Note 4 – Stock-based Compensation

The Company has two incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”) and the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”). As a result of the approval of the 2014 Plan by the Company’s stockholders at the Company’s 2014 annual meeting, grants may no longer be issued under the 2006 Plan.

The Company believes that awards of long-term, equity-based incentive compensation will attract and retain directors, officers and employees of the Company and will encourage these individuals to contribute to the successful performance of the Company, which will lead to the achievement of the Company’s overall goal of increasing stockholder value. Awards granted under the 2014 Plan may be in the form of incentive stock options, non-qualified stock options, shares of stock (including restricted shares), stock units, stock appreciation rights or other stock-based awards. Awards may be granted subject to the achievement of performance goals or other conditions, and certain awards may be payable in stock or cash, or a combination of the two. The 2014 Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Board”), which selects eligible employees, consultants, advisors and non-employee directors to participate in the 2014 Plan and determines the type, amount, duration and other terms of individual awards. At September 28, 2014, 1.2 million shares of the Company’s common stock were available for future issuance under the 2014 Plan.

Stock-based compensation expense is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement. The Company recorded stock-based compensation expense of $212,000 and $163,000 during the three-month periods ended September 28, 2014 and September 29, 2013, respectively, and recorded $427,000 and $356,000 during the six-month periods ended September 28, 2014 and September 29, 2013, respectively. The Company records the compensation expense related to stock-based awards granted to individuals in the same expense classifications as the cash compensation paid to those same individuals. No stock-based compensation costs have been capitalized as part of the cost of an asset as of September 28, 2014.

Stock Options: The following table represents stock option activity for the six-month periods ended September 28, 2014 and September 29, 2013: 

 As of September 28, 2014, the intrinsic value of the outstanding and exercisable stock options was $326,000 and $257,000, respectively. No stock options were exercised during the three and six-month periods ended September 28, 2014. The total intrinsic value of the stock options exercised during the three and six-month periods ended September 29, 2013 was $28,000 and $37,000, respectively. The Company received no cash from the exercise of stock options during the three and six-months ended September 29, 2013. Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise. The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations. The Company used cash of $12,000 and $16,000 to remit the required income tax withholding amounts from “cashless” option exercises during the three and six-month periods ended September 29, 2013.

To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value. The following table sets forth the assumptions used to determine the fair value, and the resulting grant-date fair value per option, of the non-qualified stock options which were awarded to certain employees during the six-months ended September 28, 2014 and September 29, 2013, which options vest over a two-year period, assuming continued service. 

For the three-month periods ended September 28, 2014 and September 29, 2013, the Company recognized compensation expense associated with stock options as follows (in thousands): 

For the six-month periods ended September 28, 2014 and September 29, 2013, the Company recognized compensation expense associated with stock options as follows (in thousands): 

As of September 28, 2014, total unrecognized stock option compensation expense amounted to $206,000, which will be recognized as the underlying stock options vest over a weighted-average period of 1.1 years. The amount of future stock option compensation expense could be affected by any future stock option grants and by the separation from the Company of any individual who has received stock options that are unvested as of such individual’s separation date.

Non-vested Stock Granted to Non-Employee Directors: The Board granted the following shares of non-vested stock to the Company’s non-employee directors:

These shares vest over a two-year period, assuming continued service. The fair value of the non-vested stock granted to the Company’s non-employee directors was based on the closing price of the Company’s common stock on the date of the grant. In August 2014, 28,000 shares vested that had been granted to non-employee directors, with such shares having an aggregate value of $223,000.

Non-vested Stock Granted to Employees: During the three-month period ended June 27, 2010, the Board awarded 345,000 shares of non-vested stock to certain employees in a series of grants, each of which will vest only if (i) the closing price of the Company’s common stock is at or above certain target levels for any ten trading days out of any period of 30 consecutive trading days and (ii) the respective employees remain employed through July 29, 2015. The Company, with the assistance of an independent third party, determined that the aggregate grant date fair value of the awards amounted to $1.2 million.

Performance Bonus Plan:  The Company maintains a performance bonus plan for certain executive officers that provides for awards of shares of common stock in the event that the aggregate average market value of the common stock during the relevant fiscal year, plus the amount of cash dividends paid in respect of the common stock during such period, increases. These individuals may instead be awarded cash, if and to the extent that insufficient shares of common stock are available for issuance from all shareholder-approved, equity-based plans or programs of the Company in effect. The performance bonus plan also imposes individual limits on awards and provides that shares of common stock that may be awarded will vest over a two-year period. Compensation expense associated with performance bonus plan awards are recognized over a three-year period – the fiscal year in which the award is earned, plus the two-year vesting period. In respect of awards earned pursuant to the performance bonus plan for fiscal year 2014, the Company awarded 188,232 shares of common stock during the three months ended June 29, 2014. In connection with these awards, the Company recognized compensation expense of $354,000 during fiscal year 2014 and will recognize, on a straight-line basis, $354,000 in compensation expense during each of fiscal years 2015 and 2016.

For the three-month periods ended September 28, 2014 and September 29, 2013, the Company recognized compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

For the six-month periods ended September 28, 2014 and September 29, 2013, the Company recognized compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

As of September 28, 2014, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $950,000, which will be recognized over the respective vesting terms associated with each block of non-vested stock indicated above, such grants having an aggregate weighted-average vesting term of 11.1 months. The amount of future compensation expense related to the Company’s non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has non-vested stock grants as of such individual’s separation date.