SINGAPORE Law and Practice Contributed by: Evelyn Wee, Sandy Foo, Tracy-Anne Ang, Terence Quek, Hoon Chi Tern, Goh Jun Yi and Tricia Teo, Rajah & Tann Singapore LLP
made) or “hard” (which does not allow any such out). Where the offer terms are favourable, “hard” undertak - ings have become increasingly common. Given the highly confidential and price-sensitive nature of such transactions, any approach for irrevo - cable undertakings will need to be handled with sensi - tivity and the timing carefully judged (with appropriate non-disclosure agreements and wall-crossing meas - ures in place). 8. Management Incentives 8.1 Equity Incentivisation and Ownership Alignment of management interests with the private equity investor’s financial objectives is a key consid - eration and, therefore, equity incentives are a common feature of private equity transactions. 8.2 Management Participation The form of management participation varies and could either be ordinary or preferred. Equity securities may be subject to ratchets measured by key performance indicators. These would usually be subject to restrictions on transfer and claw-back mechanisms, or only exercisable on exit. For take-private transactions, subject to clearance with the SIC on any “special deals” issues under the Takeover Code, management may be offered the opportunity to participate (with an equity stake) in the bidding vehicle or its holding company, where man - agement agree to swap their shares for equity in the bidding vehicle. As shareholders in the bidding vehi - cle, the management are likely to be subject to the usual restrictions that a private equity sponsor would expect to impose in terms of voting rights and trans - ferability of shares. 8.3 Vesting/Leaver Provisions Management equity is commonly subject to good leaver and bad leaver provisions. Vesting periods, as well as any moratorium or restrictions, would usually be for at least a period that coincides with the time anticipated for management to achieve an exit for
the private equity sponsor, usually within three to five years. 8.4 Restrictions on Manager Shareholders Management shareholders generally agree to non- compete and non-solicitation undertakings. Such undertakings will need to be “reasonable”. Restrictive covenants such as non-competition and non-solicitation clauses are generally not enforceable under Singapore law unless and until they are proven to be: • reasonably required to protect a legitimate propri - etary interest of the party seeking to enforce such a covenant; • reasonable in respect of the interests of the parties concerned; and • reasonable with regard to the interests of the pub - lic. 8.5 Minority Protection for Manager Shareholders Management may have pre-emption rights to sub - scribe for fresh equity on the same terms but typically would not have evergreen anti-dilution rights. The reserved matters list will also usually be kept short and restricted, and the ability of the manage - ment team to control or influence the exit of the private equity sponsor will normally be limited. 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights Oversight by the private equity fund is usually achieved through a combination of board appointments, veto rights and information rights. Private equity investors typically enjoy veto rights over material corporate actions, including restrictions on further issuances of debt/equity, change of business, winding-up and other related party transactions. Depending on the size of the minority stake, the private equity inves - tor may also have veto rights over operational mat - ters such as capital and/or operational expenditures
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