Black Rifle Coffee Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Equity-Based Compensation

Equity-Based Compensation

12 Months Ended

Dec. 31, 2023

Authentic Brands maintained an equity incentive plan (the “Plan”) under which it may grant Incentive Units to employees or non-employee directors. The board has the authority to determine the terms and conditions of each grant. In connection with the Plan, 200,000 non-voting units have been authorized. These units may contain certain service and performance related vesting provisions. The Incentive Units are awarded to eligible employees and non-employee directors and entitle the grantee to receive non-voting member units upon vesting, subject solely to the employee’s continuing employment or the non-employee director’s continuing service on the board.

In May 2021, the Board approved a decrease in the participation threshold for equity Incentive Unit holders. The decrease was intended to offset the dilutive effect of the issuance of the Series A Redeemable Preferred Equity and related redemption of common units. The decrease in the participation threshold was accounted for as a modification and resulted in $2,749 of incremental compensation cost, of which $1,988 was recognized during the year ended December 31, 2021 including a cumulative adjustment at the time of the modification. The remaining incremental compensation will be recognized over the remaining service period of the awards.

In September 2021, the Company amended and restated the Plan to expand the definition of “Change in Control.” The Company concluded that the vesting conditions of awards had changed and that a modification had occurred for all awards under the Plan. As the awards were expected to vest under their original terms as well as under their modified terms, no additional incremental compensation expense was recognized.

The grant date estimated fair value of the Incentive Units was based upon an option pricing model valuation of the awards at the grant date. The Company did not change pricing models during the year, however, began to incorporate and consider the probability-weighted expected return method. The Incentive Units have no strike price; however, participation thresholds, as defined in the Plan were established at grant date that must be exceeded for the holder of the unit to participate in any distributions of the Company. The following assumptions were utilized in determining the fair value of the units at the grant date:


Expected dividend			—
Expected volatility			60% to 85%
Risk-free interest rate			0.13% to 2.53%
Expected life of incentive awards (in years)			1 to 5 years
Grant date performance and market threshold			$35,000 to $1,250,000

The computation of expected volatility is based on a weighted average of comparable public companies within the Company’s industry. Expected life is based on the estimated liquidity event timing. The risk-free interest rate is based on the yield of zero-coupon U.S. Treasury securities of comparable terms. The Company does not anticipate paying dividends in the foreseeable future. The Company recognizes pre-vesting forfeitures as they occur rather than estimate the forfeiture rate at the grant date.

The following table summarizes the changes in the number of Incentive Units for the years ended December 31, 2023, 2022 and 2021:


	Incentive Units	Weighted Average Grant Date Fair Value
Outstanding at January 1, 2021	174,503	$	38.82
Granted	18,400	215.31
Forfeited	(10,709)	100.66
Repurchased	(6,202)	476.06
Outstanding at December 31, 2021	175,992	$	38.09
Granted	850	215.31
Forfeited	(2,989)	174.19
Repurchased	(1,832)	97.57
Business Combination	(157,811)	56.54
Outstanding at December 31, 2022	14,210	$	192.52
Granted	—	—
Forfeited	(5,625)	215.31

Outstanding at December 31, 2023	8,585	$	213.81
Vested at December 31, 2023	6,178	$	213.22

As of December 31, 2023, total unrecognized equity compensation expense related to nonvested Incentive Units to be recognized over a weighted average period of approximately 2 years was $421.

In connection with the Business Combination, 28,990 Incentive Units under the Plan fully vested and converted into Common Units in Authentic Brands that allow for their exchange into Class A Common Stock of BRC Inc. The Company recognized $1,856 of compensation costs as a result of the accelerated vesting of Incentive Units under the "Change in Control" provision of the Plan. The Company accounted for the accelerated vesting of the Incentive Units as a modification. However, because the fair value of the modified awards was the same immediately before and after the modification, no incremental compensation expense was recognized.

