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Profits Interests 2019 - WeWork 

WeWork's Form S-1 Explanation:

• "In July and August 2019, 47,346,098 of such options were canceled in connection with the reorganization transactions as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments”. As part of the reorganization transactions, profits interests were issued to certain of our employees, including Adam, Artie and Jen. Profits interests are generally intended to provide the holder with a proportionate share of the increase of the value of the We Company Partnership’s businesses over the value of such businesses on the date of grant of such profits interests. Holders of vested profits interests may also be entitled to limited catch-up distributions. Certain of the profits interests are subject to the time-based vesting conditions described above, and other profits interests are subject to the performance-based vesting criteria described above. For more information on the profits interests, see “Certain Relationships and Related Party Transactions—Profits Interests”.  ... Each recipient of these option awards and profits interests has indicated their intent to donate to charity 10% of proceeds from sales of such equity." [page 178]
• "In connection with the reorganization transactions the Company undertook in July 2019 to provide a corporate organization similar to a structure commonly referred to as an “UP-C” structure, Adam’s performance-based options described above were canceled. An equal number of profits interests in the UP-C structure were issued to Adam. All of the profits interests have the same vesting conditions as the performance-based options that were canceled, with time-based vesting commencing on the date the applicable performance goal is achieved. There is no tax receivables agreement in place to benefit any holder of profits interests ... Shortly after the option awards were issued, Adam exercised the time-based option described above in exchange for a $362.1 million full recourse promissory note payable to the Company (with an interest rate of 2.89% and a maturity date of April 11, 2029). In August 2019, Adam repaid the promissory note (including interest) in full by surrendering to the Company all of the shares received in respect of the time-based option described above. Following the settlement of this loan, the Company issued to Adam the number of profits interests equal to the number of shares surrendered by Adam in settlement of the loan."  [page 199]
  

[Quoting from WeWork's Form S-1, pages 204-205:]

Profits Interests 

To incentivize our management team to continue to lead us over the long term and help us achieve our strategic goals, including through the pursuit of value-maximizing transactions that we expect would be in the interests of all stockholders of The We Company, certain members of our management team have been issued profits interests in the We Company Partnership. The structure involving profits interests is intended to be more efficient for both us and the holder for U.S. federal income tax purposes than issuing stock options to such members of our management team, including by generally affording capital gains treatment to the holder upon a disposition.

Profits interests are generally intended to provide the holder with a proportionate share of the increase of the value of the We Company Partnership’s businesses over the value of such businesses on the date of grant of such profits interests. Holders of vested profits interests may also be entitled to limited catch-up distributions. The vested profits interests participate in ordinary and liquidating distributions by the We Company Partnership generally to the extent the cumulative amount of such distributions made to the holders of all other partnership interests after the date of grant of such award exceeds the value of the We Company Partnership’s businesses on the date of grant of such award. As of                     , 2019, the amount of distributions which must be exceeded in order for a holder of profits interests granted on such date to receive an ordinary or liquidating distribution was $            . Profits interests do not have any direct voting rights with respect to The We Company. However, with respect to each profits interest, the recipient has also been granted one share of Class C common stock, which is entitled to twenty votes.

Under the terms of the Partnership Agreement and the terms of the profits interest award agreement pursuant to which such profits interest was granted, each profits interest will be subject to certain time-based, market-based and/or performance-based vesting criteria. In the event such vesting criteria are not met, such profits interest will be forfeited. Such forfeited profits interest may be re-allocated.

​[Quoting from WeWork's Form S-1, pages 204-205:]

In August 2019, an individual that is a principal stockholder, executive officer and director of the Company received an award of 9,438,483 profits interests. The individual also surrendered 9,438,483 shares received upon his early exercise of certain unvested stock options in satisfaction of a loan plus accrued interest receivable by the Company in the amount of approximately $365.4 million. The vesting provisions of the profits interest units are identical to that of the shares surrendered. Any excess fair value of the profits interest over the fair value of the shares immediately before they were surrendered will be recognized as incremental compensation cost in accordance with ASC 718.