JERSEY Law and Practice Contributed by: Paul Burton and David Allen, Maples Group
for part of the institutional strip on secondary buy - outs where managers roll over on the same terms (and equity-to-debt ratio) as the private equity sponsor. Preference shares (disenfranchised as to voting/ any blocking trigger) are also used in the following arrangements where incentivisation is planned for a larger number of managers/executives: • long-term incentive plans; • share options plans; • management incentive plans; • deferred share plans; and • joint ownership equity plans. 8.3 Vesting/Leaver Provisions If managers leave the portfolio business before a cer - tain date, they will normally forfeit their sweet equity. Good and bad leaver provisions are typical, with pref - erential terms applying to individuals who leave for “good” reasons. Generally, this includes managers who leave due to illness, death, disability or retire- ment. Vesting provisions are typical for management equity in Jersey. Four or five years is the usual vesting period; otherwise, vesting on an exit event is most common. Full vesting on an exit event that takes place earlier than anticipated generally means that everyone benefits. Alignment of management and private equity spon - sors on exit timing is critical. Where sponsors seek to exit early, there is often little value in management’s sweet equity, which can damage an otherwise good relationship. Management increasingly look to secure certainty regarding exit timing. Where an exit takes place outside of this timeframe, one option is that management are compensated for the lost “oppor - tunity”; however, this approach is not favoured by sponsors. 8.4 Restrictions on Manager Shareholders Customary restrictive covenants agreed to by man - agement in private equity transactions in Jersey include non-compete, non-solicitation and non-dis - paragement. Such covenants are normally part of the portfolio company group employment contract arrangements for executives and senior management; however, they are unenforceable unless they are rea -
sonable as between the parties and in respect of the public interest. In practical terms, enforcement of these types of cov - enants is not straightforward. Where former manager shareholders with specific knowledge of the opera - tions of a Jersey target business are free of restrictive covenants, it is not uncommon to see prospective bid - ders in secondary and tertiary transactions engaged by the appointed financial advisory team to provide specialist consultancy input on the process. 8.5 Minority Protection for Manager Shareholders Management shareholders in private equity transac - tions are not afforded greater or different rights than minority shareholders in other situations under Jer- sey company law. The standard legal protections that exist include claims in relation to minority oppression and unfair prejudice, etc. It is usual for contractual pre-emption rights in favour of management to exist in relation to sweet equity. Such rights are intended to offer some kind of anti- dilution protection to management. However, if signifi - cant additional equity funding is obtained, or if a larger number of new or existing management teams are offered and take up sweet equity, limited pre-emption may not fully or effectively operate as anti-dilution pro - tection. Limited rights of veto may exist in relation to a narrow range of matters specifically concerning the portfolio business. Management would not typically have any right to control or influence the time, form and mode of exit that a private equity sponsor may wish to adopt in relation to a portfolio asset. 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights Where private equity sponsors hold a majority owner - ship position in a portfolio company asset, they nor - mally enjoy significant veto rights over major corpo - rate, commercial and financial matters pertaining to the portfolio company business, although thresholds
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