The company I'm an investor in requires a significant capital infusion, and is trying to find a structure to remove several current investors who are not participating in daily operations of company - basically people who invested cash and/or sweat but have moved on for whatever reason, myself included. We are trying to find a good model for freeing up equity by "buying" the inactive investors out with some sort of future disbursement that will kick in once the company begins seeing operating income.
So, if investor John owns 5% of the company, they agree to give back (or sell back at a very low rate) all their shares, in exchange they get an agreement that says once we make X much money, you will receive quarterly disbursements based on a percentage of operating income for X many quarters.
The other option would be to convert the investments into promissory notes, perhaps even a convertible one, but we wanted to minimize the number of book liabilities.
I am curious if anybody has had experience with such a structure. I'm open to suggestions for other structures that accomplish a similar result - free up equity now, in return for "royalty" payments in the future. Our investors are all on board with the concept, but perhaps there's a better way of executing. It's an S Corp, by the way.
Let me know if I need to provide more info, thanks!