NOTE 9 — STOCK-BASED COMPENSATION PLANS

At our annual meeting of stockholders on October 30, 2008, our stockholders approved a new equity incentive plan (the “2008 Equity Incentive Plan”) pursuant to which awards of options and stock-based awards may be made to members of the Board of Directors, employees and other individuals providing services to the Company. A total of 1,000,000 shares of Common Stock are authorized for grants of awards under the 2008 Equity Incentive Plan, which may be in the form of options, restricted stock, restricted stock units, stock appreciation rights (“SARs”), Common Stock or dividends and dividend equivalents. As of June 27, 2013, there were 664,915 shares of Common Stock that remained authorized for future grants of awards, subject to the limitations set below. A maximum of 500,000 of the 1,000,000 shares of Common Stock authorized under the 2008 Equity Incentive Plan may be used for grants of Common Stock, restricted stock and restricted stock units. Additionally, awards of options or SARs are limited to 100,000 shares annually to any single individual, and awards of Common Stock, restricted stock or restricted stock units are limited to 50,000 shares annually to any single individual. All restricted stock units granted under the 2008 Equity Incentive Plan have vesting periods of three years for awards to employees and one year for awards to non-employee members of the Board of Directors. Recipients of restricted stock unit awards have the option to defer receipt of vested shares until a specified later date, typically soon after separation from the Company. The exercise price of stock options was determined as set forth in the 2008 Equity Incentive Plan by the Compensation Committee of our Board of Directors, and must be at least the fair market value of the Common Stock on the date of grant. Except as set forth in the 2008 Equity Incentive Plan, options expire upon termination of employment or directorship, as applicable. The options granted under the 2008 Equity Incentive Plan are exercisable 25% annually commencing on the first anniversary date of grant and become fully exercisable on the fourth anniversary date of grant. Options generally will expire no later than ten years after the date on which they are granted. We issue new shares of Common Stock upon exercise of stock options.

The 2008 Equity Incentive Plan replaced a stock option plan approved at our annual meeting of stockholders on October 28, 1998 (the “1998 Equity Incentive Plan”) pursuant to which awards of options and stock-based awards could be made. There were 700,000 shares of Common Stock authorized for issuance to certain key employees and “outside directors” (i.e., directors who are not employees of the Company). The exercise price of the options was determined as set forth in the 1998 Equity Incentive Plan by the Board of Directors and was at least the fair market value of the Common Stock on the date of grant. Except as set forth in the 1998 Equity Incentive Plan, options expire upon termination of employment or directorship, as applicable. The options granted under the 1998 Equity Incentive Plan are exercisable 25% annually commencing on the first anniversary date of grant and become fully exercisable on the fourth anniversary date of grant. Options generally will expire no later than ten years after the date on which they are granted. We issue new shares of Common Stock upon exercise of stock options issued pursuant to the 1998 Equity Incentive Plan. Through fiscal 2007, all of the options granted, except those granted to outside directors, were intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code. Effective fiscal 2008, all option grants are non-qualified awards. The 1998 Equity Incentive Plan terminated on September 1, 2008. However, all outstanding options issued pursuant to the 1998 Equity Incentive Plan will continue to be governed by the terms of the 1998 Equity Incentive Plan and their respective award agreements.

We determine the fair value of stock option awards using the Black-Scholes option-pricing model. The following weighted-average assumptions were used to determine the fair value of options granted for the last three fiscal years:


	June 27, 2013			June 28, 2012			June 30, 2011
Risk-free interest rate		0.9	%		1.1	%		2.2	%
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		42.3	%		38.1	%		43.6	%
Expected life (years)		6.3			6.3			6.3

The expected term of the awards was determined using the “simplified method” as stated in SEC Staff Accounting Bulletin No. 107 that utilizes the following formula: ((vesting term + original contract term)/2). Expected stock volatility was determined based on historical volatility for the 6.25 year-period preceding the measurement date. The risk-free rate was based on the yield curve in effect at the time the options were granted, using U.S. treasury constant maturities over the expected life of the option. Expected forfeitures were determined based upon our expectations and past experiences. Expected dividend yield was based on our dividend policy at the time the options were granted.

