8. Stock Option and Award Plans and Stock-Based Compensation

On May 1, 2013, the Company’s Board of Directors approved the Company’s assumption and adoption of the 2006 Management Incentive Plan (the 2006 Plan) that was previously sponsored by Burlington Coat Factory Holdings, LLC. The Company’s 2013 Omnibus Incentive Plan (the 2013 Plan and, together with the 2006 Plan, the Plans) was adopted effective prior to and in connection with the Offering. The 2006 Plan and the 2013 Plan each provide for the granting of stock options, restricted stock and other forms of awards to key employees and directors of the Company or its affiliates. Prior to the Offering, grants made pursuant to the 2006 Plan were comprised of units of the Parent’s common stock. Each “unit” consisted of 99 shares of Parent’s Class A common stock and one share of Parent’s Class L common stock. Awards previously granted under the 2006 Plan have been retroactively adjusted to reflect the Reclassification.

As of May 3, 2014, there were 10,125,258 shares of Parent’s common stock authorized for issuance under the 2006 Plan and 6,000,000 shares of Parent’s common stock authorized for issuance under the 2013 Plan.

Stock Options

The Company accounts for awards issued under the Plans in accordance with ASC Topic No. 718, “Stock Compensation.” Options granted during the three month period ended May 3, 2014 were all service-based awards and were granted under the 2006 Plan at exercise prices of $27.40 and $29.86 per share. There were no options granted during the three month period ended May 4, 2013.

During Fiscal 2013, the Company made a special one-time grant under the 2006 Plan to certain members of its management team which resulted in the grant of options to purchase an aggregate of 1,595,000 shares of Parent’s common stock. These one-time grants vest 20% on each of the first five anniversaries of the Trigger Date. The Trigger Date is defined as the date after the vesting of all other options held by the grantee which were granted to the grantee prior to May 2013 and remain outstanding and unvested as of the date of the one-time grant. All service-based awards granted during the three months ended May 3, 2014 vest 25% on each of the first four anniversaries of the grant date. The final exercise date for any option granted is the tenth anniversary of the grant date.

In order to mitigate the impact of the $336.0 million dividend paid in connection with the issuance of the Holdco Notes in February 2013, the Company’s Board of Directors in May 2013 approved a modification to all then outstanding options through a combination of exercise price reductions and cash payments to option holders. The reduction of the exercise prices of each outstanding option was as follows:

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from $2.78 per unit to $0.79—$1.65 per unit;

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from $4.55 per unit to $0.79 per unit;

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from $5.91 per unit to $0.79—$0.94 per unit;

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from $10.91 per unit to $3.17—$5.02 per unit; and

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from $10.96 per unit to $3.17—$5.07 per unit.

The modifications, through a combination of either reduced exercise prices or cash payments, did not affect the existing vesting schedules. The modification, which contemplated the fair value of awards both immediately before and after the modification, resulted in a total of $0.8 million of incremental compensation expense during the three months ended May 3, 2014 recorded in the line item “Stock Option Modification Expense” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), of which $0.2 million is payable in cash. As of May 3, 2014, the Company expects to recognize $5.1 million of incremental compensation expense to be recorded over the remaining vesting periods, of which $0.9 million will be paid in cash.

With the exception of the special one-time grants made during Fiscal 2013, all options awarded pursuant to the 2006 Plan become exercisable upon a change of control as defined in the Stockholders Agreement. The vesting of special one-time grants will not be accelerated in the event of a change of control, provided, however, that in the event that within two years after a change of control, the grantee’s employment is terminated without cause or the grantee resigns with good reason, then an incremental 20% of the special one-time grants shall be deemed vested as of the date of termination of grantee’s employment, but in no event more than the total number of special one-time grants granted to such grantee. Unless determined otherwise by the plan administrator, upon cessation of employment, options that have not vested will terminate immediately (subject to the potential acceleration of special one-time grants in the event of a change of control, as described above) and unexercised vested options will be exercisable for a period of 60 days. The final exercise date for any option granted is the tenth anniversary of the grant date.

Non-cash stock compensation expense during the three month periods ended May 3, 2014 and May 4, 2013 amounted to $1.4 million and $0.5 million, respectively. The table below summarizes the types of stock compensation:


	*(in thousands)*
	Three Months Ended
Type of Non-Cash Stock Compensation	May 3, 2014		May 4, 2013
Stock Option Modification (a)	$	585	$	—
Stock Option Grants (b)		713		490
Restricted Stock Issuances(b)		69		20

Total (c)	$	1,367	$	510

(a)

Represents non-cash compensation related to the modification of outstanding stock options granted under the 2006 Plan during Fiscal 2013 which is included in the line item “Stock Option Modification Expense” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

(b)	Included in the line item “Selling and Administrative Expenses” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

(c)	The tax benefit related to the Company’s non-cash stock compensation was $0.5 million and $0.2 million during the three month periods ended May 3, 2014 and May 4, 2013, respectively.

