Shareholders’ Equity and Share-Based Compensation

Common stock: Our authorized shares of 120,000 consist of 115,000 shares of common stock and 5,000 shares of “undesignated stock.” Our Board of Directors has the power to issue any or all of the shares of undesignated stock, including the authority to establish the rights and preferences of the undesignated stock, without shareholder approval.

Each outstanding share of our common stock includes one common share purchase right. Each right entitles the registered holder to purchase from us one one-tenth of one share of common stock at a price of $100 per common share, subject to adjustment and the terms of the shareholder rights agreement under which the dividend was declared and paid. The rights become exercisable immediately after the earlier of (i) 10 business days following a public announcement that a person or group has acquired beneficial ownership of 15 percent or more of our outstanding common shares (subject to certain exclusions) or (ii) 10 business days following the commencement or announcement of an intention to make a tender offer or exchange offer for our common shares, the consummation of which would result in the beneficial ownership by a person or group of 15 percent or more of our outstanding common shares. The rights expire on November 19, 2018, which date may be extended by our Board subject to certain additional conditions.

Stock incentive plans: During fiscal 2008, we established the 2007 Stock Incentive Plan (“2007 Plan”) and ceased granting options under the 2001 Incentive Stock Option Plan, the 2001 Outside Directors Option Plan (“2001 Plans”), the 1993 Incentive Stock Option Plan, as amended, and the 1993 Outside Directors Option Plan, as amended (“1993 Plans”). The 2007 Plan provides for the issuance of stock-based awards, including stock options, restricted stock, restricted stock units and deferred stock, to employees, directors and consultants. Stock options issued to employees under the plans generally have a 10-year life, an exercise price equal to the fair market value on the grant date and a five-year vesting period. Stock options granted to independent directors under these plans have a seven-year life and an exercise price equal to the fair market value on the date of grant. Stock options granted to independent directors prior to fiscal 2010 vest over three years, and options granted in or after fiscal 2010 vest in one year. The restricted stock granted to independent directors vests in one year, provided that they remain on the Board. Restricted stock units are granted to employees and have a five-year vesting period. As with stock options, restricted stock and restricted stock unit ownership cannot be transferred during the vesting period.

The total number of shares of stock reserved and available for distribution under the 2007 Plan is 4,000 shares. At April 28, 2012, there were 1,415 shares available for grants under the 2007 Plan. As of their date of termination, the total number of shares reserved under

the 2001 Plans and 1993 Plans were 3,200 and 6,080 shares, respectively. Although the 2001 Plans and 1993 Plans remain in effect for options outstanding, no new options can be granted under these plans.

Restricted stock and restricted stock units: We issue restricted stock to our non-employee directors and restricted stock units to employees. In computing compensation expense under ASC 718 for restricted stock awards, we assumed an average annual forfeiture rate of zero percent when calculating the number of shares expected to vest based on the relatively short vesting period and the term of the director. In computing compensation expense for restricted stock units, we assumed a range of forfeiture rates of 7.0 to 7.8 percent when computing the number of shares expected to vest and a dividend yield of approximately 1 percent. Unrecognized compensation expense related to the restricted stock and restrict stock unit awards was approximately $1,908 at April 28, 2012, which is expected to be recognized over a weighted-average period of 3.6 years. The total fair value of restricted stock vested was $511, $288, and $80 for fiscal years 2012, 2011, and 2010, respectively.

A summary of nonvested restricted stock and restricted stock units for the years ended April 28, 2012, April 30, 2011 and May 1, 2010 is as follows:



	Year Ended
	April 28, 2012				April 30, 2011				May 1, 2010
	Number of Nonvested Shares		Weighted Average Grant Date Fair Value Per Share		Number of Nonvested Shares		Weighted Average Grant Date Fair Value Per Share		Number of Nonvested Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of year	181		$	11.07	121		$	8.21	4		$	17.82
Granted	118		8.24		103		13.29		122		8.21
Vested	(49	)	10.51		(35	)	8.24		(4	)	17.82
Forfeited	(8	)	10.85		(8	)	9.17		(1	)	8.20
Outstanding at end of year	242		9.81		181		11.07		121		8.21

Stock Options: We issue incentive stock options to our employees and non-qualified stock options to our independent directors. A summary of stock option activity under all stock option plans during the fiscal year ended April 28, 2012 is as follows:



	Stock Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at April 30, 2011	3,061		$	14.07	5.5	$	3,848
Granted	468		9.18		9.1	—
Canceled or forfeited	(114	)	14.41		—	—
Exercised	(125	)	4.39		—	624
Outstanding at April 28, 2012	3,290		13.73		5.3	463

