Definition - What does Restricted Stock mean?
Post-transaction requirements may include:
- Meeting future profitability targets in which case the restricted stock has been issued as a form of earnout prepayment;
- Ensuring the management team from the seller stays on for a specified time period. If any of the key managers leave, the stock they received may be cancelled; and
- Ensuring that the management team from the seller abides by any non-competition agreements in place. The restricted stock serves as a form of soft enforcer of the non-compete.