NOTE 7 – SHARE BASED COMPENSATION

In 2011, we adopted the 2011 Equity Incentive Plan, which provides for the granting of a maximum of 5,780,000 shares. Awards in any form other than options or stock appreciation rights are counted as two shares for every one share actually issued. The 2011 plan permits the grant of incentive or nonqualified stock options, restricted stock awards, performance share awards, and stock appreciation rights. A committee of the Board of Directors (Committee) administers the plan and has the authority to determine the employees to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards. Key employees, including any executive officer or employee-director, and non-employee directors are eligible to receive awards under the plan.

The contractual term and exercise price for stock options granted under the plan are determined by the Committee. However, the contractual term may not exceed 10 years, and the exercise price may not be lower than the fair market value of a share on the date of grant. Options vest over periods determined when granted, generally four years, and are exercisable until the term expires.

Under the 2011 plan, shares subject to restricted stock award may be issued when the award is granted or at a later date. The stock awards are subject to terms determined by the Committee, may have voting rights, and may include specified performance objectives. The sale or transfer of these shares is restricted during the vesting period. Recipients of restricted stock awards generally earn dividends during the vesting period that are paid only if the shares vest.

Total share-based compensation expense by type of award is as follows:

	13 Weeks Ended				26 Weeks Ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

Nonvested stock awards, service based	$	137	$	135	$	249	$	227
Nonvested stock awards, performance based		143		88		242		118
Stock options		415		254		670		512
Total share-based compensation expense		695		477		1,161		857
Income tax benefit		276		189		461		340
Net expense	$	419	$	288	$	700	$	517

Stock Options

The weighted-average fair value of stock options granted in 2011 was estimated at $1.64 per share, using the Black-Scholes option-pricing model. Expense is being amortized on a straight-line basis over a 4-year vesting period. The significant assumptions used to estimate the fair value of options granted are as follows:

Risk-free interest rate		1.4	%
Dividend yield		4.4	%
Expected term	4 years
Expected volatility		79.9	%

A summary of our stock option activity and related information for 2011 is as follows:

	Number			Weighted-Average
	of Shares			Exercise Price
Outstanding at January 2, 2011		2,817,650		$	9.54
Granted		1,506,924			3.38
Exercised		-			-
Forfeited/Canceled		(48,750	)		10.59

Outstanding at July 3, 2011		4,275,824		$	7.36

Exercisable at July 3, 2011		1,720,074		$	11.88

Performance-Based Stock Awards

During the second quarter of 2011, the Company awarded 472,575 shares of performance-based restricted stock. The performance-based stock awards will vest only upon the achievement of specific measurable performance criteria, and continued employment for two additional years. Twenty-five percent of the shares will vest upon the achievement of specific performance goals by the Company for 2011. The remaining shares will vest as follows: 25% in April 2012 and 50% in April 2013. These shares have voting rights and accrue dividends during the performance period which will be paid if the shares vest.

The performance goals allow partial vesting if a minimum level of performance is attained. If the minimum level of performance is not attained by the end of 2011, these stock awards will be forfeited and canceled, and all expense recognized to date will be reversed. The amount of shares that ultimately vest could range from 50% to 150% of the initial shares granted. Additional shares will be granted upon performance above the target level.

The fair value of the performance-based stock awards was based on the closing market price of our common stock on the date of award. Expense for performance-based awards with graded vesting is recognized under the accelerated recognition method, whereby each vesting is treated as a separate award with expense for each vesting recognized ratably over the requisite service period. We recognize compensation expense for awards subject to performance criteria when it is probable that the performance goal will be achieved. Compensation expense is being recognized for the total amount of performance-based shares expected to vest and is subject to adjustment based on the actual level of achievement of the performance goal.

For performance shares issued in 2010, the performance goals allowed partial vesting if a minimum level of performance was attained in 2010. Based on the level of performance achieved, 163,574 shares were earned and 76,979 shares were forfeited and canceled in 2011.

A summary of our performance-based stock award activity and related information for 2011 is as follows:

				Weighted-
	Number			Average
	of			Grant Date
	Shares			Fair Value

Nonvested at January 2, 2011		240,550		$	5.82
Granted		472,575			3.39
Vested		(40,898	)		5.82
Forfeited/Canceled		(76,979	)		5.82

Nonvested at July 3, 2011		595,248		$	3.89

Service-Based Stock Awards

The fair value of the service-based stock awards granted in 2011 was based on the closing market price of our common stock on the date of award and is being amortized to expense on a straight-line basis over a vesting period of 4 years. A summary of our service-based stock award activity and related information for 2011 is as follows:

	Number			Weighted-Average
	of Shares			Fair Value

Nonvested at January 2, 2011		198,556		$	5.66
Granted		153,400			3.39
Vested		(66,441	)		6.56
Forfeited/Canceled		(125	)		13.07

Nonvested at July 3, 2011		285,390		$	4.23