Shares vested and expected to vest	3,121		13.72		5.3	459
Exercisable at April 28, 2012	2,206		15.31		4.0	437

The aggregate intrinsic value of stock options represents the difference between the exercise price of stock options and the fair market value of the underlying common stock on that day for all in-the-money options. We define in-the-money options at April 28, 2012 as options that had exercise prices that were lower than the $8.46 per share market price of our common stock at that date. There were in-the-money options to purchase 402 shares exercisable at April 28, 2012. The total intrinsic value of options exercised during fiscal years 2012, 2011, and 2010 was $624, $1,945, and $897, respectively. The total fair value of stock options vested was $2,497, $2,628, and $2,783 for fiscal years 2012, 2011, and 2010, respectively.

We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We recognize the fair value of the stock options on a straight-line basis as compensation expense. All options are recognized over the requisite service periods of the awards, which are generally the vesting periods.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. ASC 718 requires us to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. The following factors are the significant assumptions used in the computation of fair value of options:

Expected life. The expected life of options granted represents the period of time that they are expected to be outstanding. We estimate the expected life of options granted based on historical exercise patterns, which we believe are representative of future behavior. We have examined our historical pattern of option exercises in an effort to determine if there were any discernible patterns of activity based on certain demographic characteristics. Demographic characteristics tested included age, salary level, job level and geographic location. We have determined that there were no meaningful differences in option exercise activity based on the demographic characteristics tested.

Expected volatility. We estimate the volatility of our common stock at the date of grant based on historical volatility consistent with ASC 718 and SEC Staff Accounting Bulletin No. 107, Share Based Payments. Our decision to use historical volatility instead of implied volatility was based upon analyzing historical data along with the lack of availability of history of actively traded options on our common stock.

Risk-free interest rate. The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a term similar to the expected life of the options.

Dividend yield. We use an expected dividend yield consistent with our dividend yield over the period of time we have paid dividends.

The following table provides the weighted-average fair value of options granted and the related assumptions used in the Black-Scholes model:



	Year Ended
	April 28, 2012		April 30, 2011		May 1, 2010
Fair Value of options granted	$	3.46	$	5.74	$	3.73
Risk-free interest rate	1.10% - 1.50%		1.40% - 2.30%		2.10% - 2.50%
Expected dividend rate	0.71% - 2.15%		0.67% - 0.68%		0.51% - 0.56%
Expected volatility	44.59% - 46.85%		42.00% - 46.00%		47.00% - 49.00%
Expected life of option	5.9 - 6.8 years		5.9 - 6.7 years		5.1 - 5.5 years

Employee stock purchase plan: We have an employee stock purchase plan (“ESPP”), which enables employees to elect, in advance semi-annually, to contribute up to 15 percent of their compensation, subject to certain limitations, toward the purchase of our common stock at a purchase price equal to 85 percent of the lower of the fair market value of the common stock on the first or last day of the participation period. Compensation expense recognized on shares issued under our ESPP is based on the value of a traded option to purchase shares of our stock at a 15 percent discount to the stock price. The number of shares of common stock issued under the ESPP totaled approximately 160, 205, and 243 shares in fiscal 2012, 2011, and 2010, respectively. The number of shares of common stock reserved for future employee purchases under the ESPP totaled 1,400 shares at April 28, 2012. The total number of shares reserved under the ESPP is 2,500. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code of 1986.

Total share-based compensation expense: As of April 28, 2012, there was $5,357 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted-average period of 3.1 years.

The following table presents a summary of the share-based compensation expense by equity type as follows:



	Year Ended
	April 28, 2012		April 30, 2011		May 1, 2010
Stock options	$	2,565	$	2,671	$	3,090
Restricted stock and stock units	256		256		201
Employee stock purchase plans	441		443		471
	$	3,262	$	3,370	$	3,762

A summary of the share-based compensation expenses for stock options, restricted stock, restricted stock units and shares issued under the ESPP for the fiscal years ended April 28, 2012, April 30, 2011, and May 1, 2010 is as follows:



	Year Ended
	April 28, 2012		April 30, 2011		May 1, 2010
Cost of sales	$	610	$	565	$	532
Selling	982		1,065		1,207
General and administrative	1,059		1,103		1,333
Product design and development	611		637		690
	$	3,262	$	3,370	$	3,762

We received $547 in cash from option exercises under all share-based payment arrangements for the fiscal year ended April 28, 2012. The tax benefit related to non-qualified options and restricted stock units under all share-based payment arrangements totaled $325, $239, and $188 for fiscal years 2012, 2011, and 2010, respectively.