11053-VCL (Del. If a Shareholder believes in good faith that the Put/Call Price is greater than the amount set forth in the Call Notice or the Put Pricing Notice, as applicable, then such Shareholder may deliver a Finally, a private equity fund of funds may seek side letter pro-visions to ensure that the terms of an invest-ment do not conflict with the fund of funds' governing documents. A sample side letter to a limited partnership agreement (LPA) that can be used by a limited partner investing in a private equity fund that is structured as a limited partnership. There are three versions of the post-money safe intended for use by US companies, plus an optional side letter. Securities or Option Shares, as applicable, in accordance with Section4.02 of the Shareholders Agreement) shall be required, at the time of and as a condition precedent to such Transfer, to become a party to this Agreement (unless such The Independent Appraiser will be engaged to deliver to the Company and such Shareholder a written determination (such determination to include a report setting forth all Managers negotiating side letters on behalf of a fund should ensure that a transfer right provides them with sufficient comfort with respect to the identity and nature of the transferee (this is particularly the case where the fund has a credit facility and does not want to jeopardise its borrowing base) and that appropriate customer due diligence information will be provided in connection with any transfer. Side letter agreements have long been used in private equity fund investments to supplement or interpret the terms of a partnership agreement and related documents. determined by the Board, then the costs and expenses of such Independent Appraiser shall be borne by the Company. -. among the parties with respect to the subject matter hereof. with the evaluation, preparation, negotiation and execution of this letter agreement, the Back-to-Back Equity Commitment Letter, the LP Agreement, the Subscription Agreement and any other agreement, document or instrument entered into in connection therewith or related thereto and the consummation of the transactions contemplated hereby or thereby. Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . This Side Letter Agreement (this "Agreement") is made as of August 4, 2010, by and among Igloo Holdings Corporation, a Delaware corporation (the "Company"), Mason Slaine, an individual ("Slaine"), and (collectively, the and together with Slaine, the "Shareholders"). agreement (or related side letters), such as limiting outstanding debt to a .
Non-Interference Agreement. to this Section3(g) shall be payable promptly following, and subject to, the closing of the transactions contemplated by such definitive agreement contemplated by clause (iv)of the previous sentence. the employment of Slaine at any time or for any reason whatsoever, with or without Cause. The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder Investor will execute a side letter that will serve, separate and . Trial. In connection with any purchase of Call Securities or Put Securities, and a Shareholder within fifteen (15)days after the date of the Companys receipt of an Objection Notice; provided that if the Company and such Shareholder are unable to agree upon who shall serve as the Independent Appraiser Our new programme spotlights women whose achievements, innovation and leadership are reshaping private markets across a broad range of asset classes. Private Equity X, L.P., Warburg Pincus X Partner, L.P., Silver Lake Partners III, L.P., and Silver Lake Technology Investors III, L.P., on the other hand (collectively, theSponsors), have entered into that certain Stock securities of the Company on such date) of the aggregate fees and expenses that would reasonably be expected to be incurred by the Company and its Subsidiaries in connection with a Change of Control. WHEREAS, the Shareholders, on the one hand, and Warburg Pincus SAFEs solve two problems: (1) nobody knows what an early-stage . Women of Influence: Private equity. PEI Staff. A sample side letter to a limited partnership agreement (LPA) that can be used by a limited partner investing in a private equity fund that is structured as a limited partnership. Key person terms are common in the closed-ended fund context (where a key person event is likely to trigger the suspension of the investment period). Download the March 2023 issue of Private Equity International. This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. (xix) Put/Call Price means, with respect to any Call Securities or Put Securities, as applicable, (I)if Slaines employment is terminated by the Company for Cause or by Period, with respect to the Shareholders and their respective Permitted Transferees, shall be deemed to have expired, as of any date, with respect to an aggregate number of Shares held by the Shareholders and their respective Permitted Transferees Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining
Capital Call Facilities - LPA and side letter review. Including appropriate provisions to accommodate a capital call . shall be null and void. Introduction. Transferability is particularly important to certain investors, for example certain Germanpension funds,4who may need to be able to demonstrate free transferability (or as near to free transferability as the fund can practically offer) for regulatory reasons. In this example, a side-letter may be executed between the general partner and the investor regarding a different date when the investor can withdraw their investment. #+Cq..mw>@>J6@\?%'SFm!K*k_K!Zx'"AVboBEqp_D"9j }$w[u?"1GT!nAY\#BuhTloC? Given the popularity of side letters in fund finance . This allows continuity of application. The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. Restricted Period shall mean, with respect to the Shareholders and their respective Permitted Transferees, the period from the Closing Date until the later of (A)the second (2nd)anniversary of the consummation of the IPO and Side Letter: Alaska's U-turn; China PE predictions; industry's next sports specialist. Since a typical private equity fund raises capital over a period of time with multiple closings, a side letter is a convenient way to address the specific concerns of an investor. held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. For example, a fund of . Any time parties enter a contract, whether it is for sales, purchases, an acquisition, or any other contract, there is a possibility that the contracting parties will create an agreement outside of the formal . 