (as amended) (collectively the 2003 Plan), as reflected in the 2012 Plan.

Under the 2003 Plan, up to 800,000 shares were originally authorized for awards. Shareholder approval of the 2012 Plan canceled 483,410 shares that remained available to be awarded under the 2003 Plan. The authorization under the 2012 Plan has been set at 500,000 shares that may awarded (subject, however, to proportionate and equitable adjustments determined by the Compensation Committee of the Board of Directors (the Committee) as deemed necessary following the event of any equity restructuring that may occur). The 2003 Plan limited the amount that can be awarded to an individual during a fiscal year to 80,000 shares. The 2012 Plan reduced the annual limit to 50,000 shares, but retained the maximum annual dollar limit of $1,000,000 for awards denominated in dollars, granted to any one individual during any fiscal year if the awards are intended to qualify as performance based compensation. No awards were permitted to be granted under the 2003 Plan after the tenth anniversary of its approval (October 6, 2013). The 2012 Plan will remain in effect until all shares subject to the Plan have been awarded or issued according to the Plan's provisions, unless terminated earlier by the Board of Directors.

All other provisions of the 2012 Plan mirror those of the 2003 Plan, including continuance to provide for several forms of awards including stock options, stock appreciation rights, stock awards including restricted and unrestricted awards of stock, and performance awards. Employees of the Company and non-employee members of the Board of Directors are eligible to be selected to participate in the 2012 Plan. Participation is based on selection by the Committee. Although there is no limitation on the number of participants, approximately 40 persons have historically participated in the Company's stock option and incentive plans.

Options to purchase shares of the Company’s common stock (stock options) permit the holder to purchase a fixed number of shares at a fixed price. When options are granted, the Committee determines the number of shares subject to the option, the term of the option, which may not exceed 10 years, the time or times when the option will become exercisable and the price per share that a participant must pay to exercise the option. No option will be granted with an exercise price that is less than 100% percent of fair market value on the date of the grant. The option price and obligatory withholding taxes may be paid pursuant to a “cashless” exercise/sale procedure involving the simultaneous sale by a broker of shares covered by the option.

Stock appreciation rights (SAR’s) are rights to receive payment, in cash, shares of common stock or a combination of the two, equal to the excess of (1) the fair market value of a share of common stock on the date of exercise over (2) the price per share of common stock established in connection with the grant of the SAR (the reference price). The reference price must be at least 100% percent of the common stock’s fair market value on the date the SAR is granted. SAR’s may be granted by the Committee in its discretion to any participant, and may have terms no longer than 10 years.

Stock awards are grants of shares of common stock that may be restricted (subject to a holding period or other conditions) or unrestricted. The Committee determines the amounts, vesting, if any, terms and conditions of the awards, including the price to be paid, if any, for restricted awards and any contingencies related to the attainment of specified performance goals or continued employment or service.

The Committee may also grant performance awards to participants. Performance awards are the right to receive cash, common stock or both, at the end of a specified performance period, subject to satisfaction of the performance criteria and any vesting conditions established for the award.

Restricted Stock Awards under the 2012 Plan

On October 3, 2012, each non-employee member of the Board of Directors was granted a restricted stock award under the 2012 Plan equivalent to $40,000 in shares of the Company's common stock. The aggregate award amounted to 14,245 shares granted, which resulted in 2,035 shares being issued to each non-employee director, based on the October 3, 2012 market value of the Company's stock. Pursuant to the terms of his employment contract, on October 3, 2012, the CEO was granted a restricted stock award in the same amount (2,035 shares) and subject to the same conditions as the restricted stock granted to non-employee director on that same day.

These restricted stock awards were re-issued from the Company’s treasury and vest in full on the first anniversary of the grant date. Full voting and dividend rights are provided prior to vesting. Vested shares must be held until board service ends, except that enough shares may be sold to satisfy tax obligations attributable to the grant.

No other awards — stock options, stock appreciation rights, stock awards including unrestricted awards of stock, or performance awards — have been granted under the 2012 Plan.

Unrestricted Stock Awards under the 2003 Plan

On June 13, 2012, the Committee granted unrestricted stock awards to the executive officers (excluding the CEO) and other key employees. Pursuant to the awards, 4,850 shares of the Company's common stock were re-issued from the Company's treasury. The total value of the awards amounted to $127,000, for which the Company recorded a pretax charge against administrative and advertising expense in the consolidated statement of earnings during the 16 week period ended September 18, 2012. In connection with the awards, 1,349 shares were immediately surrendered to the Company's treasury to cover the withholding tax obligation on the compensation.