As of May 3, 2014, the Company had 4,257,239 options outstanding to purchase shares of Parent’s common stock, all of which are service-based awards issued under the 2006 Plan, and there was approximately $13.4 million of unearned non-cash stock-based option compensation, exclusive of the $5.1 million of incremental compensation associated with the modification, that the Company expects to recognize as expense over a weighted average period of 4.7 years. The service-based awards are expensed on a straight-line basis over the requisite service period. As of May 3, 2014, 20.8 percent of outstanding options to purchase shares of Parent’s common stock under the 2006 Plan had vested. As of May 3, 2014, no awards were outstanding under the 2013 Plan.

Stock option transactions during the three month period ended May 3, 2014 are summarized as follows:


	Number of Shares			Weighted Average Exercise Price Per Share
Options Outstanding February 1, 2014		4,619,323		$	3.25
Options Issued		65,233			27.65
Options Exercised(a)		(419,980	)		1.77
Options Forfeited		(7,337	)		0.79

Options Outstanding May 3, 2014		4,257,239		$	3.78

(a)	Options exercised during the three months ended May 3, 2014 had a total intrinsic value of $10.5 million.

Non-vested stock option share transactions during the three month period ended May 3, 2014 are summarized below:


	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Non-Vested Options Outstanding, February 1, 2014		3,527,800		$	4.13
Non-Vested Options Granted		65,233			12.34
Non-Vested Options Vested		(214,917	)		2.60
Non-Vested Options Forfeited		(7,337	)		2.78

Non-Vested Options Outstanding, May 3, 2014		3,370,779		$	4.56

The following table summarizes information about the options outstanding and exercisable under the 2006 Plan as of May 3, 2014:


	Options Outstanding				Options Exercisable
Exercise Prices	Number Outstanding at May 3, 2014		Weighted Average Remaining Contractual Life (Years)		Number Exercisable at May 3, 2014		Weighted Average Remaining Contractual Life (Years)
$ 0.79 - $ 0.94		1,477,506		6.6		533,857		5.2
$ 3.17		443,221		6.3		198,382		4.9
$ 4.55 - $ 5.91		2,218,518		8.8		154,221		6.4
$26.96		52,761		9.7		—		—
$27.40 - $29.86		65,233		10.0		—		—

		4,257,239				886,460

The aggregate intrinsic value of options outstanding as of May 3, 2014 was $104.0 million.

The following table summarizes information about the stock options vested and expected to vest during the contractual term as of May 3, 2014:


	Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value
Vested and Expected to Vest		4,093,764		7.8	$	3.77	$	100.0 million

The fair value of each stock option granted during the three month period ended May 3, 2014 was estimated on the date of grant using the Black Scholes option pricing model using the following assumptions:


	Three Months Ended May 3, 2014
Risk-Free Interest Rate		2.11	%
Expected Volatility		44.0	%
Expected Life (years)		6.25
Contractual Life (years)		10.0
Expected Dividend Yield		0.0	%
Weighted Average Grant Date Fair Value of Options Issued	$	12.49

Restricted Stock Awards

Under the 2006 Plan, the Company also has the ability to grant shares of restricted stock. During the three months ended May 3, 2014, the Company granted 74,134 shares of restricted stock at fair values based upon the closing price of the Parent’s common stock on the date of grant. There were no restricted stock awards granted during the three months ended May 4, 2013. All shares of restricted stock granted to date under the 2006 Plan are service-based awards. Shares of restricted stock are expensed on a straight-line basis over the requisite service period of three to four years. Following a change of control, as defined by the 2006 Plan, all unvested shares of restricted stock shall accelerate and vest as of the date of such change of control.

As of May 3, 2014, there was approximately $2.8 million of unearned non-cash stock-based compensation that the Company expects to recognize as an expense over the next 3.7 years. At May 3, 2014, 1,048,223 of the outstanding shares of restricted stock had vested.

Award grant and vesting transactions during the three month period ended May 3, 2014 are summarized as follows:


	Number of Shares		Weighted Average Grant Date Fair Value Per Awards
Non-Vested Awards Outstanding, February 1, 2014		81,396	$	12.58
Awards Granted		74,134		27.50
Awards Vested		—		—

Non-Vested Awards Outstanding, May 3, 2014		155,530	$	19.69