NOTE

– STOCK-BASED COMPENSATION

Stock Option Awards

In accordance with accounting standards, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost will be recognized over the period in which the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award.

There were

stock options granted during

2015

2017.

All outstanding stock options vested prior to the end of

2013,

and therefore there was

stock option compensation expense in the

first

six

months of

2016

2017.

As of

July 2, 2017,

there were

82,500

stock options outstanding and exercisable, at an average exercise price of

$8.53

per share. There were

5,000

stock options exercised in the

first

six

months of

2017.

There were

forfeitures during the

2017

period. There were

exercises or forfeitures of stock options in the

first

six

months of

2016.

The aggregate intrinsic value of the outstanding and exercisable stock options was

$0.9

million as of

July 2, 2017.

Restricted Stock Awards

During the

six

months ended

July 2, 2017

and

July 3, 2016,

the Company granted restricted stock awards for

244,000

and

266,500

shares of common stock, respectively. Awards of restricted stock (or a portion thereof) vest with respect to each recipient over a

one

three

-year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date. Additionally, certain awards (or a portion thereof) could vest (or vest earlier) upon the attainment of certain performance criteria, in the event of a change in control of the Company, or upon involuntary termination without cause.

Compensation expense related to restricted stock grants was

$1.3

million and

$1.7

million for the

six

months ended

July 2, 2017

and

July 3, 2016,

respectively. Accounting standards require that the Company estimate forfeitures for restricted stock and reduce compensation expense accordingly. The Company has reduced its expense by the assumed forfeiture rate and will evaluate experience against this forfeiture rate going forward.

The following table summarizes restricted stock outstanding as of

July 2, 2017,

as well as activity during the

six

months then ended:

	Restricted Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017		504,500	$	17.05
Granted		244,000		17.87
Vested		261,500		16.53
Forfeited or canceled		3,000		16.70
Outstanding at July 2, 2017		484,000	$	17.75

As of

July 2, 2017,

the unrecognized total compensation cost related to unvested restricted stock was

$5.7

million. That cost is expected to be recognized by the end of

2020.

Performance Share Awards

2017

and

2016,

the Company issued awards of performance shares to certain employees. These awards vest based on the achievement of certain performance-based goals over a performance period of

one

three

years, subject to the employee’s continued employment through the last date of the performance period, and will be settled in shares of our common stock or in cash at the Company’s election. The number of shares that

may

be issued in settlement of the performance shares to the award recipients

may

be greater (up to

200%

) or lesser than the nominal award amount depending on actual performance achieved as compared to the performance targets set forth in the awards.

The following table summarizes the performance shares outstanding as of

July 2, 2017,

as well as the activity during the

six

months then ended:

	Performance Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017		368,500	$	17.20
Granted		352,500		17.79
Vested		28,000		17.22
Forfeited or canceled		16,000		17.22
Outstanding at July 2, 2017		677,000	$	17.51

Compensation expense related to performance shares was

$0.5

million and

$0.6

million for the

six

months ended

July 2, 2017,

and

July 3, 2016,

respectively. Unrecognized compensation expense related to these performance shares was approximately

$8.2

million as of

July 2, 2017.