Dunkin' Donuts 2012 Annual Report Download - page 88

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Nonvested (restricted) shares
The Company historically issued restricted shares of common stock to certain executive officers of the Company. The restricted
shares generally vest in three separate tranches with different vesting conditions. In addition to the vesting conditions described
below, all three tranches of the restricted shares provide for partial or full accelerated vesting upon change in control. Restricted
shares that do not vest are forfeited to the Company.
Tranche 1 shares generally vest in four or five equal annual installments based on a service condition. The weighted average
requisite service period for the Tranche 1 shares is approximately 4.4 years, and compensation cost is recognized ratably over
this requisite service period.
The Tranche 2 shares generally vest in five annual installments beginning on the last day of the fiscal year of grant based on a
service condition and performance conditions linked to annual EBITDA targets, which were not achieved for fiscal years 2010,
2011, and 2012. Total compensation cost for the Tranche 2 shares is determined based on the most likely outcome of the
performance conditions and the number of awards expected to vest based on those outcomes, and as such, no compensation
cost was recognized in fiscal years 2012, 2011, or 2010 related to Tranche 2 shares. All remaining Tranche 2 shares outstanding
were forfeited on the last day of fiscal year 2012 as the EBITDA targets were not achieved.
Tranche 3 shares generally vest in four annual installments based on a service condition, a performance condition, and market
conditions. The Tranche 3 shares did not become eligible to vest until achievement of the performance condition, which is
defined as an initial public offering or change in control. These events were not considered probable of occurring until such
events actually occurred. The market condition relates to the achievement of a minimum investor rate of return on the
Sponsor’s (see note 19(a)) shares ranging from 20% to 24% as of specified measurement dates, which occur on the six month
anniversary of an initial public offering and every three months thereafter, or on the date of a change in control. As the
Tranche 3 shares require the satisfaction of multiple vesting conditions, the requisite service period is the longest of the
explicit, implicit, and derived service periods of the service, performance, and market conditions. As the performance condition
could not be deemed probable of occurring until an initial public offering or change of control event was completed, no
compensation cost was recognized related to the Tranche 3 shares prior to fiscal year 2011. Upon completion of the initial
public offering in fiscal year 2011, $2.6 million of expense was recorded related to approximately 0.8 million Tranche 3
restricted shares that were outstanding at the date of the initial public offering. The entire value of the outstanding Tranche 3
shares was recorded upon completion of the initial public offering as the requisite service period, which was equivalent to the
implicit service period of the performance condition, had been delivered. With the sale of the Sponsors' remaining shares in
August 2012, no further Tranche 3 vesting could occur, and all unvested Tranche 3 shares were accordingly forfeited.
A summary of the changes in the Company’s restricted shares during fiscal year 2012 is presented below:
Number of
shares
Weighted
average
grant-date
fair value
Restricted shares at December 31, 2011 643,142 $ 4.21
Granted ——
Vested (367,237) 3.40
Forfeited (274,856) 3.50
Restricted shares at December 29, 2012 1,049 5.44
The fair value of each restricted share was estimated on the date of grant based on recent transactions and third-party valuations
of the Company’s common stock. As of December 29, 2012, an immaterial amount of unrecognized compensation cost remains
related to restricted shares. The total grant-date fair value of shares vested during fiscal years 2012, 2011, and 2010, was $1.2
million, $484 thousand, and $1.3 million, respectively.
2006 Plan stock options—executive
During fiscal years 2011 and 2010, the Company granted options to executives to purchase 828,040 and 4,750,437 shares of
common stock, respectively, under the 2006 Plan. The executive options vest in two separate tranches, 30% allocated as
Tranche 4 and 70% allocated as Tranche 5, each with different vesting conditions. In addition to the vesting conditions
described below, both tranches provide for partial accelerated vesting upon change in control. The maximum contractual term
of the executive options is ten years.
The Tranche 4 executive options generally vest in equal annual amounts over a 5-year period subsequent to the grant date, and
as such are subject to a service condition. Certain options provide for accelerated vesting at the date of grant, with 20% of the