SWEDEN Law and Practice Contributed by: Niclas Rockborn, Pär Johansson, Daniel Sveen, Arijan Kan and Erik Schwartz, Gernandt & Danielsson Advokatbyrå
either in the parent company alongside the private equity fund or in a company directly below the parent company. In order to facilitate a future exit, it is fairly common to pool management and employee investors in a sepa - rate holding entity (MIPCo/KIPCo/EIPCo), in particu - lar where the buyer launches a wider programme for non-key employees to allow them to make smaller investments. 8.3 Vesting/Leaver Provisions Management and key employees typically acquire shares at the same time as the buyer (at the closing of the transaction). Certain managers may also top up their initial investments and new joiners would invest when joining the target company. It is fairly common for private equity funds in Sweden to apply value vesting provisions. The value of the sweet equity vests over time, usually over two to six years, entailing that the value which the management or employee investors receive for their investment if they leave increases over time. The typical leaver provisions in Sweden include those for a: • good leaver; • bad leaver; and • intermediate leaver. The criteria for defining the different leaver categories are a subject of negotiation between the management team and other employees invited to invest on the one hand, and the private equity buyer on the other hand. Good leaver events typically include events such as retirement, long-term illness or death. A good leaver event commonly allows the individual to receive the fair value for its shares. Bad leaver events typically include summary dismissal by the employer or other material breach by the leaver of the shareholder’s agreement and/or its employ - ment agreement. Bad leaver events typically entitle the manager to the lower of (i) the cost (the amount
invested by the individual), and (ii) the fair value of the shares with a discount (usually around 75%). Intermediate leaver events typically include termina - tion of the employment by the employer (other than summary dismissal), and termination of the employ - ment by the employee. Interim leavers typically entitle the manager to the fair value of the vested shares and acquisition cost for the unvested shares. The leaver provisions are typically structured as call options granted to the private equity majority owner, which exercises the option upon a leaver event occur - ring. 8.4 Restrictions on Manager Shareholders In private equity transactions on the Swedish mar - ket, there are often overlapping restrictive covenants in (i) the transaction documentation (usually a share purchase agreement), (ii) the terms of the MIP/KIP/ EIP-programme, and (iii) the employment agreement of the management or employee shareholder. Non- compete provisions and non-solicit provisions are customary in all three documents. In the transaction document, restrictive covenants usually expire 18–24 months following closing, although they sometimes last longer. The restrictive covenants contained in the terms of the MIP/KIP/EIP-programme usually expire 12–24 months after the shares are sold (or after the end of employment if earlier). A non-compete in an employment agreement is most commonly limited to 6–12 months following termination of employment. In addition to the above restrictive covenants, there are certain kinds of actions by the employee which usually constitute call option events under the leaver provisions in the MIP/KIP/EIP-programme. These include disparagement, fraud against the company
and other crimes against the company. 8.5 Minority Protection for Manager Shareholders
Management and employee shareholders typically expressly disclaim any minority protection rights granted to them under the Swedish Companies Act, and are typically not granted any veto rights.
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