4. Share-Based Compensation

The Company issues stock option awards and non-vested share awards under its share-based compensation plans. The key provisions of the Company's share-based compensation plans are described in Note 3 to the Company's consolidated financial statements included in the 2013 Form 10-K.

The Company recognized no income tax benefits related to share-based compensation arrangements during the thirteen weeks ended March 29, 2014 and March 30, 2013.

1998 Equity Incentive Plan

Stock Options

A summary of the option activity under the Company's Amended and Restated 1998 Equity Incentive Plan, as of March 29, 2014 and changes during the thirteen weeks then ended is presented below:

	Shares	Weighted Average Exercise Price
Outstanding at December 28, 2013	265,093	$	10.50
Granted	70,000	$	3.98
Forfeited/cancelled	(15,500)	$	10.17

Outstanding at March 29, 2014	319,593	$	9.09

Options vested and expected to vest at March 29, 2014	305,093	$	9.33

Options exercisable at March 29, 2014	249,593	$	10.52

The Company granted 70,000 stock option awards during the thirteen weeks ended March 29, 2014, while no stock option awards were granted during the thirteen weeks ended March 30, 2013. During the thirteen weeks ended March 29, 2014 the Company recorded $5,000 of stock-based compensation expense in connection with stock option awards while no expense was recorded for stock-based compensation in connection with stock option awards during the thirteen weeks ended March 30, 2013. As of March 29, 2014, there was $132,000 of unrecognized stock-based compensation expense, net of estimated forfeitures, related to stock option awards, and this unrecognized expense is expected to be recognized over a weighted average period of 37 months. As of December 28, 2013, there was no unrecognized stock-based compensation expense related to stock option awards.

Non-vested Shares

Service-Based Non-vested Share Awards – A summary of the status of service-based non-vested share awards issued under the Company’s Amended and Restated 1998 Equity Incentive Plan, as of March 29, 2014 and changes during the thirteen weeks then ended is presented below:

		Weighted Average
		Grant Date
	Shares	Fair Value per share
Outstanding at December 28, 2013	-	$	-
Granted	81,000	$	3.93
Outstanding at March 29, 2014	81,000	$	3.93

On March 10, 2014, the Company granted 81,000 shares of non-vested stock that vest solely based on employee service. These shares cliff vest after a one-year service period that commenced on the date of the grant.

The Company’s service-based non-vested share awards are valued at the date of grant based on the closing market price of the Company’s common stock, and are expensed using the straight-line method over the requisite service period (which is the vesting period of the award). During the thirteen weeks ended March 29, 2014 and March 30, 2013, the Company recorded $17,000 and $60,000, respectively, of stock-based compensation expense in connection with service-based non-vested share awards. As of March 29, 2014, there is an estimated $301,000 of unrecognized stock-based compensation expense, net of estimated forfeitures, related to service-based non-vested share awards, and this unrecognized expense is expected to be recognized over a period of 11 months. As of December 28, 2013, there was no unrecognized stock-based compensation expense related to service-based non-vested share awards.

Performance-Based Non-vested Share Awards – A summary of the status of performance-based non-vested share awards issued under the Company’s Amended and Restated 1998 Equity Incentive Plan, as of March 29, 2014 and changes during the thirteen weeks then ended is presented below:

		Weighted
		Average
		Grant Date
	Shares	Fair Value per share
Outstanding at December 28, 2013	800,000	$	3.14
Granted	40,000	$	3.93
Outstanding at March 29, 2014	840,000	$	3.18

On March 10, 2014, the Company granted 40,000 shares of non-vested stock that vest in proportion to the ratio that the Company's "Cumulative Net Non-GAAP EBITDA" achieved over a three-year performance period compares to the Cumulative Net Non-GAAP EBITDA goal of $10.5 million. The first potential vesting date is the Company's earnings release date for its 2015 first fiscal quarter and each subsequent potential vesting date is each of the Company's quarterly earnings release dates thereafter through the release date for the first quarter of 2017. Shares not vested as of the release date for the first quarter of 2017 are forfeited. Except for termination of employment in certain circumstances following a change of control, the unvested portion of an award is forfeited upon any termination of employment. Under the terms of an award, vesting is partially accelerated and the award is converted to a time-vested award upon a change of control of the Company.

Stock-based compensation cost for performance-based non-vested share awards is measured at the grant date based on the fair value of shares expected to be earned at the end of the performance period, based on the closing market price of the Company’s common stock on the date of grant, and is recognized as expense using the straight-line method over the performance period based upon the probable number of shares expected to vest. The Company estimates and excludes compensation cost related to awards not expected to vest based upon estimated forfeitures. During the thirteen weeks ended March 29, 2014, the Company recorded $150,000 of stock-based compensation expense in connection with performance-based non-vested share awards while no stock-based compensation expense in connection with performance-based non-vest share awards was recorded during the thirteen weeks ended March 30, 2013. As of March 29, 2014 and December 28, 2013, there was an estimated $1.9 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to performance-based non-vested share awards. The unrecognized compensation cost at March 29, 2014 related to performance-based non-vested share awards is expected to be recognized over a period of 36 months.

2000 Supplemental Stock Plan

A summary of the option activity under the Company's 2000 Supplemental Stock Plan (the "Supplemental Stock Plan") as of March 29, 2014 and changes during the thirteen weeks then ended is presented below:

	Shares	Weighted Average Exercise Price
Outstanding at December 28, 2013	82,600	$	11.33
Forfeited/cancelled	-		-

Outstanding at March 29, 2014	82,600	$	11.33

Options vested and exercisable at March 29, 2014	82,600	$	11.33

The Supplemental Stock Plan expired on May 23, 2010. No new awards will be issued pursuant to the plan. The outstanding awards issued pursuant to the Supplemental Stock Plan remain subject to the terms of the Supplemental Stock Plan following expiration of the plan.