The following is a summary of stock option activity for the year ended June 27, 2013:


						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Shares			Exercise Price		Contractual Term		Intrinsic Value
Outstanding at June 28, 2012		205,500		$	13.38
Granted		3,000			12.34
Exercised		(92,375	)		13.04
Forfeited		(875	)		6.98

Outstanding at June 27, 2013		115,250		$	13.68		3.1	$	740

Exercisable at June 27, 2013		112,625		$	13.65		2.9	$	728

The number of stock options vested, and expected to vest in the future, as of June 27, 2013, is not significantly different from the number of stock options outstanding at June 27, 2013, as stated above. All options granted during fiscal 2013, fiscal 2012, and fiscal 2011 were at exercise prices equal to the market price of Common Stock at the grant date.

The following table summarizes the weighted-average grant-date fair value of option awards granted, the total intrinsic value of all options exercised and the total cash received from the exercise of options for the last three fiscal years:


	Year ended June 27, 2013		Year ended June 28, 2012		Year ended June 30, 2011
Weighted-average grant date fair value of options granted	$	5.77	$	3.39	$	6.71
Total intrinsic value of options exercised	$	535	$	394	$	77
Total cash received from exercise of options	$	1,219	$	452	$	84

The following is a summary of non-vested stock options for the year ended June 27, 2013:


Options	Shares			Weighted- Average Grant-Date Fair Value
Non-vested at June 28, 2012		1,875		$	5.27
Granted		3,000			5.77
Vested		(1,875	)		4.84
Forfeited		(375	)		3.14

Non-vested at June 27, 2013		2,625		$	6.45

Exercise prices for options outstanding as of June 27, 2013 ranged from $7.95 to $32.30 and may be segregated into two ranges, as shown below:


	Option Price Per Share Range
	$7.95 - $11.30		$14.73 - $32.30
Number of options		56,500		58,750
Weighted-average exercise price	$	8.61	$	18.55
Weighted-average remaining life in years		4.1		2.1
Number of options exercisable		56,125		56,500
Weighted-average exercise price for exercisable options	$	8.61	$	18.65

Restricted stock units granted to employees and outside directors vest over a three-year and one-year period, respectively. The fair value of restricted stock awards is determined based on the market price of our Common Stock on the date of grant.

The following is a summary of restricted stock unit activity for the year ended June 27, 2013:


Restricted Stock Units	Shares			Weighted- Average Grant-Date Fair Value
Outstanding at June 28, 2012		220,500		$	10.71
Granted		66,294			16.40
Vested		(64,000	)		12.12
Forfeited		(7,500	)		12.22

Outstanding at June 27, 2013		215,294		$	11.99

At June 27, 2013 there were 37,500 restricted stock units outstanding that were vested but deferred. At June 28, 2012 there were 34,000 restricted stock units outstanding that were vested but deferred. The non-vested restricted stock units at June 27, 2013 will vest over a weighted-average period of 1.2 years.

In the first quarter of fiscal 2011 we granted 10,000 SARs to a marketing consultant which vested over a three year period and have a ten year term. In the third quarter of fiscal 2013 the consultant exercised 7,500 of the SARs and the Compensation Committee accelerated the vesting of the remaining awards. At June 27, 2013 the remaining liability for the SAR’s is insignificant.

Under the fair value recognition provisions of ASC Topic 718, stock-based compensation is measured at the grant-date based on the fair value of the award and is recognized on a straight-line basis over the vesting period. The following table summarizes compensation cost charged to earnings for all equity compensation plans and the total income tax benefit recognized for the last three fiscal years:


	Year ended June 27, 2013		Year ended June 28, 2012		Year ended June 30, 2011
Compensation cost charged to earnings	$	905	$	820	$	730
Income tax benefit recognized		202		95		11

At June 27, 2013, there was $994 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our stock-based compensation plans. We expect to recognize that cost over a weighted-average period of 1.2 years.