On June 15, 2011, the Committee granted an unrestricted stock award to the CEO. Pursuant to the award, 17,364 shares of the Company’s common stock were re-issued to the CEO from the Company’s treasury. The total value of the award amounted to $371,000, for which the Company recorded a pretax charge against administrative and advertising expense in the consolidated statement of earnings during the 16 week period ended September 20, 2011. In connection with the award, the CEO immediately surrendered 7,998 shares to the Company’s treasury to cover the withholding tax obligation on the compensation. Also on June 15, 2011, an option to purchase 40,000 shares of the Company’s common stock that belonged to the CEO was terminated. The option was originally granted to the CEO on July 11, 2001 at a strike price of $13.70 per share (see 1993 Stock Option Plan described elsewhere in NOTE F — SHAREHOLDERS' EQUITY/ CAPITAL STOCK).

Restricted Stock Awards under the 2003 Plan

Each non-employee member of the Board of Directors was granted a restricted stock award on October 5, 2011 equivalent to $40,000 in shares of the Company’s common stock. The aggregate award amounted to 14,560 shares granted, which resulted in 2,080 shares being issued to each non-employee director, based upon the October 5, 2011 market value of the Company’s common stock. Pursuant to the terms of his employment contract, the CEO was granted a restricted stock award on October 5, 2011 in the same amount (2,080 shares) and subject to the same conditions as the restricted stock granted to non-employee directors on that day. In connection with these awards, certain members of the Board of Directors surrendered a total of 1,456 shares to the Company's treasury on the October 5, 2012 vesting date to satisfy their tax obligations.

On June 15, 2011, the Committee granted restricted stock awards to the executive officers (excluding the CEO) and other key employees. Pursuant to the awards, 7,141 shares were re-issued from the Company's treasury. The aggregate award amounted to $150,000, based on the June 15, 2011 market value of the Company's stock. In connection with these awards, a total of 1,342 shares were surrendered to the Company's treasury on the June 15, 2012 vesting date to cover withholding tax obligations.

All restricted stock awards under the 2003 Plan were re-issued from the Company’s treasury and vested in full on the first anniversary of the grant date. Full voting and dividend rights were provided prior to vesting. Vested shares must be held until board service or employment ends, except that enough shares may be sold to satisfy tax obligations attributable to the grant.

Performance Awards under the 2003 Plan

Under the CEO's three year employment agreement that was effective May 30, 2012 (the first day of Fiscal Year 2013), the Committee will consider the CEO for the grant of a Performance Award as permitted by the 2003 Plan. The Committee granted a Performance Award to the CEO on May 30, 2012, which is intended to govern the CEO's incentive compensation for Fiscal Year 2013, if any, based on the achievement of certain goals.

Stock Option Awards under the 2003 Plan

As of September 18, 2012, options to purchase 333,250 shares had been cumulatively granted under the Plan. No stock options were awarded during the 16 week period ended September 18, 2012. Options granted to the CEO before October 2009 vested six months from the date of the grant. Options granted to the CEO pursuant to the terms of his employment contract (October 2009 and October 2010) vested one year from the date of the grant. Options granted to executive officers and other key employees vested in three equal annual installments. Options granted to non-employee members of the Board of Directors vested one year from the date of grant. The Committee may, in its sole discretion, accelerate the vesting of all or any part of any awards held by a terminated participant, excluding, however, any participant who is terminated for cause.

There were 68,169 options outstanding as of September 18, 2012.

Final Reconciliation of Shares Awarded under the 2003 Plan



	No. of shares
Original authorization	800,000
Stock options cumulatively granted	(333,250	)
Options cumulatively forfeited	74,253
	541,003
Unrestricted stock awarded	(22,214	)
Restricted stock cumulatively awarded	(35,817	)
Restricted stock cumulatively forfeited	438
Authorization canceled	483,410

1993 Stock Option Plan

Approved by the shareholders in October 1993, the 1993 Stock Option Plan (1993 Plan) authorized the grant of stock options for up to 562,432 shares (as adjusted for subsequent changes in capitalization from the original authorization of 500,000 shares) of the common stock of the Company for a 10 year period beginning in May 1994.

