Stock-Based Compensation and Supplemental Employee Retirement Plan

The Company has one stock incentive plan under which shares were available for grant at November 1, 2014: the 2005 Stock Incentive Plan (the “2005 Plan”). The Company previously granted share awards under its 1996 Long-Term Incentive Plan (the “1996 Plan”) that remain unvested and/or unexercised as of November 1, 2014. The 1996 Plan expired during fiscal 2006, and no further share awards may be granted under the 1996 Plan. The 2005 Plan and the 1996 Plan are collectively referred to as the “Plans.”

The 2005 Plan permits the granting of options, restricted common stock, performance share awards, restricted and performance stock units, or other equity-based awards to the Company’s employees, officers, directors, and consultants. The Company believes the granting of equity-based awards helps to align the interests of its employees, officers and directors with those of its stockholders. The Company has a practice of issuing new shares to satisfy stock option exercises, as well as for restricted stock, performance share grants and other awards made or settled in the form of Company stock. The 2005 Plan was approved by the Company’s stockholders on January 10, 2005, as amended with stockholder approval on July 20, 2005, for the issuance of incentive awards covering 12,500,000 shares of Class A common stock. Additionally, an amended and restated 2005 Plan was approved by the Company’s stockholders on May 19, 2010, which increased the incentive awards capacity to 17,500,000 shares of Class A common stock. The Company amended the 2005 Plan in August 2014 to permit the grant of up to 4,000,000 shares as inducement grants. An aggregate of 22,495,528 shares of Class A common stock have been issued or may be issued pursuant to the Plans. As of November 1, 2014, 4,094,743 shares were available for future grants under the 2005 Plan.

Stock Options

The Plans provide that the per-share exercise price of a stock option may not be less than the fair market value of the Company’s Class A common stock on the date the option is granted. Under the Plans, outstanding options vest over periods ranging from three to five years from the grant date and expire from five to ten years after the grant date. Certain stock option and other equity-based awards provide for accelerated vesting if there is a change in control (as defined in the Plans). The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The Company uses historical data, the implied volatility of market-traded options and other factors to estimate the expected price volatility, option lives, and forfeiture rates.

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant and the estimated life of the option. The following weighted-average assumptions were used to estimate the fair value of options granted during the periods indicated using the Black-Scholes option-pricing model:



	13 Weeks Ended				39 Weeks Ended
	November 1, 2014		November 2, 2013		November 1, 2014		November 2, 2013
Dividend Yield	—	%	—	%	—	%	—	%
Expected Volatility	41.66	%	40.73	%	41.66	%	40.89	%
Risk-Free Interest Rate	1.04	%	1.00	%	1.02	%	0.63	%
Expected Life of Options (in Years)	3.3		3.3		3.3		3.3

At November 1, 2014, there was $0.3 million of total unrecognized compensation expense related to nonvested stock options under the Company’s share-based payment plans, which will be recognized over an average period of 2.5 years, representing the remaining vesting periods of such options through fiscal 2017.

The following table summarizes the Company’s stock option activities with respect to its Plans for the 39 weeks ended November 1, 2014 (aggregate intrinsic value in thousands):



Options	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at February 1, 2014	882,333		$	3.82
Granted	1,980,241		$	1.24
Exercised	—		$	—
Canceled	(1,453,602	)	$	3.76
Outstanding at November 1, 2014	1,408,972		$	1.99	3.90	$	—
Vested and expected to vest in the future at November 1, 2014	1,186,232		$	2.17	3.76	$	—
Exercisable at November 1, 2014	436,927		$	3.82	2.29	$	—

Options vested and expected to vest in the future are comprised of all options outstanding at November 1, 2014, net of estimated forfeitures. Additional information regarding stock options outstanding as of November 1, 2014, is as follows:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding as of November 1, 2014	Weighted- Average Remaining Contractual Life (in years)	Weighted- Average Exercise Price Per Share		Number Exercisable as of November 1, 2014	Weighted- Average Exercise Price Per Share
$ 0.38 - $ 0.63	514,995	4.89	$	0.52	—	$	—
$ 0.86 - $ 1.32	30,000	4.57	$	1.09	—	$	—
$ 1.52 - $ 2.36	340,378	4.46	$	1.56	—	$	—
$ 2.45 - $ 3.76	240,666	3.04	$	3.20	173,996	$	3.20
$ 4.15 - $ 4.97	282,933	2.08	$	4.26	262,931	$	4.23
$ 0.38 - $ 4.97	1,408,972	3.90	$	1.99	436,927	$	3.82

The weighted-average grant-date fair value of options granted during the 13 and 39 weeks ended November 1, 2014, and November 2, 2013, was $0.27, $0.27, $1.13 and $1.13, respectively. No options were exercised during the 13 and 39 weeks ended November 1, 2014. The total intrinsic values for options exercised during the 13 and 39 weeks ended November 2, 2013, was less than $0.1 million and $0.2 million, respectively.

