Annual report pursuant to Section 13 and 15(d)

Stock Compensation Plans

v3.10.0.1
Stock Compensation Plans
12 Months Ended
Oct. 28, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Compensation Plans
Stock Compensation Plans

On June 9, 2016, the stockholders of the Company approved the 2015 Equity Incentive Plan (the “2015 Plan”), which replaced the 2006 Plan. The 2006 Plan terminated on September 5, 2016 and all of the outstanding shares granted under the 2006 Plan remain valid. The 2015 Plan was previously adopted by the Board of Directors (the “Board”) on October 19, 2015 and subsequently amended on January 13, 2016. The 2015 Plan authorizes the Board to award equity-based compensation in the form of (1) stock options, including incentive stock options, (2) stock appreciation rights, (3) restricted stock, (4) restricted stock units (“RSUs”), (5) performance awards, (6) other stock-based awards, and (7) performance compensation awards. Subject to adjustment as provided in the 2015 Plan, up to an aggregate of 3,000,000 shares of the Company’s common stock may be issued or transferred in connection with awards granted thereunder.

For fiscal 2018, the Company granted an aggregate of 276,396 performance stock units (“PSUs”), 491,138 “RSUs” and 133,181 stock options. The grants were comprised mostly of long-term incentive awards to key employees including executive management in the third quarter of fiscal 2018. Additionally, on June 29, 2018, the Company's former chief executive officer entered into a separation agreement that included terms related to his stock-based awards. Pursuant to its terms, an aggregate of 721,731 stock options were cancelled and 159,443 RSUs and 424,710 stock options became fully vested. The options remain exercisable for 12 months following his separation from the Company on June 6, 2018.
For fiscal 2017, the Company granted an aggregate of 851,488 stock options, 248,915 RSUs and 71,311 phantom units in the form of cash-settled RSUs. This was comprised of: (i) 851,488 stock options and 175,145 RSUs granted to certain employees including executive management as long-term incentive awards, (ii) 73,770 RSUs granted to independent members of the Board as part of their annual compensation that vested immediately and (iii) 71,311 phantom units granted to certain senior management level employees.

Stock Options

The Company granted 133,181 and 851,488 stock options in fiscal 2018 and 2017, respectively. The total fair value at the grant date of these stock options was $0.2 million in fiscal 2018 and $1.6 million in fiscal 2017. The fair value of the option grants was estimated using the Black-Scholes option-pricing model, which requires estimates of key assumptions based on both historical information and management judgment regarding market factors and trends.

Determining Fair Value - Stock Options

The fair value of the option grants under both plans was estimated using the Black-Scholes option-pricing model, which requires estimates of key assumptions based on both historical information and management judgment regarding market factors and trends.

Expected volatility - We developed the expected volatility by using the historical volatilities of the Company for a period equal to the expected life of the option.

Expected term - We derived our expected term assumption based on the simplified method due to a lack of historical exercise data, which results in an expected term based on the midpoint between the graded vesting dates and contractual term of an option.

Risk-free interest rate - The rates are based on the average yield of a U.S. Treasury bond, with a term that was consistent with the expected life of the stock options.

Expected dividend yield - We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield was assumed to be zero.

The weighted average assumptions used to estimate the fair value of stock options for the respective fiscal years were as follows:
 
Fiscal Year Ended
 
October 28,
2018
 
October 29,
2017
Weighted-average fair value of stock option granted
$1.75
 
$1.83
Expected volatility
40.0%
 
40.0%
Expected term (in years)
6.00
 
6.00
Risk-free interest rate
2.73%
 
1.89%
Expected dividend yield
0.0%
 
0.0%


The grants vest in equal annual tranches over three years, provided the employees remain employed on each of those vesting dates. Compensation expense for the stock options is recognized over the vesting period. The stock options expire 10 years from the initial grant date and have a weighted average exercise price of $4.10 and $4.46 for fiscal 2018 and 2017, respectively.
The following table summarizes the transactions related to stock options:
Stock Options
Number of
shares
 
Weighted
average
exercise price
 
Weighted average
contractual life
(in years)
 
Aggregate
Intrinsic
Value
(in thousands)
 
Outstanding - October 30, 2016
1,921,035

 
$
7.70

 
8.23

 
$
242

 
Granted
851,488

 
$
4.46

 

 
$

 
Exercised
(300
)
 
$
6.39

 

 
$

 
Forfeited
(272,301
)
 
$
10.24

 

 
$

 
Outstanding - October 29, 2017
2,499,922

 
$
6.32

 
8.20

 
$
6,051

 
Granted
133,181

 
$
4.10

 

 
$

 
Forfeited
(1,033,063
)
 
$
7.16

 

 
$

 
Outstanding - October 28, 2018
1,600,040

 
$
5.25

 
7.27

 
$
3,126

 
Unvested at October 28, 2018
769,027

 
$

 

 
$
780

 
Exercisable at October 28, 2018
831,013

 
$
6.46

 
6.08

 
$
2,346

 


