Shareholders' Equity

12 Months Ended

Feb. 02, 2013

Shareholders' Equity

8.  SHAREHOLDERS’ EQUITY

Common Stock

In connection with certain lease modifications during fiscal 2011, the Company issued 900,000 shares of its common stock to one of its landlords. The fair value on the date of issuance was approximately $1.6 million, which has been amortized on a straight-line basis as a component of occupancy costs over the respective rent reduction period.

Preferred Stock

In conjunction with the Term Loan, the Company issued the Series B Preferred to an affiliate of Golden Gate Capital which, based on the initial conversion ratio, gives that affiliate the right to purchase up to 13.5 million shares of the Company’s common stock. The Series B Preferred shares have an exercise price initially equal to $1.75 per share of the Company’s underlying common stock. The initial holder of the Series B Preferred is entitled to customary registration rights with respect to the underlying common stock. See Note 9, “Fair Value Measurements – Recurring Fair Value Measurements” for further discussion on the accounting treatment of the Series B Preferred.

Shareholder Protection Rights Plan

On March 22, 2013, the Company’s Board of Directors adopted a new Shareholder Protection Rights Agreement (the “New Rights Plan”) and declared a dividend of one preferred share purchase right (a “Right”) on each outstanding share of common stock, par value $0.01 per share. The New Rights Plan replaces the previous Shareholder Protection Rights Agreement that was adopted on December 7, 2011, which was amended to expire upon adoption of the New Rights Plan. The dividend was paid to shareholders of record on April 1, 2013, upon certification by the Nasdaq Global Select Market to the SEC that the Rights were approved for listing.

If any person or group acquires between 20% and 50% of the Company’s common stock, the Board of Directors may, at its option, exchange one share of the Company’s common stock for each Right. Under the New Rights Plan, among other things, a person or group which acquires 20% or more of the common stock of the Company will trigger the ability of the shareholders (other than the 20% holder) to exercise the Rights for an exercise price of $10.00 per Right (subject to certain adjustments from time to time) and to purchase a number of shares of common stock with a market value of twice the exercise price of the Rights exercised. The Rights are redeemable at any time by the Company at $0.01 per Right. In addition to the Board of Directors’ redemption, in connection with a “Qualified Offer” (as defined in the New Rights Plan), holders of 10% of the common stock of the Company then outstanding (excluding shares held by the offeror and its affiliates and associates), upon providing proper written notice, may direct the Board of Directors to call a special meeting of shareholders for the purposes of voting on a resolution authorizing the redemption of the Rights pursuant to the provisions of the New Rights Plan. Such meeting must be held on or prior to the 90^th business day following the Company’s receipt of such written notice. The New Rights Plan will expire on March 22, 2016 if approved by shareholders and on March 22, 2014 if not approved by shareholders prior to such date.

Stock-Based Compensation

The Company maintains two stock-based incentive plans: (1) the 2005 Performance Incentive Plan (the “Performance Plan”) and (2) the amended and restated Employee Stock Purchase Plan (the “ESPP”). The types of awards that may be granted under the Performance Plan include stock options, stock appreciation rights, restricted stock, and 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 Performance 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 Performance 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 Performance Plan is ten years after the grant date of the award. As of February 2, 2013, the maximum number of shares of the Company’s common stock that was available for award grants under the Performance Plan was 2.4 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 Performance Plan. The Performance 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 in accordance with 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 options. 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 common 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, restricted stock, and stock appreciation rights, as well as from shares issued under the ESPP

Stock Options

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

	Fiscal Year
	2012				2011				2010
	Stock Options		ESPP		Stock Options		ESPP		Stock Options		ESPP
Expected term		4 years		0.5 years		4 years		0.5 years		4 years		0.5 years
Expected stock volatility		87% - 88%		71%		83% - 87%		54% - 87%		79% - 82%		60% - 97%
Risk-free interest rates		0.5% - 0.9%		0.1% - 0.2%		0.6% - 1.6%		0.2% - 0.6%		1.0% - 2.0%		0.3% - 0.4%
Expected dividends		$            —		$            —		$            —		$            —		$            —		$            —

Under the Performance Plan, incentive and nonqualified stock 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 (incentive and nonqualified) activity for fiscal 2012 is presented below:

	Shares			Weighted-     Average Exercise Price		Weighted- Average Remaining      Contractual     Term (Yrs.)		Aggregate     Intrinsic Value
	(In thousands, except share and per share amounts)
Outstanding at January 28, 2012		2,990,501		$	6.61
Granted		20,500			1.71
Exercised		(143,900	)		1.64
Forfeited or expired		(479,053	)		12.72
Outstanding at February 2, 2013		2,388,048		$	5.66		3.6	$	61
Vested and expected to vest at February 2, 2013		2,282,511		$	5.75		3.5	$	58
Exercisable at February 2, 2013		1,373,324		$	6.96		3.1	$	46

At February 2, 2013, incentive and nonqualified options to purchase 2,388,048 shares were outstanding and 2,441,561 shares were available for future grant under the Company’s stock compensation plans. In each of fiscal 2012, 2011 and 2010, the Company did not recognize tax benefits related to stock based compensation due to a full valuation allowance against various deferred tax assets. See “Income Taxes” in Notes 1 and 9 for further discussion regarding the realizability of the Company’s deferred tax assets and its assessment of a need for a valuation allowance.

The weighted-average grant-date fair value per share of options granted during each of fiscal 2012, 2011 and 2010 was $1.07, $1.65 and $2.91, respectively. There were 143,900, 70,825, and 6,500 stock options exercised during fiscal 2012, 2011, and 2010, respectively. The total intrinsic value of options exercised during fiscal 2012, 2011, and 2010 was $0.3 million, $0.2 million and $0.1 million, respectively.

Restricted Stock Awards

A summary of service-based restricted stock awards activity under the Performance Plan for fiscal 2012 is presented in the following table. Except as described below, such restricted stock awards contain a service-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.

	Shares			Weighted-Average Grant-Date Fair Value
Outstanding at January 28, 2012		765,523		$	3.91
Granted		1,580,782			1.75
Vested		(201,518	)		4.35
Forfeited		(348,844	)		2.87
Outstanding at February 2, 2013		1,795,943		$	2.16

The weighted-average grant-date fair value per share of service-based restricted stock awards granted during each of fiscal 2012, 2011 and 2010 was $1.75, $3.46 and $4.90, respectively. The total fair value of awards vested during fiscal 2012, 2011 and 2010 was $0.4 million, $0.4 million and $0.8 million, respectively.

During fiscal 2012, the Company granted 675,000 performance-based restricted stock awards which only vest upon the achievement of certain financial targets. The weighted-average grant-date fair value per share of performance-based restricted stock awards granted during fiscal 2012 was $1.77. There were no performance-based restricted stock awards granted in either fiscal 2011 or 2010.

Restricted Stock Units

A summary of restricted stock units activity under the Performance Plan for fiscal 2012 is presented below. Restricted stock units contain a service-based restriction as to vesting. These awards generally vest 100% on the first anniversary of the grant date.

	Shares			Weighted-Average Grant-Date Fair Value
Outstanding at January 28, 2012		150,000		$	3.19
Granted		125,000			1.57
Released		(125,000	)		3.19
Forfeited		(25,000	)		3.19
Outstanding at February 2, 2013		125,000		$	1.57

The weighted-average grant-date fair value per share of restricted stock units granted during each of fiscal 2012, 2011 and 2010 was $1.57, $3.19 and $3.68, respectively. The total fair value of the restricted stock units released during each of fiscal 2012, 2011 and 2010 was $0.2 million, $0.5 million, and $1.1 million, respectively.

Stock-based compensation expense recognized related to nonvested stock options, restricted stock awards and restricted stock units during fiscal 2012, 2011 and 2010, was $2.8 million, $3.2 million and $4.0 million, respectively. At February 2, 2013, the Company had approximately $3 million of compensation cost related to non-vested stock options, restricted stock awards and restricted stock units not yet recognized. This compensation cost is expected to be recognized over a weighted-average period of approximately 2.3 years. 

Employee Stock Purchase Plan (“ESPP”)

The Company’s ESPP provides a method for Company employees to voluntarily purchase Company 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 who have three months of service with the Company, excluding senior executives. 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.

The Company recognized $0.1 million, $0.1 million and $0.2 million in compensation expense related to the ESPP for each of fiscal 2012, 2011 and 2010, respectively. During fiscal 2012, 2011 and 2010, the Company issued 236,668, 212,025 and 189,170 shares at an average price of $1.50, $1.58 and $2.90, respectively, under the ESPP.