Stock-Based Compensation

The Tilly’s 2012 Equity and Incentive Award Plan, as amended in June 2014 (the "2012 Plan"), authorizes up to 4,413,900 shares for issuance of options, shares or rights to acquire our Class A common stock and allows for operating income and comparable store sales growth targets as additional performance goals that may be used in connection with performance-based awards granted under the 2012 Plan. As of October 31, 2015, there were 2,445,238 shares still available for future issuance under the 2012 Plan.

Stock Options

We grant stock options to certain employees that gives them the right to acquire our Class A common stock under the 2012 Plan. The exercise price of options granted is equal to the closing price per share of our stock at the date of grant. The nonqualified options vest at a rate of 25% on each of the first four anniversaries of the grant date provided that the award recipient continues to be employed by us through each of those vesting dates, and expire ten years from the date of grant.

The following table summarizes the stock option activity for the thirty-nine weeks ended October 31, 2015 (aggregate intrinsic value in thousands):



	Stock Options		Grant Date Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value (1)
Outstanding at January 31, 2015	2,880,040		$	13.03
Granted	77,500		$	12.47
Exercised	(336,140	)	$	9.21
Forfeited	(351,625	)	$	12.99
Expired	(161,200	)	$	12.44
Outstanding at October 31, 2015	2,108,575		$	13.67	4.4	$	37
Vested and expected to vest at October 31, 2015	2,067,847		$	13.69	4.4	$	37
Exercisable at October 31, 2015	1,467,575		$	14.06	2.8	$	37


(1)	Intrinsic value for stock options is defined as the difference between the market price of our Class A common stock on the last business day of the fiscal quarter and the weighted average exercise price of in-the-money stock options outstanding at the end of each fiscal period. The market value per share was $7.29 at October 31, 2015.

The stock option awards were measured at fair value on the grant date using the Black-Scholes option valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, expected volatility of our stock over the option’s expected term, the risk-free interest rate over the option’s expected term and our expected annual dividend yield, if any. We estimate forfeitures based on an analysis of the award recipients’ positions and the vesting period of the awards.

The fair value of stock options granted during the thirteen and thirty-nine weeks ended October 31, 2015 and November 1, 2014 was estimated on the grant date using the following assumptions:



	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31, 2015		November 1, 2014		October 31, 2015		November 1, 2014
Expected option term (1)	5.0 years		5.0 years		5.0 years		5.0 years
Weighted average expected volatility factor (2)	48.0	%	44.5	%	47.7	%	45.7	%
Weighted average risk-free interest rate (3)	1.5	%	1.8	%	1.5	%	1.7	%
Expected annual dividend yield	—	%	—	%	—	%	—	%


(1)	We have limited historical information regarding the expected option term. Accordingly, we determined the expected option term of the awards using historical data available from comparable public companies and management’s expectation of exercise behavior.


(2)	Stock volatility for each grant is measured using the weighted average of historical daily price changes of our competitors’ common stock over the most recent period equal to the expected option term of the awards.


(3)	The risk-free interest rate is determined using the rate on treasury securities with the same term as the expected life of the stock option as of the grant date.

Restricted stock

We grant restricted stock awards ("RSAs") and restricted stock units (collectively with the RSAs “restricted stock”) under the 2012 Plan to independent members of our Board of Directors and certain employees. RSAs granted to Board members vest at a rate of 50% on each of the first two anniversaries of the grant date provided that the respective award recipient continues to serve on our Board of Directors through each of those vesting dates. The restricted stock units granted to certain employees vest at a rate of 25% on each of the first four anniversaries of the grant date provided that the respective recipient continues to be employed by us through each of those vesting dates. Restricted stock units represent shares issuable in the future upon vesting whereas RSAs represent restricted shares issued upon the date of grant in which the recipient’s rights in the stock are restricted until the shares are vested. We determine the fair value of restricted stock based upon the closing price of our Class A common stock on the date of grant.

A summary of the status of non-vested restricted stock changes during the thirty-nine weeks ended October 31, 2015 are presented below:



	Restricted Stock		Weighted Average Grant-Date Fair Value
Nonvested at January 31, 2015	48,584		$	9.88
Granted	330,240		$	15.13
Vested	(41,736	)	$	12.48
Forfeited	(103,000	)	$	16.07
Nonvested at October 31, 2015	234,088		$	14.10

Stock-based compensation expense associated with stock options and restricted stock is recognized on a straight-line basis over the vesting period. The following table summarizes stock-based compensation recorded in the Consolidated Statements of Income:



	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31, 2015		November 1, 2014		October 31, 2015		November 1, 2014
Cost of goods sold	$	234	$	146	$	758	$	604
Selling, general and administrative expenses	778		661		2,555		2,106
Stock-based compensation	$	1,012	$	807	$	3,313	$	2,710

At October 31, 2015, there was $5.3 million of total unrecognized stock-based compensation expense related to unvested stock options and restricted stock. This cost has a weighted average remaining recognition of 2.6 years.