Restricted Stock Awards
The Company granted 491,138 and 248,915 RSUs in fiscal 2018 and 2017, respectively. The total fair value at the grant date of these RSUs was $1.6 million in fiscal 2018 and $2.7 million in fiscal 2017. For RSUs granted in the current and prior fiscal years that are classified as equity awards, the grant date fair value is measured using the closing stock price on the grant date. There are 462,683 RSUs granted in fiscal 2018 that are classified as liability-based awards. For those awards classified as a liability, the grant date fair values were determined through a Monte Carlo simulation using the following assumptions: the closing stock price on the grant date of June 14, 2018, an expected volatility of 58.3%, a risk-free interest rate of 2.67% and an expected term of three years. These liability awards are classified at fair value and re-measured periodically based on the effect that the market condition has on these awards. The liability and corresponding expense are adjusted accordingly until the awards are settled in either cash or stock at the Company’s election, with any stock settlement being subject to the Company having a sufficient number of shares available under its equity incentive plan to satisfy such awards. Any RSUs settled in cash will be capped at two times the Company’s closing stock price on the grant date, multiplied by the number of RSUs vesting.
All of the grants vest in equal annual tranches over three years, provided the employees remain employed on each of those vesting dates. The stock compensation cost is recognized over the related service periods.
The following table summarizes the activity related to the restricted stock awards:
Restricted Stock Awards
Number of
shares
 
Weighted
average
grant date
fair value
Outstanding - October 30, 2016
229,733

 
$
6.31

Granted
248,915

 
$
4.43

Forfeited
(23,288
)
 
$
6.68

Deferred
36,885

 
$
4.35

Vested
(153,279
)
 
$
5.57

Outstanding - October 29, 2017
338,966

 
$
5.20

Granted
491,138

 
$
3.23

Forfeited
(40,769
)
 
$
4.62

Vested
(206,504
)
 
$
5.33

Outstanding - October 28, 2018
582,831

 
$
3.53



Performance Share Units
The Company granted 276,396 PSUs in fiscal 2018. The total fair value at the grant date of these PSUs in fiscal 2018 was approximately $0.9 million. These awards are classified as a liability at fair value and re-measured periodically based on the effect that the market condition has on these awards. The liability and corresponding expense are adjusted accordingly until the awards are settled. The grant date fair values were determined through a Monte Carlo simulation using the following assumptions: the closing stock price on the grant date of June 14, 2018, an expected volatility of 58.3%, a risk-free interest rate of 2.67% and an expected term of three years.
Vesting of the PSUs is dependent on the achievement of target stock prices at the end of each of the one-year, two-year and three-year performance periods. The target stock price will be based on the average stock price of the last 20 trading days of the applicable measurement period. The PSUs will be eligible to vest in three equal tranches at the end of each performance period subject to meeting the target stock price goals, including a minimum threshold which must be reached for any vesting to occur and also subject to the employee’s continued employment with the Company on each of the vesting dates. The payout percentages can range from 0% to 200%. The stock compensation cost is recognized over the related service or performance periods.
Upon vesting, the PSUs may be settled in either cash or stock at the Company’s election, with any stock settlement being subject to the Company having a sufficient number of shares available under its equity incentive plan to satisfy such awards. Any PSUs settled in cash will be capped at two times the Company’s closing stock price on the grant date, multiplied by the number of PSUs vesting.
The following table summarizes the activity related to the performance share units:
Performance Share Units
Number of units
 
Weighted average
grant date fair value
Outstanding - October 29, 2017

 
$

Granted
276,396

 
$
3.38

Outstanding - October 28, 2018
276,396

 
$
3.38



Phantom Units
In fiscal 2017, the Company granted 71,311 phantom units in the form of cash-settled RSUs to certain senior management level employees. The total fair value at the grant date was approximately $0.3 million with a weighted average fair value per unit was $4.35. The units vest in equal annual tranches over three years provided the employees remain employed on each of those vesting dates. Compensation expense is recognized over the vesting period. These awards are classified as a liability and re-measured at the end of each reporting period based on the change in fair value of one share of the Company’s common stock. The liability and corresponding expense are adjusted accordingly until the awards are settled.

The following table summarizes the activity related to the phantom units:
Phantom Units
Number of units
Outstanding - October 30, 2016

Granted
71,311

Forfeited
(29,507
)
Outstanding - October 29, 2017
41,804

Forfeited
(18,307
)
Vested
(9,836
)
Outstanding - October 28, 2018
13,661


Share-based compensation expense was recognized in Selling, administrative and other operating costs in the Company’s Consolidated Statements of Operations as follows (in thousands):
 
Year Ended
 
October 28,
2018
 
October 29,
2017
Selling, administrative and other operating costs
$
1,760

 
$
2,755

Total
$
1,760

 
$
2,755


As of October 28, 2018, total unrecognized compensation expense of $2.4 million related to PSUs, stock options, RSUs and phantom units will be recognized over the remaining weighted average vesting period of 2.6 years, of which $1.6 million, $0.6 million, and $0.2 million is expected to be recognized in fiscal 2019, 2020 and 2021, respectively.