SWITZERLAND Law and Practice Contributed by: Marion Bähler, Ramona Wyss, Florian Gunz Niedermann, Fabienne Limacher and Urs Hofer, Walder Wyss Ltd
• (special) pre-emptive subscription rights; • down-round protection rights; and • blocking/veto rights in relation to certain material corporate resolutions or a potential drag-along event. 3.4 Documentation Certain key documents outline the terms of the investment typically used in the financing of a Swiss start-up. Depending on the parties involved and the complexity of the transaction, the specific documents may vary, but the most common documents include the following. • Term sheet – This is a generally non-binding document (with certain exceptions, such as for exclusivity and costs) that sets forth the key details of an investment and the rights of the involved parties. It serves as a basis for negotiations and helps the parties to agree on the key terms before working with more detailed documents. • Investment agreement – The investment agreement is entered into by the investors, existing shareholders and the company. It sets out: (a) the specific terms of the investment, including the investment amount as well as the number and category of shares issued; (b) details and steps in relation to the clos - ing; (c) the representations and warranties given by the parties; and (d) the remedies in case of a breach. • Shareholders’ agreement – The shareholders agreement governs the relationship between the shareholders upon completion of the investment. It includes provisions governing: (a) the corporate governance, including board appointment, and veto and infor - mation rights;
(b) pre-emptive subscription rights; (c) sale and liquidation preference and con - version rights; (d) down-round protection rights; (e) non-compete and non-solicitation provi - sion; and (f) the restrictions on share transfers as well as drag-along and tag-along rights. The Swiss Private Equity & Corporate Finance Association (SECA) provides model documen - tation for VC investments, including the afore - mentioned documents. However, the SECA tem - plates are generally not considered a reflection of the market standard, and most law firms that are active in the market use their own templates. 3.5 Investor Safeguards To protect their investment, VC investors often secure certain key terms in a downside scenario, such as liquidation or a down-round. Besides the liquidation preference (see 3.3 Investment Structure ), such terms include the following. • Anti-dilution adjustments – Anti-dilution provi - sions serve to protect investors from dilution of their stake in the company in subsequent rounds of financing at lower valuations. Most commonly, a broad-based weighted average adjustment would be agreed which would be effected by the issuance of additional shares of the same category at nominal value to the affected parties. Sometimes, the issuance of such shares is subject to pay-to-play provi - sions. • Pre-emptive subscription rights – Pre-emptive subscription rights give investors the oppor - tunity to maintain their ownership percent - age in the company by purchasing additional shares on a pro rata basis before they are offered to other investors. In the majority of cases, such right is limited to the investors’
548 CHAMBERS.COM
Powered by FlippingBook