MEXICO Law and Practice Contributed by: Gabriel Robles, Héctor Cárdenas, Eric Silberstein and Eduardo Aiza, Ritch Mueller
8. Management Incentives 8.1 Equity Incentivisation and Ownership In an effort to achieve alignment between the inves - tors and the management team, the private equity fund will generally grant stock options (or, sometimes, phantom stock) as equity incentive plans. The per - centage ownership allotted to these plans is some - where between 5% and 10% of the total common (or non-voting) stock. 8.2 Management Participation Sweet equity is generally the type of stock covered by an incentive plan. The plan allows for management to receive part of the shares allotted to each member with the passing of time and to the extent the member remains working for the company. Shares vest over time as well. Additional shares may be granted if per - formance metrics are achieved. In Mexico, management do not often obtain preferred shares. Such shares would be part of preferred distri - butions in the event of liquidity and payment of divi - dends. 8.3 Vesting/Leaver Provisions Vesting of stock is standard in Mexican stock option plans. Vesting allows the company some certainty as it relates to the employee staying and their correspond - ing commitment to the company. Shares typically vest some time between three to four years. Additionally, Mexico has adopted a “good leaver” and “bad leaver” concept. A good leaver is an employee who leaves for the right reasons and on good terms (including termination without cause) with the compa - ny and is generally entitled to keep their vested shares, and sometimes even negotiate payment for unvested shares, with the company. On the other hand, a bad leaver is an employee that is terminated for cause or otherwise leaves the company for the wrong reasons, in which case, the employee forfeits their unvested shares and the company buys back the vested shares at a penalty (ie, nominal valuation, at cost). 8.4 Restrictions on Manager Shareholders The main restrictive covenants in Mexico are non- compete, non-solicitation, non-disparagement and
of consideration. While in some instances, mainly in respect of family-run businesses, consideration is paid in cash, there are more strategic tenders where payment is made with an exchange of shares. 7.5 Conditions in Takeovers Tender offers in Mexico may be conditional. Such con - ditions may include a minimum percentage of accept - ance of the offer, material adverse effect, regulatory approvals and obtaining financing. In addition to these conditions, there are instances where bidders may try to protect their tender offer by adding break fees, matching rights and exclusivity provisions. 7.6 Acquiring Less Than 100% Bidders not seeking 100% ownership can strive to obtain other corporate governance rights such as seats on the board, certain veto rights or super-major - ity matters, as well as protections granting the bidder a right to consent in instances where their investment or shareholding could be affected. Information rights in addition to statutory disclosure obligations are also available. Squeeze-outs in Mexico can be conducted through a tender offer; however, if unsuccessful or a minor - ity interest remains within the ownership structure, majority shareholders may vote to buy out the minor - ity shareholder or approve a share redemption, thus redeeming such minority’s shares or, alternatively, to squeeze a party out through a long legal proceeding. 7.7 Irrevocable Commitments In advance of the launch of a tender offer, bidders often obtain significant assurances from the controlling group as to the acceptance and main terms of the tender offer. Bidders aim for these commitments to be irrevocable, but a premium needs to be paid as the principal share - holders relinquish their right to seek other options by shopping the deal. Negotiations for irrevocable com - mitments generally occur within the weeks or months leading up to the launch of the tender offer. Among the features included in these negotiations are the irrevocable nature of the offer, the right to accept another offer (if a new, higher and unsolicited offer is received), additional consideration and the duration of the offer.
415 CHAMBERS.COM
Powered by FlippingBook