Cash received from option exercises under the Plans for the 39 weeks ended November 2, 2013, was $0.7 million. The Company did not realize tax benefits for the tax deductions from option exercises as it must first utilize its regular NOL prior to realizing the excess tax benefits.

Restricted Stock Units, Restricted Common Stock, Performance Stock Units, and Performance Share Awards

Under the 2005 Plan, the Company grants directors, certain executives and other key employees restricted common stock and restricted stock units with vesting contingent upon completion of specified service periods ranging from one to three years. The Company also grants certain executives performance share awards and performance stock units with vesting contingent upon a combination of specified service periods and the Company’s achievement of a specified corporate performance objective or future share price. Restricted stock units awarded to employees represent the right to receive one share of the Company's Class A common stock upon vesting.

During the 39 weeks ended November 1, 2014, and November 2, 2013, the Company granted 3,386,263 and 249,338 of restricted stock units, respectively, to certain employees under the Plans. The weighted-average grant-date fair value of the restricted stock units during the 39 weeks ended November 1, 2014, and November 2, 2013, was $1.03 and $3.67 per share, respectively. Additionally, during the 39 weeks ended November 2, 2013, the Company granted 234,759 shares of restricted common stock to certain employees and directors under the Plans, with a weighted-average grant-date fair value of $3.03 per share. During the 39 weeks ended November 1, 2014, the Company did not grant restricted common stock to its employees.

During the 39 Weeks Ended November 1, 2014, the Company granted 3,595,178 performance stock units to certain employees under the Plans with a weighted-average grant-date fair value of $0.42 per share. During the 39 weeks ended November 2, 2013, the Company granted 183,758 performance stock units to certain employees under the 2005 Plan, with a weighted-average grant-date fair value of $3.09 per share. Additionally, the Company granted 261,533 performance share awards under the 2005 Plan during the 39 weeks ended November 2, 2013, with a grant-date fair value of $2.95 per share. All of the performance share awards and performance stock units granted in fiscal 2013 were subsequently forfeited due to the failure to achieve the performance metric.

The fair value of nonvested restricted common stock units and restricted stock awards is equal to the price of the Company’s Class A common stock on the grant date. The following table summarizes activity with respect to the Company’s restricted stock units, restricted common stock and performance stock units during the 39 weeks ended November 1, 2014:



Restricted Stock Units, Restricted Common Stock, and Performance Stock Units	Number of Shares		Weighted-Average Grant-Date Fair Value
Nonvested at February 1, 2014	899,939		$	3.06
Granted	6,981,441		$	0.71
Vested	(436,345	)	$	2.87
Forfeited	(751,510	)	$	1.98
Nonvested at November 1, 2014	6,693,525		$	0.74

On September 3, 2014, the Company accelerated the vesting of 100,000 restricted stock awards as part of the severance agreement for the former CEO. At November 1, 2014, there was $2.3 million of total unrecognized compensation expense related to nonvested restricted common stock and restricted stock units under the Plans. That cost is expected to be recognized over a weighted-average period of 2.4 years, representing the remaining vesting periods of such stock awards through fiscal 2017.

The following tables summarize stock-based compensation recorded in the condensed consolidated statements of operations (in thousands):



	13 Weeks Ended				39 Weeks Ended
	November 1, 2014		November 2, 2013		November 1, 2014		November 2, 2013
Stock options	$	26	$	89	$	108	$	211
Restricted stock awards and units	444		278		1,467		1,001
Performance share units	34		—		34		—
Stock-based compensation	$	504	$	367	$	1,609	$	1,212



	13 Weeks Ended				39 weeks ended
	November 1, 2014		November 2, 2013		November 1, 2014		November 2, 2013
Cost of sales	$	81	$	117	$	157	$	239
Selling, general, and administrative expenses	423		250		1,452		973
Stock-based compensation	$	504	$	367	$	1,609	$	1,212

Supplemental Employee Retirement Plan

The Company maintained a defined benefit Supplemental Employee Retirement Plan (the “SERP”) for a former Chairman of the Board of Directors of the Company. The Company funded the SERP in prior years through contributions to a trust fund known as a “Rabbi” trust. Funds were held in a Rabbi trust for the SERP consisting of a life insurance policy reported at cash surrender value. On May 21, 2014, the Company surrendered the life insurance policy for its cash value of $1.4 million, settled its SERP plan liability by transferring the obligation to a transferee in exchange for a cash payment of $1.1 million to the transferee, and recognized a gain of $0.7 million as a result of such transfer, which is included in the selling, general, and administrative expenses line in the condensed consolidated statements of operations.