For Checkersrallys, what is a Liquidity Event as it pertains to the vesting of performance-based Class B Units?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
For the awards issued, 50% of the Class B Units are service-based and vest evenly over the first to fifth anniversaries of the grant date. The remaining 50% of the Class B units are performance-based which will vest upon a Liquidity Event. A Liquidity Event is defined within the Management Incentive Plan as the sale, or similar type transaction, of Topco. Upon the occurrence of a Liquidity Event, all unvested servicebased units will become fully vested. The Management Incentive Plan further defines Specified Event(s), such as termination for cause, that will result in the automatic forfeiture of all vested and unvested shares without consideration.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, a Liquidity Event is specifically defined within the Management Incentive Plan as the sale, or similar type transaction, of Topco. This definition is relevant to the vesting of performance-based Class B Units awarded to managers and executives of Topco and its consolidated subsidiaries.
For Checkersrallys, 50% of the Class B Units awarded are service-based, vesting over the first five anniversaries of the grant date. The remaining 50% are performance-based, and these units vest only upon the occurrence of a Liquidity Event. This means that unless Topco is sold or undergoes a similar transaction, these performance-based units will not vest.
The occurrence of a Liquidity Event also has implications for the service-based units. Upon such an event, all unvested service-based units will immediately become fully vested. However, the Management Incentive Plan also outlines Specified Events, such as termination for cause, which can result in the forfeiture of all vested and unvested shares, irrespective of a Liquidity Event. Therefore, understanding the terms of the Management Incentive Plan is crucial for any manager or executive holding Class B Units.