Stock-Based Compensation

9 Months Ended

Oct. 29, 2011

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

9. STOCK-BASED COMPENSATION

The Company maintains two stock-based incentive compensation plans: (1) 2005 Performance Incentive Plan (“2005 Plan”); and (2) the amended and restated Employee Stock Purchase Plan (“ESPP”). The types of awards that may be granted under the 2005 Plan include stock options, stock appreciation rights, and restricted stock, or other forms of awards granted or denominated in the Company’s common stock or units of the Company’s common stock. Persons eligible to receive awards under the 2005 Plan include officers or employees of the Company or any of its subsidiaries, directors of the Company and certain consultants and advisors to the Company or any of its subsidiaries. The vesting of awards under the 2005 Plan is determined at the date of grant. Each award expires on a date determined at the date of grant; however, the maximum term of options and stock appreciation rights under the 2005 Plan is ten years after the grant date of the award. As of October 29, 2011, the maximum number of shares of the Company’s common stock that was authorized for award grants under the 2005 Plan was 3.9 million shares. Any shares subject to awards under prior stock plans that are canceled, forfeited or otherwise terminate without having vested or been exercised, as applicable, will become available for other award grants under the 2005 Plan. The 2005 Plan will terminate on March 22, 2015 unless terminated earlier by the Company’s Board of Directors.

The Company accounts for stock-based compensation expense according to ASC Topic 718, “Stock Compensation” (“ASC 718”). The Company uses the Black-Scholes option-pricing model to estimate the grant date fair value of its stock-based compensation expense. Forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense to be recognized during the vesting period. The expected term of options granted is derived primarily from historical data on employee exercises adjusted for expected changes to option terms, if any. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. Expected volatility is based primarily on the historical volatility of the Company’s stock. The Company records stock-based compensation expense using the straight-line method over the vesting period, which is generally three to four years. The Company’s stock-based awards generally begin vesting one year after the grant date and, for stock options, expire in seven to ten years or three months after termination of employment with the Company. The Company’s stock-based compensation expense resulted from awards of stock options, nonvested shares, and stock appreciation rights, as well as from shares purchased under the Company’s employee share purchase plan.

The fair value of the Company’s stock-based compensation activity was determined using the following weighted-average assumptions:

	For the Three Quarters Ended
	October 29, 2011		October 30, 2010
	Stock Options	ESPP	Stock Options	ESPP
Expected life	4 years	0.5 years	4 years	0.5 years
Expected volatility	82.9%  —  83.7%	54.0%	79.4% — 81.0%	73.4%
Risk-free interest rate	0.7% —  1.6%	0.20%	1.0% — 2.0%	0.38%
Dividend yield	—	—	—	—

Stock Options

Under the Company’s stock option plans, incentive and nonqualified options have been granted to employees and directors to purchase common stock at prices equal to the fair value of the Company’s shares at the respective grant dates. A summary of stock option activity for the first three quarters of fiscal 2011 is presented below:

						Weighted-
				Weighted-		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
Stock Options	Shares			Price		Term (Yrs.)		($000s)
Outstanding at January 29, 2011		3,253,554		$	7.12
Granted		121,500			3.04
Exercised		(70,825	)		1.64
Forfeited or expired		(254,491	)		11.36
Outstanding at October 29, 2011		3,049,738		$	6.73		4.6	$	2
Vested and expected to vest at October 29, 2011		2,695,553		$	7.09		4.5	$	2
Exercisable at October 29, 2011		1,350,813		$	10.24		3.6	$	1

The weighted-average grant-date fair value per share of options granted during each of the first three quarters ended of fiscal 2011 and 2010 was $1.84 and $2.81, respectively.

Nonvested Share Awards

A summary of nonvested share awards activity under the Company’s 2005 Plan for the first three quarters of fiscal 2011 is presented below. Nonvested share awards contain a time-based restriction as to vesting. These awards generally vest over four years with 25% of the grant vesting each year on the anniversary of the grant date.

Nonvested Share Awards	Shares			Weighted- Average Grant-Date Fair Value
Outstanding at January 29, 2011		434,255		$	6.56
Granted		657,500			3.51
Vested		(125,931	)		9.66
Forfeited or expired		(129,189	)		4.64
Outstanding at October 29, 2011		836,635		$	4.00

Nonvested Share Units

A summary of nonvested share units activity under the Company’s 2005 Plan for the first three quarters of fiscal 2011 is presented below. Nonvested share units contain a time-based restriction as to vesting. These awards generally vest 100% on the first anniversary of the grant date.

Nonvested Share Units	Shares			Weighted- Average Grant-Date Fair Value
Outstanding at January 29, 2011		175,000		$	3.68
Granted		150,000			3.19
Released		(175,000	)		3.68
Forfeited		—			—
Outstanding at October 29, 2011		150,000		$	3.19

Stock-based compensation expense related to nonvested stock options, nonvested share awards and nonvested share units for the third quarter of fiscal 2011 and 2010, was $0.8 million and $0.9 million, respectively, and $2.4 million and $2.9 million for the first three quarters of fiscal 2011 and 2010, respectively.

At October 29, 2011, the Company had approximately $4.4 million of compensation cost related to nonvested stock options, nonvested share awards and nonvested share units not yet recognized. This unearned compensation expense is expected to be recognized over a weighted-average period of approximately 2.4 years.

Employee Stock Purchase Plan (“ESPP”)

The Company maintains an ESPP, which provides a method for Company employees to voluntarily purchase the Company’s common stock at a 10% discount from fair market value as of the beginning or the end of each six-month purchasing period, whichever is lower. The ESPP covers substantially all employees, excluding senior executives, who have three months of service with the Company. The ESPP is intended to constitute an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended.

During the first three quarters of fiscal 2011 and 2010, the Company issued 95,798, and 104,938 shares at an average price of $2.35 and $2.89, respectively, under the ESPP. Related compensation expense was $0.1 million and $0.2 million during the first three quarters of fiscal 2011 and 2010, respectively.

Lease Modification

In connection with certain lease modifications in the current quarter, the Company issued 900,000 shares of its common stock to certain of its landlords. The fair value on the date of issuance was approximately $1.6 million, which is being amortized on a straight-line basis as a component of occupancy costs over the respective rent reduction period.