STOCK OPTION AND BENEFIT PLANS

The Company’s incentive plan provides for equity and liability awards to employees and non-employee directors in the form of stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, stock awards, stock units, performance shares, performance units, and other stock – based or cash-based awards. Compensation cost is recognized on a straight-line basis over the requisite employee service period, which is generally the vesting period, and is recorded as employee compensation expense in cost of goods sold and selling general and administrative expenses. Share-based compensation is recognized only for those awards that are expected to vest, with forfeitures estimated at the date of grant based on historical experience and future expectations.

In addition to service conditions, these SARs contain a performance condition. The additional performance condition is based upon the achievement of Return on Invested Capital (ROIC) goals relative to a peer group. All awards with performance conditions are measured over the vesting period and are charged to compensation expense over the requisite service period based on the number of shares expected to vest. The SARs cliff vest after a three-year period from date of grant and expire five years from date of grant.

On July 25, 2012, the Company granted 210,666 SARs under the 2010 Incentive Plan to certain key employees and outside directors at a strike price of $7.44 and a grant date fair value of $3.71, as of June 29, 2013 203,166 remain outstanding. The grant date fair value for the awards granted during fiscal year 2013 were estimated using the Black Scholes option valuation method with the following weighted average assumptions as July 25, 2012:



	Fiscal Year 2013
	July 25, 2012
Expected dividend yield	—	%
Risk – free interest rate	0.46	%
Expected volatility	66.50	%
Expected life	4.00

On July 27, 2011, the Company granted 184,666 SARs under the 2010 Incentive Plan to certain key employees and outside directors at a strike price of $4.40 and a grant date weighted average fair market value of $2.20, as of June 29, 2013, 179,666 remain outstanding. On January 26, 2012, the Company granted 32,000 SARs under the 2010 Incentive Plan to certain key employees at a strike price of $6.30 and grant date weighted average fair market value of $3.08. The grant date fair value for the awards granted during fiscal year 2012 were estimated using the Black Scholes option valuation method with the following weighted average assumptions at each of the respective grant dates:



	Fiscal Year 2012
	January 26, 2012		July 27, 2011
Expected dividend yield	—	%	—	%
Risk – free interest rate	0.52	%	1.16	%
Expected volatility	64.90	%	65.50	%
Expected life	4.00		4.00

On October 21, 2010, the Company obtained shareholder approval of the 2010 Incentive Plan at the Annual Shareholder Meeting. As a result, the Company replaced the cash-settlement feature with a net-share-settlement feature for the 522,000 SARs granted during the fourth quarter of fiscal 2010. Therefore, the awards were reclassified from liability awards to equity awards effective October 21, 2010 at a weighted average fair value of $2.89. The fair value for the liability awards amended to equity awards during fiscal year 2011 were estimated using the Black-Scholes option valuation model with the following weighted average assumptions as of October 21, 2010:



	Fiscal Year 2011
	October 21, 2010
Expected dividend yield	—	%
Risk – free interest rate	0.73	%
Expected volatility	68.30	%
Expected life	3.56

Share-based compensation expense is recognized only for those awards that are expected to vest, with forfeitures estimated at the date of grant based on the Company’s historical experience and future expectations. This forfeiture rate will be revised, if necessary, in subsequent periods if actual forfeitures differ from the amount estimated. Share-based compensation expense for fiscal years ended June 29, 2013, June 30, 2012 and July 2, 2011 was $0.8 million, $0.6 million and $0.5 million, respectively.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which differ significantly from the SARs, as traded options have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, particularly for the expected term and expected stock price volatility. Changes in these assumptions can materially affect the fair value estimates.

The intrinsic value for options exercised in fiscal years 2013, 2012 and 2011 was $0.2 million, $0.3 million and $0.2 million, respectively.

As of June 29, 2013, total unrecognized compensation expense related to nonvested share-based compensation arrangements was approximately $0.7 million. This expense is expected to be recognized over a weighted-average period of 1.84 years.

The following table summarizes option/SARs activity of all plans from June 30, 2012 through June 29, 2013:



	Shares Available For Grant	Options/SARs Outstanding		Aggregate Intrinsic Value (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Balances, June 30, 2012	461,334	784,360		$	2,261	$	5.36	3.1
Shares authorized	—	—		—		—		—
Options/SARs granted	—	210,666		—		7.44		—
Options canceled and expired	—	(12,502	)	—		6.22		—
Options exercised	—	(20,832	)	157		2.23		—
Balances, June 29, 2013	461,334	961,692		$	4,309	$	5.87	2.6
Exercisable at June 29, 2013		546,860		$	3,141	$	5.74	1.8

Additional information regarding options outstanding as of June 29, 2013, is as follows:



		Options/SARs Outstanding			Options/SARs Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Avg. Remaining Contractual Life (yrs.)	Weighted Avg. Exercise Price		Number Exercisable	Weighted Avg. Exercise Price
$1.81 – $2.72	15,000	0.3	$	2.20	15,000	$	2.20
2.73 – 4.09	9,860	3.0	3.40		9,860	3.40
4.10 – 6.15	701,666	2.5	5.51		522,000	5.89
6.16 – 7.44	235,166	4.0	7.28		—	—
$1.81 to $7.44	961,692	2.6	$	5.87	546,860	$	5.74

The Company also has a defined contribution plan (401(k)) available to U.S. employees who have attained age 21. The Company contributes an amount equal to 100% of the employee’s contribution on the first 3% of the employee’s compensation and an additional 50% of the employee’s contribution on the following 2% of the employee’s compensation. Company contributions to the plan were approximately $0.5 million for each of fiscal years 2013, 2012, and 2011.