In connection with the Business Combination, BRC Inc. adopted the 2022 Omnibus Incentive Plan (“Omnibus Plan”), which replaced the Plan, and the 2022 Employee Stock Purchase Plan.

Stock Options

The Company granted stock options to employees under the Omnibus Plan that vest ratably over three years and expire after seven years. The grant date estimated fair value of the stock options was based upon a Black Scholes model valuation of the options at the grant date. The following weighted average assumptions were utilized in determining the fair value of options granted in 2023:


Weighted average grant date fair value			$2.58
Expected dividend yield			—
Expected volatility			65%
Risk-free interest rate			4.17%
Options term (in years)			4.5

The computation of expected volatility is based on a weighted average of comparable public companies within the Company’s industry. The Company uses the simplified method prescribed by Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term of options granted. The risk-free interest rate is based on the yield of zero-coupon U.S. Treasury securities of comparable terms. The Company does not

anticipate paying dividends in the foreseeable future. The Company recognizes pre-vesting forfeitures as they occur rather than estimate the forfeiture rate at the grant date.

The following table summarizes information about stock options activities for the years ended December 31, 2023 and 2022:


	Stock Options	Weighted Average Exercise Price
Granted on February 9, 2022	518,180	$	10.00
Granted	362,720	9.49
Forfeited	(88,530)	10.00
Outstanding at December 31, 2022	792,370	$	9.77
Granted	3,813,166	4.66
Forfeited	(1,192,196)	6.43
Outstanding at December 31, 2023	3,413,340	$	5.19
Vested at December 31, 2023	288,321	$	7.72

As of December 31, 2023, total unrecognized equity compensation expense related to stock options to be recognized over a weighted average period of approximately 2 years was $7,228.

Restricted Stock Units

The Company granted restricted stock unit (“RSU”) awards to employees and non-employee directors under the Omnibus Plan that vest annually over three years. The grant date fair values were based on the closing price of the Class A Common Stock of BRC Inc.

The following table summarizes information about the RSUs under the Omnibus Plan for the years ended December 31, 2023 and 2022:


	Restricted Stock Units	Weighted Average Grant Date Fair Value
Granted on May 2, 2022	400,775	$	13.70
Granted	484,054	8.56
Forfeited	(51,875)	13.70
Vested	(9,125)	13.70
Outstanding at December 31, 2022	823,829	$	10.68
Granted	2,008,519	4.90
Forfeited	(685,484)	6.49
Vested	(461,909)	9.70
Outstanding at December 31, 2023	1,684,955	$	5.77

As of December 31, 2023, total unrecognized equity compensation expense related to RSUs to be recognized over a weighted average period of approximately 2 years was $7,711.

Performance-Based Restricted Stock Units

On December 29, 2022, the Company granted 8,462,412 performance-based restricted stock units (“PSUs”) to a key employee which vest if certain market capital growth rates are achieved each year through April 2027. Vested PSUs are settled in shares of the Company Class A Common Stock equal to the number of PSUs granted. The PSUs are forfeited upon termination of employment before the performance period ends. PSUs granted during the year ended December 31, 2022 had a weighted-average grant date fair value of $0.46 per share. All PSUs were unvested as of December 31, 2023. The Company used the Monte Carlo pricing model to estimate the fair value of PSUs utilizing the following assumptions at the grant date:


Expected dividend			—
Expected volatility			65%
Risk-free interest rate			3.97%
Award term years			4.3
Valuation date share price			$6.21

As of December 31, 2023, total unrecognized equity-based compensation expense related to PSUs to be recognized over a weighted average period of approximately 4 years was $1,901.

Employee Stock Purchase Plan

In September 2022, the Company began offering an Employee Stock Purchase Plan (“ESPP”) whereby eligible employees may acquire an equity interest in the Company through payroll contributions. At the end of a six-month offering period, shares are purchased at 85% of the stock price at enrollment date or purchase date, whichever is lower.