15 February 2023. Teasers are documents that contains a brief description of the business, its product and service offerings, and financial . April 15, 2021. fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA In such event, Silver Lake (and/or its assignee) and Warburg Pincus (and/or its assignee) shall have a pro rata right (based on their relative ownership of Shares at the time of delivery of such notification by the Company) to If a fund is willing to negotiate excusal rights, it should try to limit the amount of investor discretion in determining what an excused investment is as the emphasis should be on using the investors full commitment rather than allowing it to cherry pick deals. entitled to an additional payment from the Company (or its designee, as applicable) in an amount equal to the product of (A)the respective number of shares of Common Stock repurchased by the Company or its designee from such Shareholder upon Securities or Put Securities as may be reasonably requested by the Company, including but not limited to the representation that such Shareholder (or his or its Permitted Transferees, if applicable) has good and marketable title to such Call Ground Rules for Secondary Deals - And Variations. (i)when delivered by hand or electronic e-mail, (ii)upon confirmation of receipt when delivered by facsimile transmission, (iii)one (1)day after deposit with a reputable overnight delivery service or (iv)three A side letter supplements and, where the fund takes contractual form (such as a partnership), can override the terms of the funds constitutional documents and is typically required where an investor has specific commercial, legal, regulatory, taxation or operational concerns with respect to its investment in the fund. The SEC staff on examination has been known to review side letters to test whether they are being adhered to and whether proper disclosure was made. Private Equity: Legal Perspectives & Documentation is designed to provide you with a solid understanding of how law and finance work together in the private equity industry to ensure informed decision-making. The MFN exercise ensures that all investors who are allowed to see/elect to receive other investors side letter provisions are presented with their options within the agreed timeframe. Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. September 13, 2011. The right of the Company (or, to the extent provided in Section3(b)(ii), Silver Lake and Warburg Pincus) to effect a Call and the right of the Shareholders to effect a Put, in each case as set forth in this 4 0 obj
The ESG Capital Partners Case serves as an important reminder that private fund managers, investors and practitioners should always consider the following points to ensure enforceability of side letter agreements: 1. as of such date equal to the Permitted Transfer Share Amount. NOW, THEREFORE, in consideration of the foregoing, First, a quick summary of the events leading up to the . Once an investment enters a side pocket account, only the . If Slaines employment with the Company shall be terminated for any reason, the Company shall have the right, but not the obligation, by one or more written notices to the Shareholders (each, a Call Notice) delivered on or The rights and remedies provided herein Legally, a side letter is nothing more than a contract between the fund or the GP and the investor, which sits alongside the other contractual relationships they have in the form of the LPA and . with respect to any Option Share, the exercise price paid upon the exercise of the Option pursuant to which such Option Share was issued to Slaine. Private Equity News & Analysis. the Company without Cause, by Slaine with Good Reason or by reason of Slaines death or Disability, the Purchased Securities and the Option Shares and (II) in the event Slaines employment is terminated by the Company for Cause or by Requests for management rights letters are fairly common in today's market and do not impose significant burdens on . of a Put with respect to all or a portion of the Put Securities owned by such Shareholder and/or his or its Permitted Transferees. The ability to request further information from the manager is also commonly included in the private placement memorandum, with summaries of side letter rights typically made available. However, even with careful drafting, an MFN right can significantly extend the funds (or the managers) obligations; managers should therefore carefully consider which investors terms are likely to be captured by the MFN when negotiating these (and other) side letter provisions. or any specified portion of the Call Securities owned by any such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. Slaines estate, as applicable) shall have the right, but not the obligation, by one or more written notices to the Company (each, a Put Notice) delivered on or prior to the Put/Call Termination Date, to Put all or any (including the amount of Non-Exercised Call Securities) and, in such event, such other Sponsor (and/or its assignees) shall have a right to exercise such Call right with respect to all or any portion of the Non-Exercised Call Securities pursuant to the parties hereto, intending to be legally bound by the terms hereof, have caused this Agreement to be executed as of the date first above written by their officers or other representatives thereunto duly authorized. <>
