ROMANIA Law and Practice Contributed by: Ileana Glodeanu, Andreea Cărare, George Ghitu and Delia Dumitrescu, Wolf Theiss
the transactional documentation or the management agreement of a manager shareholder, there is no time limitation under the law. Although Romanian law does not explicitly limit the duration of such covenants out - side the employment context, in practice, the parties typically agree for these covenants to be applicable only for a period of two to five years, on a case-by- case basis. 8.5 Minority Protection for Manager Shareholders In most private equity transactions, manager share - holders typically seek to secure a range of minority protections rights in the transactional documentation. These rights often include the tag right, the preference right and good-leaver provisions. Among these, the most frequently used protective measures are the tag right and the good-leaver clause; depending on the bargaining power of the parties, anti-dilution protec - tion may also be negotiated and inserted. Depending on the sector and the private equity fund’s degree of involvement in the activity of the acquired business, it is possible for the manager shareholder to hold some veto rights in relation to certain matters that are directly linked to the business. However, it is generally not customary for the management share - holder to have influence over the exit strategy of the private equity fund, especially when the private equity fund is the majority shareholder. 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights The level of control exercised by a private equity fund over its portfolio very much depends on the size of its investment in the target company and the overall strategy of the private fund in the industry in which the target company operates. In most cases, private equity funds intend to use all leverage possible in order to make sure that their investment is well protected and under their control as far as possible. In this respect, private equity funds ensure that the transactional documentation includes the following.
• Investment and shareholders’ agreements, through which the investors appoint all or some of the members of the board of directors or the relevant statutory body in order for the ordinary business decisions to be in line with their fund strategy. • The obligation for the board of directors of the target company to make information regarding the financial status of the company available on a monthly or quarterly basis, cash flow statements including management accounts, and operational and investment budget forecasts. • The right to inspect book and records, typically upon reasonable notice. • Prompt notification of material events or breaches such as covenant defaults, regulatory investiga - tions, material litigation etc. • For the purposes of establishing a stable share - holding and investment structure within the target company, assurance that there is a lock-up period in which no shareholder is allowed to proceed with an exit/transfer of participations. • Certain reserve matters in respect of which any decisions will be passed only with the affirmative vote of the representatives of the private equity fund. Such matters in principle refer to: (a) amendments to the share capital or the issu - ance/transfer of shares; (b) mergers or spin-offs involving the target com - pany; (c) the sale of a business or division of the target company or its subsidiaries; (d) mortgaging, pledging or permission to create a security interest over the target company’s shares; (e) approval of investments and of the business plan; and (f) any amendment to or change in the rights, preferences, privileges or powers of – or restrictions provided for the benefit of – the company’s shareholders. In most transactions, private equity funds seek to implement corporate governance frameworks that enable them to protect their investment and oversee the general operations of their portfolio companies, without necessarily imposing the compliance policies applicable internally within the fund.
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