Options to purchase 556,228 shares were cumulatively granted under the 1993 Plan before granting authority expired on October 4, 2008. As of September 18, 2012, 7,834 shares granted remained outstanding. An outstanding option for 40,000 shares that was granted to the CEO in 2001 was terminated on June 15, 2011 (see Unrestricted Stock Awards under the 2003 Plan described elsewhere in NOTE F — SHAREHOLDERS' EQUITY/ CAPITAL STOCK). Outstanding options that had been set to expire in June 2012 (13,000) and July 2012 (40,000 belonging to the CEO) were extended by the Committee for up to 30 days from the date that the restriction on employee trading (blackout period) was removed. The extension required a pretax charge of less than $1,000 to be recognized in administrative and advertising expense in the consolidated statement of earnings during the 16 week period ended September 18, 2012.

The extension by the Committee notwithstanding, all outstanding options under the 1993 Plan were granted at fair market value and expire 10 years from the date of grant. Final expirations will occur in June 2014.

Outstanding and Exercisable Options

The changes in outstanding and exercisable options under both the 1993 Plan and the 2003 Plan are shown below as of September 18, 2012:



	No. of shares		Weighted avg. price per share		Weighted avg. Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding at beginning of year	399,586		$	23.96
Granted	—		$	—
Exercised	(320,417	)	$	23.31
Forfeited or expired	(3,166	)	$	22.94
Outstanding at end of quarter	76,003		$	18.25	4.91	years	$	306
Exercisable at end of quarter	67,834		$	19.11	4.57	years	$	222

The intrinsic value of stock options exercised during the 16 weeks ended September 18, 2012 and September 20, 2011 was $2,779,000 and $16,000, respectively. Options exercised during the 16 weeks ended September 18, 2012 included 136,000 by the CEO, the intrinsic value of which amounted to $1,278,000. Excess tax benefits of $324,000 were recorded in additional paid in capital from the exercise of stock options during the 16 weeks ended September 18, 2012. All shares exercised during the 16 weeks ended September 18, 2012 were re-issued from the Company's treasury.

Stock options outstanding and exercisable as of September 18, 2012 for the 1993 Plan and the 2003 Plan are shown below:



Range of Exercise Prices per Share	No. of shares	Weighted average price per share		Weighted average remaining life in years
Outstanding:
$10.05 to $15.90	27,669	$	13.19	4.95
$15.91 to $24.20	41,500	$	19.66	5.41
$24.21 to $30.13	6,834	$	30.13	1.75
$10.05 to $30.13	76,003	$	18.25	4.91
Exercisable:
$10.05 to $15.90	19,500	$	14.08	3.78
$15.91 to $24.20	41,500	$	19.66	5.41
$24.21 to $30.13	6,834	$	30.13	1.75
$10.05 to $30.13	67,834	$	19.11	4.57

As a result of a change in the capitalization of the Company resulting from a special $9.50 per share dividend (see Dividends described elsewhere in NOTE F — SHAREHOLDERS' EQUITY/ CAPITAL STOCK), the Compensation Committee of the Board of Directors took action on August 22, 2012 to adjust downward the strike prices for outstanding options granted under the 2003 Plan (as provided for in the 2003 Plan) by $9.50 for each option, effective September 17, 2012. Outstanding options granted under the 1993 Plan were not affected by this action, as the 1993 Plan does not require or provide for such an action. No additional compensation cost was required to be recognized as a result of the modification.

Restricted Stock Awards

The changes in restricted stock awards are shown below as of September 18, 2012:



	No. of shares		Weighted average price per share
Non-vested at beginning of year	22,277		$	19.69
Awarded	—		$	—
Vested	(5,637	)	$	21.05
Forfeited	—		$	—
Non-vested at end of quarter	16,640		$	19.23

Employee Stock Purchase Plan

Shareholders approved the Employee Stock Option Plan (elsewhere referred to as Employee Stock Purchase Plan) in October 1998. The Plan provides employees who have completed 90 days of continuous service with an opportunity to purchase shares of the Company’s common stock through payroll deduction. Immediately following the end of each semi-annual offering period, participant account balances are used to purchase shares of stock measured at 85% percent of the fair market value of shares at the beginning of the offering period or at the end of the offering period, whichever is lower. The Plan authorizes a maximum of 1,000,000 shares that may be purchased on the open market or from the Company’s treasury. As of April 30, 2012 (latest available data), 169,822 shares had been cumulatively purchased through the Plan. Shares purchased through the Plan are held by the Plan’s custodian until withdrawn or distributed. As of April 30, 2012, the custodian held 42,808 shares on behalf of employees.