conditions of this Agreement for all parties remain valid, binding and enforceable. In this key features document, we briefly highlight some considerations relevant to the use of side letter arrangements in Irish ILPs. Make sure you reference any fund "gate" provisions in your side letter agreements. 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. Use of Side Letters. delivery of such Put Notice to the Company, the Company shall notify such Shareholder in writing of the Put/Call Price with respect to such Put Securities as determined in good faith by the Board (a Put Pricing Notice). Environmental, Social and Governance ("ESG") concerns. Download this easily editable template through formats like MS Word and Mac Pages. If such a provision is contemplated by a fund, it should ensure it is able to comply with these provisions and, from a practical perspective, to provide any reporting agreed. If the scope of the prohibited investments is stated in the side letter itself, it is generally helpful to state why they are prohibited in order to increase the chance that the provision is taken outside the scope of any relevant MFN right. A standard Model Limited Partnership Agreement ("LPA") has been a persistent need in the private equity asset class given the cost, time and complexity of negotiating the terms of investment. Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. This investor fills out a form documenting his or her suitability for investing in the partnership. Transferee will be treated as a Shareholder for purposes of Sections 2, 3 and 4 of this Agreement, as applicable, with the same rights, benefits and obligations hereunder as Shareholder; provided that, prior to the effectiveness of such Options. laws govern the subscription agreement and side letter. (5)Business Days after delivery of such notice) to the Company in immediately available funds to an account designated by the Company in such notice the excess, if any, of (i)the aggregate gross proceeds previously received by such . Use them or shun them, side letters (also called side agreements or side letter arrangements) are part of the business landscape. Agreement. for any reason (other than by the Company for Cause or by Slaine without Good Reason) and a Material Breach Event has not occurred prior to the Put/Call Closing Date, a price equal to the Fair Market Value of (x)with respect to any Purchased The SEC recently published a proposed rule (the "Proposal") that would impose unprecedented mandatory disclosure obligations and various other forms of intervention in the private funds industry. Thanks to the $2 trillion . For example, a request for portfolio level information should not result in the investor holding information it could use to its competitive advantage or to the detriment of other investors. "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . provisions, side letters can never override the provisions of an offshore fund's memorandum and articles of association. (3)days after deposit in the U.S. mail, to the respective addresses, facsimile numbers or electronic email addresses of the parties set forth below: (i) If to the Company, to it at the following address: (ii) If to any Shareholder or any of his or its Permitted Transferees, to Slaine at the following address: (h) Injunctive Relief. shall apply to the Purchased Securities, as well as any other equity securities of the Company that the Shareholders shall acquire from time to time; and. Although the usual intention is that side letters will give rise to legally enforceable rights and obligations, this is by no means guaranteed and, in some cases, they have nothing more than moral effect. London
A management rights letter is a key aspect for venture capital funds when investing in companies, as it enables funds to raise capital without subjecting the activities of the fund to the various restrictions imposed under ERISA. [Signature Page to Side Letter Agreement]. 3 Vol. If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the SAFEs are easy to use and get the job done with minimal cost, and can work for both single investors and for groups of investors. All covenants, agreements, representations and warranties made herein shall Finally, as a technical drafting point, side-letter covenants should be carefully drafted to ensure that the correct party is making the covenant. +971 4 425 6338, London
and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. The constitutional documents of closed-ended funds typically include a mechanism whereby an investor can be excused from participating in particular types of investments (generally due to regulatory or other internal constraints). material analyses used in arriving at such determination) within thirty (30)days of being engaged stating the Independent Appraisers determination of the Put/Call Price and such Put/Call Price as determined by such Independent Appraiser Nothing contained in this Agreement shall be deemed to obligate the Company or any Subsidiary of the Company to employ Slaine in any capacity whatsoever or to prohibit or restrict the Company (or any such Subsidiary) from terminating A recurring theme in private equity fund investing is the use of 'side letters' between individual limited partners and the general partner of the fund. nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and permitted assigns, any rights under this Agreement. RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH THE DEALINGS OF ANY PARTY HERETO IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any (c) Exercise of Put. shall be cumulative and not exclusive of any rights or remedies provided by law. It is also common to carve out certain terms from the MFN, for example, rights granted to first closing or seed investors, rights granted due to an investors specific legal, regulatory or taxation concerns and the right to an advisory committee seat. attached hereto as Exhibit A (as it may be amended from time to time, the Shareholders Agreement), to which the Shareholders shall have been required to become a party as of the closing of the transactions contemplated by An investor in a PE fund will often indicate (commonly in the subscription agreement or a side letter entered into with the fund) whether it is interested in co-investment opportunities. The rules and regulations for starting a private equity or hedge fund are quite complex, especially when it comes to claiming the correct exemption from registration. the Purchase Agreement. In recent years there has been growing interest in co-investment vehicles, separately managed accounts and other alternatives to classic commingled funds. any of his or its rights hereunder except in connection with a Transfer of the Purchased Securities in compliance with the terms and conditions of the Shareholders Agreement and Section2 hereof. agreements and investor side letters to make sure that they authorise a capital call facility and related lender rights. