Baskin Robbins 2011 Annual Report Download - page 104

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 2009, 2010, and 2011 and are not expected to be achieved in future years. As the
Tranche 2 shares vest in installments and contain a performance condition, these shares are treated as
five separate awards with five separate vesting dates and requisite service periods. The requisite service periods
for these Tranche 2 shares are generally one year. 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.
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 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.
A summary of the changes in the Company’s restricted shares during fiscal year 2011 is presented below:
Number of
shares
Weighted
average
grant-date
fair value
Restricted shares at December 25, 2010 .............. 1,085,827 $ 4.28
Granted ....................................... 65,000 19.00
Vested ........................................ (104,779) 4.62
Forfeited ...................................... (402,906) 6.67
Restricted shares at December 31, 2011 .............. 643,142 4.21
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 31, 2011, there was $26 thousand of total
unrecognized compensation cost related to the Tranche 1 restricted shares. Unrecognized compensation cost
related to the Tranche 1 shares is expected to be recognized over a weighted average period of approximately
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