NETHERLANDS Law and Practice Contributed by: Maarten de Boorder, Rutger Sterk, Bas Vletter and Samuel Garcia Nelen, Greenberg Traurig, LLP
8. Management Incentives 8.1 Equity Incentivisation and Ownership Equity incentivisation of the management team is a common feature of PE transactions in the Nether - lands. Typically, management may be entitled to a non-voting minority of the share capital, which is usu - ally offered by way of depositary receipts for shares held through a Stichting Administratiekantoor (com - monly referred to as a STAK). Ownership is typically steered towards only economic upside. Governance rights are typically limited to fundamental minority pro - tection rights. 8.2 Management Participation A broad range of management equity incentive arrangements is available in the Netherlands, includ - ing (combinations of) “sweet” equity plans, ratchet/ performance shares, long-term incentive plans, exit bonuses, and stock appreciation rights schemes. “Sweet” equity plans typically entitle management to invest in ordinary shares, potentially granting sub - stantially higher exit proceeds as compared to the PE fund’s holding of ordinary shares, after repayment of debt, shareholder loans and preference shares. By contrast, the PE fund will invest in a combination of preference shares and ordinary shares, with the pref - erence shares delivering a compound fixed return making up the largest part of the capital at entry, resulting in “envy” towards management. Certain key managers may also be invited to invest on equal eco - nomic terms alongside the sponsor. This institutional strip is generally subject to a lighter regime in terms of leaver provisions. 8.3 Vesting/Leaver Provisions Leaver provisions typically oblige each manager to offer their management incentive stake to the PE sponsor (or a person designated by the PE sponsor) upon the occurrence of a leaver event. The manager will be categorised as: • a “bad leaver” – typically a leaver who is dismissed for urgent cause, certain reasonable termination grounds as defined under Dutch employment law, voluntary resignation other than for good cause (death, serious illness, etc), material breaches of
if the bidder’s shareholding exceeds a lower thresh - old, in practice often around 80%, the target will co- operate with alternative squeeze-out mechanisms such as an asset sale or a (triangular) legal merger. If a bidder does not acquire 100% ownership of a target, it may strengthen its governance rights by, for example, entering into a shareholders’ or voting agree - ment with another major shareholder or concluding a relationship agreement with the target company. Such agreements typically include provisions regarding governance rights, and may include a nomination right for one or more members of the supervisory board. They may also include share transfer restrictions or orderly market arrangements. The implementation of a debt push-down is not pro - hibited by Dutch law. However, in order to be able to achieve a debt push-down into the target following a successful offer, the PE-backed bidder must ensure that it can incur debt at the level of the target compa - ny. This is often a management board decision, which requires the approval of the supervisory board and the general meeting. 7.7 Irrevocable Commitments Shareholders of the target company may give irrevo - cable commitments to accept a public offer if and when launched. Shareholders that hold a substan - tial interest, such as institutional investors, are often approached before the intention to make a bid is made public; therefore, inside information is often shared, and the process is commonly referred to as “wall-crossing”. Once wall-crossed, the shareholders cannot deal in the target’s securities until the infor - mation is public. Wall-crossing is permitted in the Netherlands if the will of such shareholder to tender the shares is reasonably required for the decision to make an offer. The commitments given by sharehold - ers are often conditional (“soft”) commitments, since unconditional (“hard”) commitments do not allow the shareholder to terminate the agreement once a better offer is made.
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