10. Equity-Based Employee Compensation

Cash Incentive Plan

On December 14, 2012, our Company adopted the Easton-Bell Sports, Inc. 2012 Cash Incentive Plan, or the CIP. Certain members of management, members of the board of directors, consultants and representatives of our Company, subsidiaries and the Parent are eligible to participate in the CIP. Payments from the CIP occur upon the occurrence of a qualified liquidity event, which include a change of control, partial sale, initial public offering or refinancing. Participants in the CIP receive various payments upon such events depending on the number of units held by that participant, type of event and total enterprise value of our Company at such time. The maximum number of units available and currently outstanding under the CIP is 21,200. The aggregate proceeds available to the holders of CIP units are determined by the type of qualified liquidity event and whether certain total enterprise value thresholds are reached. The maximum aggregate proceeds available for CIP payments is $27,723.

To receive units under the CIP, each prospective participant had to return to our Company any outstanding Class B Common units that were previously issued to such prospective participant pursuant to the Parent’s equity incentive plan. All units granted under the CIP will vest upon a qualified liquidity event that occurs prior to the seven-year anniversary of the effective date of the CIP. The vesting of all or any portion of the participants’ units may be accelerated at any time at the sole discretion of the board of directors of our Company. As of December 28, 2013, we have not recognized any compensation expense for the CIP as the occurrence of a qualified liquidity event is currently deemed to be improbable. As conditions change, we will assess the probability and record any such compensation costs deemed necessary in accordance with applicable accounting standards.

Equity Incentive Plan

On March 16, 2006, our Parent adopted the Equity Incentive Plan, or the Incentive Plan as amended in December 2009. On December 14, 2012, the Incentive Plan was further amended to increase the number of authorized units issuable under the Incentive Plan to 112,766,083 Units. Generally, so long as the unit holder is employed or remains a member of the board of managers of our Parent, these units vest over time or upon achievement of certain company performance goals. Subject to certain conditions, units are also eligible to vest in the event of an initial public offering, change of control or partial sale. On December 14, 2012, our Parent, in exchange for the forfeiture of previously issued Class B Common Units, issued new Class B Common Units to certain unit holders, which, in each case, are eligible, subject to certain conditions, for distributions from our Parent in the event that certain total enterprise values are met in connection with certain qualifying transactions.

As a result of the modifications to the Incentive Plan on December 14, 2012, or the Modification, as well as adoption of the CIP, we utilized the Monte Carlo simulation pricing model, or the Monte Carlo Analysis, to determine whether additional value was granted to the unit holders upon receipt of the new Units. The Monte Carlo Analysis calculates multiple potential outcomes for an award and establishes fair value based on the most likely outcome. The Monte Carlo simulation pricing model simulated a number of different enterprise value paths until an expected liquidation date. The drift term, used to evolve the simulated enterprise value, is the risk-free rate. The liquidation date of each simulation path is determined by the time the simulated enterprise value exceeds $1.2 billion or December 31, 2017, whichever occurs first. As a result of the Modification, in 2012 we recognized incremental non-cash equity compensation expense of $1,363 in the accompanying Consolidated Statements of Comprehensive (Loss) Income.

During fiscal year 2012, our Company also utilized the Monte Carlo Analysis for 7,238,477 Units granted subsequent to December 13, 2012 and expects to use the Monte Carlo Analysis for future grants. We calculated the weighted average fair value per Unit of $0.33 and based on this calculation, we recognized $1,143 of additional non-cash equity compensation expense in 2012. For Units granted during the 2013 fiscal year, the weighted average fair value per Unit was also $0.33.

The following weighted average assumptions were used in the Monte Carlo Analysis for Units granted during fiscal year 2013:

Risk-free interest rate		0.7 to 1.6%
Expected volatility(1)		30.0 to 32.0%

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(1)	Expected volatility is based upon a peer group of companies given no historical data for the Units.

For Units issued prior to December 14, 2012, our Company used the Black-Scholes option pricing model to determine the fair value of the Units granted. This model uses such factors as the market price of the underlying Units at date of issuance, an exercise price of $1.32 for Units issued during fiscal years 2012 and 2011, and the expected term of the Unit, which is approximately two to four years, utilizing the simplified method. The $1.32 represents the fair market value of a Class A Common Unit of our Parent on the date the Units were granted. The weighted average grant date fair value of Units granted during 2012 and 2011 amounted to $0.30 and $0.23, respectively.

In fiscal years 2012 and 2011, the weighted average assumptions used in the Black-Scholes Option Pricing Model were as follows:

	2012	2011
Expected term	1 to 3 years	1 to 4 years
Dividend yield	0.0%	0.0%
Risk-free interest rate	0.14 to 0.15%	0.05 to 0.17%
Expected volatility(1)	44.7%	50.0%

(1)	Expected volatility is based upon a peer group of companies given no historical data for the Units.

Accordingly, our Company records compensation expense using the fair value of the Units granted with time vesting over the vesting service period on a straight-line basis. Our Company used a forfeiture rate of 8.3% in 2013 and 2012 and 7.7% in 2011. Compensation expense for the performance based vesting Units is recognized when it becomes probable that the performance conditions will be met. As of December 28, 2013, we have not recognized any compensation expense for the performance based vesting Units as it is not probable that the performance conditions will be met.

Our Company recognized the following unit based non-cash compensation expense, included in selling, general and administrative expenses for its Units during 2013, 2012 and 2011:

		2013				2012				2011
Equity compensation expense	$	9,268			$	5,048			$	3,507

As of December 28, 2013, there was $19,507 of unrecognized compensation costs, net of actual and estimated forfeitures related to the Units comprised of $8,499 related to time based vesting units and $11,008 related to the performance based vesting units. The unrecognized cost related to the time based vesting units is expected to be amortized over a weighted average service period of approximately 2 years. The unrecognized cost related to the performance based vesting units will be recognized when it becomes probable that the performance conditions will be met.

Our Company’s Unit activity under the Incentive Plan is as follows:

	Number of Units
Outstanding at December 29, 2012		108,156,595
Granted		52,187,574
Cancelled		(50,372,788	)
Outstanding at December 28, 2013		109,971,381
Vested at December 29, 2012		63,638,862
Vested at December 28, 2013		56,213,673