Share Based Compensation

6 Months Ended

Jul. 30, 2011

Share Based Compensation

Share Based Compensation

F. SHARE BASED COMPENSATION

On August 2, 2010, the Company adopted the Gordmans Stores, Inc. 2010 Omnibus Incentive Compensation Plan (the "2010 Plan"). The 2010 Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents and other share-based awards. Directors, officers and other associates of the Company and its subsidiaries, as well as others performing consulting or advisory services, are eligible for grants under the 2010 Plan. As amended by the Board of Directors on April 29, 2011 and approved by the stockholders of the Company on May 24, 2011, an aggregate of 2,573,086 shares of the Company's common stock are available under the 2010 Plan, subject to adjustments for stock splits and other actions affecting the Company's common stock. The exercise price of an option granted under the 2010 Plan will not be less than 100% of the fair value of a share of the Company's common stock on the date of grant, provided the exercise price of an incentive stock option granted to a person holding greater than 10% of the Company's voting power may not be less than 110% of such fair value on such date. The term of each option may not exceed ten years or, in the case of an incentive stock option granted to a ten percent stockholder, five years. In August 2010, 305,507 options were granted pursuant to the 2010 Plan. During the thirteen weeks ended July 30, 2011, 407,600 options were granted pursuant to the 2010 Plan. There were 1,859,979 shares of common stock available for future grants under the 2010 Plan at July 30, 2011.

In connection with the Company's initial public offering, all existing options outstanding (1,285,570 shares issuable at a weighted average exercise price of $2.66 per share) under the Company's 2009 Stock Option Plan were terminated. In exchange, each participant received the following awards under the 2010 Plan: (1) 12 months from the date of the option termination agreement, vested restricted stock to replace the intrinsic value of the participant's vested options under the 2009 Stock Option Plan and (2) unvested restricted stock to replace the intrinsic value of the participant's unvested options under the 2009 Stock Option Plan, with a similar vesting schedule as that of the existing options. The termination and exchange of options did not result in any additional compensation expense. In addition, each participant received options in an amount determined by the Compensation Committee of the Company's Board of Directors, with an exercise price equal to the Company's initial public offering price, subject to time vesting at a rate of 20% per year over five years. In exchange for 1,285,570 stock options outstanding at the time of the initial public offering, 977,547 shares of restricted stock were awarded on August 11, 2011, which is 12 months from the date of the option termination agreements. As of July 30, 2011, 460,719 shares of such restricted stock are vested for accounting purposes. Unrecognized compensation expense on the restricted stock was $1.1 million at July 30, 2011, which is expected to be recognized over a period of 3.1 years. Additionally, the Company repurchased 399,780 shares from participants on August 11, 2011 pursuant to the restricted stock agreements at a fair value of $17.21 per share.

A summary of stock option activity during the twenty-six weeks ended July 30, 2011 is set forth in the table below:

	Number			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (1) (thousands)
Outstanding, January 30, 2011		305,507		$	11.00
Granted		407,600			16.64
Exercised		(30,884	)		11.00
Terminated		—			—
Outstanding, July 30, 2011		682,223		$	14.37		9.5 years	$	2,429
Exercisable, July 30, 2011		—			—		—		—
Vested at July 30, 2011		—			—		—		—

(1) The aggregate intrinsic value for stock options is the difference between the current market value of the Company's stock as of July 30, 2011 and the option strike price. The stock price at July 30, 2011 was $17.93.

The Company uses the Black-Scholes option valuation model to estimate fair value of the options. This model requires an estimate of the volatility of the Company's share price; however, because the Company's shares or options were not publicly traded for a significant period of time, the Company determined that it was not practical to estimate the expected volatility of its share price. Thus, the Company accounted for equity share options based on a value calculated using the historical volatility of an appropriate industry sector index instead of the expected volatility of the entity's share price. The historical volatility was calculated using comparisons to peers in the Company's market sector, which was chosen due to the proximity of size and industry to the Company over the expected term of the option.

In determining the expense to be recorded for options, the significant assumptions utilized in applying the Black-Scholes option valuation model are the risk-free interest rate, expected term, dividend yield and expected volatility. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximating the expected term used as the assumption in the model. The expected term of the option awards is estimated using the simplified method, or the average of the vesting period and the original contractual term.

The weighted average assumptions used by the Company in applying the Black-Scholes valuation model for option grants during the twenty-six weeks ended July 30, 2011 are illustrated in the following table:

	26 Weeks Ended July 30, 2011
Risk-free interest rate		2.0	%
Dividend yield		2.0	%
Expected volatility		34.0	%
Expected life (years)		6.5
Weighted average fair value of options granted	$	4.90

None of the stock options outstanding at July 30, 2011 were subject to performance or market-based vesting conditions. As of July 30, 2011, the unrecognized compensation expense on stock options was $2.6 million, which is expected to be recognized over a weighted average period of 4.6 years.

For the thirteen week periods ended July 30, 2011 and July 31, 2010, share-based compensation expense was $0.4 million and $0.1 million, respectively. Share-based compensation expense for the twenty-six week periods ended July 30, 2011 and July 31, 2010 was $0.8 million and $0.2 million, respectively. Share-based compensation expense is recorded in selling, general and administrative expenses in the consolidated statements of operations.