The Accelerated Vesting speeds up the vesting schedule, e.g., upon the occurrence of one or more events all (or a portion) of the unvested Virtual Shares vest automatically. In practice, the Single-Trigger Acceleration and the Double-Trigger Acceleration are most common.
In case of a Single-Trigger Acceleration the Accelerated Vesting only requires the occurrence of a Liquidity Event, i.e., if a Liquidity Event occurs during the Vesting Period, the vesting accelerates. A Double-Trigger Acceleration usually makes the Accelerated Vesting subject to (i) the occurrence of a Liquidity Event during the Vesting Period and (ii) that the respective Beneficiary stays on board with the start-up for a certain period of time following the Liquidity Event (often 12 months).
While the VSOP plan itself sets forth general provisions for all Beneficiaries, the allocation of Virtual Shares itself is usually made in an Allotment Letter (also called an 'Allocation Letter'). It usually sets forth the number of Virtual Shares, the start date for the Vesting Period, the Base Price and, as the case may be, deviations from the otherwise applicable terms of the VSOP plan.
See Forms of Vesting.
See Leaver Event.
The Base Price (sometimes also called Strike Price) is an amount determined by the start-up upon allocation of the Virtual Shares. It is a mere deductible in the formula pursuant to which the cash amount to which the Beneficiary is entitled in case of a Liquidity Event per Virtual Shares is reduced. Hence, unlike in many US style programs, the Base Price does not have to be actually paid by the Beneficiary. It is often (close to) zero in the very early phases of the start-up and increases over time.
A Beneficiary is a participant in the VSOP who has received Virtual Shares allotted to him or her pursuant to an Allotment Letter.
No Virtual Shares vest during the Cliff Period (i.e., the Beneficiary has no rights whatsoever under the VSOP, if a Leaver Event occurs during the Cliff Period). With the end of the Cliff Period, a certain portion of the Virtual Shares is vested immediately (often 25% in case of a 48 months' Vesting Period).
See Accelerated Vesting.
Linear Vesting means that the same portion of Virtual Shares vest each month over the Vesting Period (e.g., 1/48 per month if the Vesting Period is 48 months).
Back-Loaded Vesting means that there is no linear vesting over the entire Vesting Period, rather a larger portion of the Virtual Shares only vests in the later phases of the Vesting Period, e.g., a four-year Vesting Period with a vesting of 10% in year 1, followed by 20%, 30% and 40% in years 2 to 4.
See Leaver Event.
With a Holdback in place, not all proceeds under the VSOP Shares are immediately paid out to the Beneficiary in case of a Liquidity Event but a certain amount is held back and paid out over a period of usually twelve months (mostly, in equal tranches of 1/4 every three months) following the Liquidity Event provided that the Beneficiary continues his or her employment with the start-up.
A Leaver Event describes a situation where a Beneficiary no longer works for / provides services to the start-up. Vesting ends with the occurrence of a Leaver Event. Most programs distinguish between various reasons for the Leaver Event and separate at least the "Good Leavers" from the "Bad Leavers".
"Good Leavers" are cases where the circumstances of the relevant Beneficiary's departure from the start-up are not his / her "fault", e.g., the Beneficiary dies, becomes permanently unable to work or is let go without good cause. "Bad Leavers" on the other hand are in particular cases where the Beneficiary is let go by the start-up for good reason or violates certain undertakings (non-compete, confidentiality, etc.).
The qualification of the departing Beneficiary as Good or Bad Leaver is crucial with regard to how his / her Virtual Shares are treated. Good Leavers can usually keep all vested Virtual Shares, while Bad Leavers lose all their Virtual Shares (including vested Virtual Shares).
It is often debated if a Beneficiary who leaves without good reason is a Good or Bad Leaver or subject to an intermediate regime (sometimes called 'Grey Leaver').
See Forms of Vesting.
A Liquidity Event is usually defined as an acquisition of a majority of the shares in or assets of the start-up or (certain other) forms of a change-of-control event (these three events are together often referred to as 'Exit') or an initial public offering of the start-up. Upon occurrence of Liquidity Event vesting usually stops and the VSOP is settled, i.e., Beneficiaries can receive payments out of their Virtual Shares (or get "real" shares or options for "real" shares in lieu of a cash payment).
See Accelerated Vesting.
A Top-up means that prior to the expiration of the vesting period of an allocation of Virtual Shares, the Beneficiary receives a new allocation tranche of Virtual Shares (for which a new Vesting Period starts) to keep him or her incentivized. This is also referred to as Refresher Grants.
The Vesting Period is the time period following the effective date of the grant of the Virtual Shares (which is determined in the Allocation Letter) over which a Beneficiary accrues the right to (economically and legally) keep the Virtual Shares that have been awarded. The Vesting Period ends prematurely with a Leaver Event and in case of a Liquidity Event.