Frisch’s Executive Savings Plan

Common shares totaling 58,492 (as adjusted for subsequent changes in capitalization from the original authorization of 50,000 shares) were reserved for issuance under the non-qualified Frisch’s Executive Savings Plan (FESP) (see Benefit Plans in NOTE A — ACCOUNTING POLICIES) when it was established in 1993. As of September 18, 2012, 38,553 shares remained in the FESP reserve, including 19,722 shares allocated but not issued to participants.

Other Outstanding Options, Warrants or Rights

There are no other outstanding options, warrants or rights.

Treasury Stock

As of September 18, 2012, the Company’s treasury held 2,538,053 shares of the Company’s common stock. Most of the shares were acquired through a modified “Dutch Auction” self-tender offer in 1997, and in a series of intermittent repurchase programs that began in 1998.

On July 25, 2012, the Board of Directors authorized the Company to purchase over a three year period, on the open market and in privately negotiated transactions, up to 450,000 shares of its common stock representing approximately 9% percent of the Company's total outstanding shares. During the 16 week period ended September 18, 2012, the Company acquired 212,929 shares under the program at a cost of $6,708,000, which includes 32,000 shares that were beneficially owned by the Chief Executive Officer and 180,929 shares re-acquired in connection with the exercise of "cashless" stock options that normally settle through a broker on the open market.

Separate from the repurchase program, the Company’s treasury acquired 2,691 shares of its common stock during the 16 week period ended September 18, 2012 at a cost of $72,000 to cover the withholding tax obligations in connection with restricted and unrestricted stock awards.

Dividends

Regular quarterly cash dividends paid to shareholders during the 16 week period ended September 18, 2012 amounted to $791,000 or $0.16 per share. In addition, a $0.16 per share dividend was declared on September 12, 2012. Its payment of $808,000 on October 9, 2012 (included in accounts payable at September 18, 2012) was the 207th consecutive quarterly cash dividend (a period of 52 years) paid by the Company.

On July 25, 2012, the Board of Directors declared a special one-time cash dividend of $9.50 per share payable September 14, 2012 to shareholders of record on August 31, 2012. The total for the special dividend that was paid on September 14, 2012 amounted to $47,963,000, which was based on 5,048,711 shares outstanding on August 31, 2012.

Earnings Per Share

Basic earnings per share (EPS) calculations are based on the weighted average number of outstanding common shares during the period presented. Diluted EPS includes the effect of common stock equivalents, which assumes the exercise and conversion of dilutive stock options.



	Used to Calculate Basic EPS	Stock equivalents	Used to Calculate Diluted EPS
16 weeks ended:	Weighted average shares outstanding	Stock equivalents	Weighted average shares outstanding

September 18, 2012	4,961,555	55,717	5,017,272
September 20, 2011	4,928,671	13,168	4,941,839

Excluded from the calculations above (because the effect was anti-dilutive), were stock options to purchase 7,000 shares during the 16 week period ended September 18, 2012 and 253,000 during the 16 week period ended September 20, 2011.

Share-Based Payment (Compensation Cost)

The fair value of restricted stock issued and stock options granted is recognized as compensation cost on a straight-line basis over the vesting periods of the awards. The fair value of unrestricted stock is recognized entirely during the period granted. Compensation costs arising from all share-based payments are charged to administrative and advertising expense in the consolidated statement of earnings.



	16 weeks ended
	September 18, 2012			September 20, 2011

Stock options granted	$	14		$	50
Restricted stock issued	98			129
Unrestricted stock issued	127			371
Share-based compensation cost, pretax	239			550
Tax benefit	(81		)	(187		)
Share-based compensation cost, net of tax	$	158		$	363
Effect on basic earnings per share	$	0.03		$	0.07
Effect on diluted earnings per share	$	0.03		$	0.07

As of September 18, 2012, there was $41,000 of total unrecognized pretax compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of 0.5 years. Unrecognized pretax compensation cost related to restricted stock awards amounted to $26,000 as of September 18, 2012, which is expected to be recognized over a weighted average period of 0.08 years.

Compensation cost is also recognized in connection with the Company’s Employee Stock Purchase Plan (described elsewhere in NOTE F — SHAREHOLDERS' EQUITY/ CAPITAL STOCK). Compensation costs related to the Employee Stock Purchase Plan are determined at the end of each semi-annual offering period – October 31 and April 30.