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. Managers negotiating side letters on behalf of a fund should ensure that a transfer right provides them with sufficient comfort with respect to the identity and nature of the transferee (this is particularly the case where the fund has a credit facility and does not want to jeopardise its borrowing base) and that appropriate customer due diligence information will be provided in connection with any transfer. We very much appreciate your support and trust. (i) Waiver of Jury Download the Safe. Size: A4, US. Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). (j) Severability. The pooling of these entities continues to evolve and a standard approach may develop over time. This document is not legal advice and should not be relied on as such. Inside: The price is right - the ins and outs of portfolio valuation; From regulation to collaboration - a 17-page special report on co-investing; Expert comment and analysis from industry leaders; Plus much more. Below, we've outlined some of the most important terms of NDAs in the private equity space, which draw nuance from changing business conditions. It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters. Termination Date, the Company shall determine not to exercise a Call right pursuant to this Section3 with respect to any Shareholder and/or his or its Permitted Transferees, then the Company shall promptly notify Silver Lake and Warburg Pincus A key man clause is a contractual clause that prohibits an investment firm or fund manager from making new investments if one or more key persons are not available to devote the necessary time to the investment. Side letters are an (increasingly) common way of formalising negotiated arrangements between a private fund and an investor.1Whilst used more widely in the closed-ended fund context (given the limited withdrawal rights associated with such funds, the typically higher level of negotiation and greater structural complexity), they are also a feature of open-ended funds, for instance where there is a seed or cornerstone investor investing significant capital or an investor subject to specific tax or regulatory regimes that require bespoke terms. Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. 2 0 obj
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between a private equity fund (a "Fund") and an investor (an "Investor") are generally contained in the constituent documents of the Fund, often a limited partnership agreement (an "LPA"), which sets forth the rights and obligations of the general partner and each . However, these documents are actually the most important as they can make or break your company. The side letter can be used to facilitate a large investment that attracts other strategic investors, which could benefit the fund and the execution of its investment strategy.
From the hundreds of nominations for the inaugural Women of Influence in Private Markets list, we could select just 10 from the private equity sphere. The LPAC is a governing body of the PEF comprised of a select number of investor representatives; its members have specific rights and duties outlined in the limited partnership agreement. 1 0 obj
While side letters can be helpful in securing key investments, it is imperative to fully understand their legal . This Standard Document has integrated notes with important explanations and drafting and negotiating tips. is determined to be invalid, illegal or unenforceable by any governmental entity, the remaining provisions of this Agreement, to the extent permitted by law shall remain in full force and effect provided, that the essential terms and as applicable, at the closing of the purchase of the Call Securities or Put Securities, as applicable, pursuant to Section3(e)). (B)the earlier of (x)the fifth anniversary of the Closing Date and (y)the 25% Float Date; provided, however, that following the six month anniversary of the consummation of the IPO, the Other Shareholder Restricted Lenders should be mindful of any such provisions, commonly referred to as most favoured nation ("MFN") provisions (which may also be set out in the LPA). 107 0 obj
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Side Letters. Safe: Valuation Cap, no Discount Purchased Securities, Option Shares or Purchase Price occurring after the date of this Agreement. While side letter terms will vary from fund to fund, and from investor to investor within a given fund, side Call Securities pursuant to Section3(b) above, the Company enters into a definitive agreement that, if consummated, will result in a Change in Control, then, upon and subject to the consummation of such transaction, each Shareholder shall be %
x][s8~OUNS6C*:v$\gMvlR%g. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH PARTY HERETO WAIVES, AND COVENANTS THAT SUCH PARTY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN %PDF-1.5
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Aside from the commercial and practical considerations relevant to agreeing to a side letter provision, there are certain regulatory issues that managers should also bear in mind. 19, No. 1 Whilst used more widely in the closed-ended fund context (given the limited withdrawal rights associated with such funds, the typically higher level of negotiation and greater structural complexity), they are also a feature of open-ended funds, for .