Case 18-7 Fashion Ine Fashion Inc . (" Fashion " or the Company " ) an SEC registrant , is a fashion retailer that sells men's and women's clothing and accessories . As an incentive to its employees , the Compan established a compensation incentive plan in which a total of 100 060 options were granted on anuary 1 20*1 . On that date ( the grant date ) , Fashion's stock price was $15 00 per share . The significant terms of the incentive plan are as follow The options have a $15 00 " strike " or exercise price ( the price the employee would pay to purchase a share of stock if the options vest ) For the options to vest , the following must occur The employee must continue to provide service to the Company throughout the entire explicit service period of five years ( Le . , a five - year " cliff - vesting " award ) The Company must achieve annual sales of at least $20 million during the fifth year of the explicit service period . The Company's share price must increase by at least 25 percent over the five- year explicit service period . In addition , if the Company achieves sales of at least $25 million during the fifth year of the explicit vesting period , the strike price of the options will decrease from $15 to $10 15 10 810 The options expire after 10 years following the grant date The options are classified as equity awards Additional Facts : Assume it is probable at all times that 109 percent of the employees receiving the awards will continue providing service to the Company as employees for the entire five - year explicit service period and that the five - year explicit service period is determined to be the requisite service period . On the grant date , Fashion's management determined that it is probable that the Company's sales in year S will be $30 million and therefore it is probable on the grant date that sales are greater than or equal to at least $25 million The grant - date fair value of the options assuming a strike price of SIS is $8 per option The grant - date fair value assuming a strike price of $10 per option is $12 per option , Required What types of conditions are present in the plan for the vesting of the units ? Are they service , performance , market , or " other " conditions ? Copyright 2016 Deloitte Development LLC