Performance Vesting Is Trickier Than You Think

Law360 (May 21, 2020, 2:18 PM EDT) -- Incentive equity awards based on performance vesting have long been present in growth company capital structures. Increasingly, these structures are used in U.S. middle market buyouts as a complement to time-based vesting. Yet while widely used, performance vesting is sometimes only partially understood.

Performance Vesting – Structure and Theory

Performance vesting can take a variety of forms. Most commonly, performance vesting terms provide that an incentive equity award will vest when a financial sponsor achieves one or more specified levels of return, calculated most often as a multiple of invested cash, or MOIC.

Performance vesting awards are typically issued in tranches....

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