Stock-Based Compensation

The Company's 2004 Equity Compensation Plan (the “Plan”) allows for grants of stock options, restricted stock and restricted stock units. In 2007, the Compensation Committee of the Board of Directors adopted an amendment to the Plan that provides for the grant of stock appreciation rights (“SARs”) and performance shares. Beginning in 2007, SARs, restricted stock and performance shares had replaced stock options as the equity compensation instruments used by the Company. The Company did not issue performance shares during 2012, 2011, or 2010.

As of the date of the announcement of the merger agreement, vesting related to all outstanding SARs, restricted stock and Performance Shares were accelerated and expensed in accordance with the original equity grant agreements. This accelerated vesting was required upon the signing of the Merger Agreement on October 23, 2012 and is not contingent upon closing of the Merger.

General

The following table details the effect of stock-based compensation from the issuance of equity compensation instruments on operating earnings (loss), net earnings (loss), and basic and diluted earnings (loss) per share:



	2012			2011			2010
Cost of sales	$	82		$	86		$	129
Selling, general and administrative	1,529			2,169			2,978
Merger and transaction costs	4,865			—			—
Total stock-based compensation expense included in operating earnings (loss)	6,476			2,255			3,107
Income taxes benefit	(2,267		)	(857		)	(1,182		)
Impact on net earnings (loss) from continuing operations	$	4,209		$	1,398		$	1,925
Effect on basic and diluted earnings (loss) from continuing operations	$	0.14		$	0.05		$	0.06

As discussed in Note 19, the Company entered into a separation and release agreement with its former President and Chief Executive Officer during 2010. Pursuant to the terms of his employment, non-compete and severance agreements with the Company, all non-vested stock compensation was forfeited on his termination date, and $494 of compensation expense was reversed related to equity instruments that were initially expected to vest but were ultimately forfeited.

SARs

SARs are granted with lives of ten (10) years, are graded vesting over four (4) years and are settled in the Company's common stock. The estimated fair value is computed using the Black-Scholes option-pricing model. Expected volatility is based on historical periods commensurate with the expected life of SARs, and expected life is based on historical experience and expected exercise patterns in the future. Stock compensation expense is recognized in the consolidated statements of operations ratably over the vesting period based on the number of instruments that are expected to ultimately vest. The following table presents the assumptions used in valuing SARs granted during 2012, 2011, and 2010:



	2012		2011		2010
Weighted average fair value	$	2.90	$	4.86	$	5.62
Assumptions used:
Expected dividend yield	0%		0%		0%
Volatility	89%		71%		70%
Risk-free interest rates	0.9%		1.0-2.2%		1.4-2.3%
Expected lives	4.5 Years		5.2 Years		5.5 Years

A summary of activity for SARs during 2012 is as follows (shares in thousands):



	Shares	Weighted Average Exercise Price
Outstanding, beginning of the year	1,454	$	9.56
Granted	486	4.40
Exercised	34	4.30
Forfeited	190	8.93
Outstanding, end of the year	1,716	$	8.30
Exercisable, end of the year	1,716	$	8.30

Information with respect to SARs outstanding at November 3, 2012 is as follows (shares in thousands):



Range of Exercise Prices	Outstanding Shares	Weighted Average Exercise Price		Remaining Contractual Life (in Years)	Exercisable Shares	Weighted Average Exercise Price
$2.33 - 4.81	633	$	4.19	8.4	633	$	4.19
$6.98 - 8.18	306	7.02		8.0	306	7.02
$8.80 - 9.92	483	9.31		7.4	483	9.31
$10.47 - 29.12	294	16.64		5.6	294	16.64
	1,716				1,716

The SARs outstanding at November 3, 2012 had an intrinsic value of $3,494.

Restricted Stock

Restricted stock is granted at fair value based on the closing stock price on the date of grant and vests ratably over four (4) years. Stock compensation expense is recognized in the consolidated statements of operations ratably over the vesting period based on the number of instruments that are expected to ultimately vest.

A summary of activity for restricted stock during 2012 is as follows (shares in thousands):



	Restricted Stock
	Shares	Weighted Average Price
Non-vested , beginning of the year	250	$	7.98
Granted	—	—
Vested	232	7.99
Forfeited	18	7.88
Non-vested , end of the year	—	$	—

There is no unvested restricted stock as of November 3, 2012 due to the accelerated vesting from the signed merger agreement.

Restricted Stock Units

Restricted stock units, which have been awarded only to non-employee directors of the Company, provide the grantee the right to receive one share of common stock per restricted unit at the end of the restricted period and to receive dividend equivalents during the restricted period in the form of additional restricted stock units. For restricted stock unit awards prior to 2009, the restricted period ends one year after the director leaves the Board of Directors. In 2009, the Plan was amended to change the definition of the restriction period to “upon immediately leaving the Board of Directors.” This change was effective for awards granted in 2009 and forward. During 2012, 2011, and 2010, the Company granted 79,548, 34,092 and 36,421 restricted stock units with fair values of $350, $300 and $350, respectively, to non-employee directors based on the fair value of the Company's stock at the date of grant. As of November 3, 2012, there were no unvested restricted stock units.

Stock Options

Beginning in 2007, the Company no longer granted stock options under its plan. Stock-based compensation expense is recognized in the consolidated statements of operations ratably over the vesting period based on the number of options that are expected to ultimately vest.

A summary of activity for stock options for 2012 is as follows (shares in thousands):



	Shares	Weighted Average Exercise Price
Outstanding, beginning of the year	670	$	22.34
Granted	—	—
Exercised	—	—
Forfeited	185	21.84
Outstanding, end of the year	485	$	22.53
Exercisable, end of the year	485	$	22.53

Information with respect to options outstanding at November 3, 2012 is as follows (shares in thousands):



Range of Exercise Prices	Outstanding Shares	Weighted Average Exercise Price		Remaining Contractual Life (in Years)	Exercisable Shares	Weighted Average Exercise Price
$18.08 - 21.19	168	$	19.64	1.6	168	$	19.64
$21.90 - 23.63	167	22.33		1.5	167	22.33
$25.10 - 26.02	150	25.97		2.1	150	25.97
	485				485

The total intrinsic value, cash received and actual tax benefits realized for stock options exercised in 2012, 2011 and 2010 were not material.