NORWAY Law and Practice Contributed by: Karoline Ulleland Hoel, Sigurd Opedal, Ole Henrik Wille and Daniel Nygaard Nyberg, Wikborg Rein Advokatfirma AS
At fund level, incentivisation of key personnel is com - monly equity-based. The AIF Act imposes certain
their employment in the target group is terminated. Leaver provisions are typically divided into: • good leavers (eg, long-term illness, retirement, disability, death or involuntary termination without cause); • bad leavers (eg, voluntary termination prior to exit, summary dismissal or material breach); and • occasionally, “intermediate” or “very bad” leavers. Generally, a good leaver receives fair market value for the shares, whereas a bad or very bad leaver must sell at a discount, typically the lower of cost and between 50% and 100% of fair market value. Leaver provisions in Norwegian private equity deals are not always linked to a vesting model, but this is fairly common. The provisions are typically time- based, linked to the good leaver and/or intermediate leaver provisions and vary depending on how early the person in question terminates the employment. A vesting period of up to five years is common, with the underlying principle being that only the vested part of the shares from time to time may ordinarily be redeemed at fair market value, while unvested shares may only be redeemed at a lower value. 8.4 Restrictions on Manager Shareholders Management shareholders are often required to accept non-compete and non-solicitation provisions in addition to drag, lock-up and standstill, right of first refusal and leaver provisions (including price reduc - tions triggered by leaver events). Non-compete and non-solicitation undertakings typically span 12–18 months, with 12 months becoming more common. These restrictions are usually (together with other restrictive covenants) included in the share purchase agreement (or other transaction agreement), in the shareholders’ agreement, as well as in the employ - ment/service agreement. Certain regulatory limits on enforceability apply. Under Norwegian anti-trust regulations, restrictive covenants are generally acceptable if they last no longer than three years – depending on the transaction involving important goodwill or know-how – and are geographi -
remuneration restrictions on AIFMs. 8.2 Management Participation
The private equity fund and any co-investor’s invest - ment (institutional strip) are typically comprised of a mix of ordinary and preference shares, with a signifi - cantly higher percentage of preference shares. Man - agement’s strip often primarily consists of ordinary shares, although variation exists, such as requiring management to invest in both the institutional and management strip, with variations depending on the person’s role/significance. Institutional strips may comprise shareholder loans, but these are less com - mon due to tax implications. Preference shares normally entitle the private equity fund to receive its entire invested amount plus a pre - defined (preferred) return before ordinary shareholders receive distributions; once preferred return (including interest and investment amount) has been distributed, residual proceeds are allocated to ordinary shares. Management is usually more heavily exposed to ordi - nary shares and may potentially earn a higher relative return on their investment in successful exits (reflect - ing the increased risk associated with the ordinary shares), but faces limited distributions if proceeds are insufficient. Incentive schemes for management have evolved from option and bonus-based to predominantly investment-based models, although exit bonus arrangements (subject to payroll tax and social secu - rity contributions) are also applied. Management typically invests via the Norwegian hold - ing structure (TopCo or, if a MidCo level is in place, MidCo). For management, particularly for minority positions, it is common to establish a separate man - agement holding company (ManCo) co-owned and (indirectly) controlled by the private equity fund. 8.3 Vesting/Leaver Provisions Management co-investors are usually required to accept call options for their shares in the event that
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