SWITZERLAND Law and Practice Contributed by: Christoph Neeracher, Philippe Seiler and Lukas Bründler, Bär & Karrer Ltd
tion of the remaining shares against compensation in the amount of the offer price to the respective minority shareholder in a statutory squeeze-out procedure before the competent court ( Kraftloserk- lärung ); or • the bidder may initiate a squeeze-out merger, if the bidder holds less than 98% but at least 90% of the voting rights, against compensation in accordance with the Swiss Merger Act. The threshold to initiate a squeeze-out merger is lower; however, it carries a higher litigation risk than the cancellation proce - dure. 7.7 Irrevocable Commitments Irrevocable commitments to tender shares are not enforceable under Swiss tender offer rules in case of a competing offer, and the Swiss Takeover Board thereby establishes a level playing field for competing offers. According to Swiss takeover law, shareholders must be free to accept a superior competing offer. 8. Management Incentives 8.1 Equity Incentivisation and Ownership Equity incentivisation of the management is very com - mon in Swiss transactions since it is an extremely suit - able instrument for retaining the management team in the long term and may also be attractive from a (Swiss) tax law perspective. Although the equity incentivisa - tion of the management depends to a great extent on the individual transaction, the typical management stake varies between 3% and 10%. Ideally, manage - ment gets to invest on the same terms as the inves - tor to provide even more attractive conditions to the managers (see also 8.2 Management Participation ). Furthermore, the individual structure of the manage - ment participation is very much tax-driven. 8.2 Management Participation In Swiss transactions, there are two predominant structures for management incentive schemes: “strip investments” and “sweet equity”. In the case of the former, managers invest on the same terms and con - ditions as the financial investor, whereas in the case of the latter, managers receive a certain discount and/ or different share classes. A sweet equity incentive scheme could, for example, be structured as follows:
managers receive all ordinary shares while the finan - cial investor receives a mix of ordinary shares and preferred shares with a fixed interest (or alternatively provides a shareholder loan). This leads to a certain envy ratio in favour of the managers. However, it should be noted that Swiss tax law sets rather nar - row limits with respect to tax-exempt capital gains on sweet equity. To have “skin in the game” and to align fully the managers’ interests with those of a financial investor, managers are generally asked to finance a substantial part of their investment with equity, ie, roughly 50% or more. 8.3 Vesting/Leaver Provisions Equity participations of managers are usually subject to customary good and bad leaver provisions, which are mostly tied to the termination of the manager’s employment or mandate agreement, or other events related to the manager personally (death, insolven - cy, divorce, etc). Leaver events typically trigger call/ put options, whereby the leaver qualification has an impact on the purchase price (ie, in the case of a bad leaver, the purchase price is a lower percentage of the fair market value). Vesting provisions, either time-based and/or perfor - mance-based, are also common practice in man - agement participations. Vesting provisions may vary depending on the parties involved and the kind of leaver events that have been agreed. In practice, the most commonly seen arrangements involve time- based vesting with monthly or quarterly vesting over four years, a one-year cliff and end of vesting if the employment ends. The lapse of time together with the leaver event will then collectively have an impact on the purchase price (ie, portion of unvested shares are sold at a lower price versus portion of vested shares). Furthermore, the parties often agree on a certain lock-up period (eg, three to five years) during which the manager may not transfer their shares and/or is limited with regard to the termination of their employ - ment relationship (ie, a manager will be considered a bad leaver except in the case of a termination by the manager for good reasons or by the company without good reasons). After expiry of that lock-up period, the manager may also terminate the employment relation - ship without good reason and still be considered a
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