SWITZERLAND Law and Practice Contributed by: Marion Bähler, Ramona Wyss, Florian Gunz Niedermann, Fabienne Limacher and Urs Hofer, Walder Wyss Ltd
pool is available to cover the company’s needs for a reasonable period following closing. Main terms and size of the pool are then agreed in the financing round documentation. It is thereby possible to wholly or partially consider this pool/ its increase as pre-existing for the calculation of the share price of investors based on a fully diluted pre-money valuation or to agree that the relevant dilution shall be borne by all sharehold- ers (including new investors). The shareholders’ agreements provide for cer - tain exit rules relating to trade sale or IPO trans - actions, often through covenants to pursue such a transaction if approved by the board or by a qualified majority of the shareholders. IPO- related clauses usually cover registration rights in case of US listings as well as lock-up under - takings (often 6–18 months and depending on underwriting recommendation or requests). The shareholders’ agreement also typically pro - vides for a set of transfer restrictions applicable to all shareholders, including: • a prohibition on encumbrances; • right of first offer or refusal of existing share - holders; • co-sale rights (tag-along) and co-sale obliga - tions (drag-along); and 6. Exits 6.1 Investor Exit Rights • call options of the company and/or other shareholders (eg, in case of an insolvency event with respect to a shareholder, transfer or encumbrance of shares in breach of trans - fer restrictions or other material breaches of the shareholders’ agreement, in all instances excluding transfers explicitly permitted or
provided for in the shareholders’ agreement such as – eg, affiliate transfers). The tag-along right is usually limited to a pro rata portion in case the respective sale transaction does not trigger a change of control. There are also instances where the pro rata tag along is restricted to certain categories of shareholders or excluded altogether. Typically, the approval of a qualified majority of all shareholders as well as a majority of preferred shareholders is required to trigger the drag-along obligation. Sometimes the latter majority will not apply if proceeds from the sale exceed a certain threshold (eg, two or three times the issue price in the last financing round). In case of a trade sale, investors holding pre - ferred shares are entitled to their respective liqui - dation preference (see 3.3 Investment Structure ) with later-stage preferred shares often ranking senior to those issued in previous rounds, pro - vided that they may instead opt for distribution of proceeds on an “as-if converted” basis, if distributions due to common shares exceed the preference amount for the respective class of preferred shares. Whereas it is rather uncommon to grant inves - tors the right to trigger an exit alone, it is from time to time agreed that investors will have a preferred liquidity upon expiration of a certain period (eg, by carve-outs from the tag-along and right of first refusal provisions) and/or that they may request that exit options (trade sale or IPO/listing) are at least evaluated with the help of external advisers upon expiration of such a period. In case of late-stage projects, the shareholders’ agreement would typically also include specific provisions facilitating any IPO or listing.
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