EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. the date of Slaines termination of employment and (B)with respect to any Option Shares, such Call Securities as of the Put/Call Exercise Date and (y)the Cost of such Call Securities, (II) if Slaines employment is terminated This Limited Partner Advisory Committee (LPAC) clause for private equity fund (PEF) side letter is to be used when the PEF grants an investor the right to appoint a representative to the PEF's LPAC. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument. 121 0 obj
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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 respect to such Call Securities as determined in good faith by the Board. N~o@XR" i
Most favored nation clause samples. Each of the parties hereto acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. 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. (j) Severability. Put/Call Price by the Independent Appraiser; provided, however, that if, as of the date that otherwise would be the Put/Call Closing Date pursuant to the foregoing clauses (I)and (II), the Company is restricted or prohibited from references to numbers of Purchased Securities, Option Shares and Purchase Price in this Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization or similar transaction affecting the RECITALS . 2) Conversely, certain rights generally should not be included in a side letter, notably those that would create a new class of interests from a local law perspective or restrict the fund as a whole (such as tighter investment restrictions than those described in the funds constituting documentation). to the Company free and clear of all liens, claims or other encumbrances by delivering to the Company such instruments of transfer as shall reasonably be requested by the Company. (d) Successors; Assignment. x@g1c:/Zpd$ 9PGF 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 (b) (ii) If, at any time prior to the Put/Call The use of side letters is becoming a common theme amongst investors . Trial. A little over a year ago, the Delaware Court of Chancery issued a forceful reminder that not all side letter agreements are enforceable. Enhanced reporting and information rights. For instance: private equity firm Thoma Bravo, which manages $114 billion of investor money, says in its federal disclosures that it will use side letters as it pleases: "Thoma Bravo is likely to have its own economic and/or other business incentives to provide certain terms to certain limited partners . Call) and (ii)if Slaines employment is terminated (x)by the Company without Cause, (y)by Slaine for Good Reason, or (z)on account of Slaines death or Disability, each Shareholder (or Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. [Remainder of page intentionally Law portal; A side letter or side agreement or side letter arrangement is an agreement that is not part of the underlying or primary contract or agreement, and which some or all parties to the contract use to reach agreement on issues the primary contract does not cover or for which they require clarification, or to amend the primary contract. 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 Rather than a privately negotiated side letter process . %
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 PEI Staff. These side letter requests can come in many guises, including requests to vary the frequency, format and content of reporting. Shareholder (or his or its Permitted Transferee) from the Company or any other Person in connection with the Transfer by such Shareholder or his or its Permitted Transferees of any Purchased Securities and Option Shares (including, without Shares shall bear legends as provided in the Shareholders Agreement. Shares Transferred by the Sponsors as of such date either in connection with the consummation of the IPO or following the consummation of the IPO (other than to a Permitted Transferee), and the denominator of which is the aggregate number of Shares . 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 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. Background ESG Capital Partners was formed to purchase [] 3 March 2012 State Gonments rev With substantial defined benefit . A subscription agreement is between a company and a private investor to sell a specific number of shares at a specific price. Simple example. A side letter is a document that is ancillary to another contract. 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 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. 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. (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 This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. Each Put Notice shall set forth the Put Securities applicable to such Put. Similarly, Limited [] Exhibit 10.18 SIDE LETTER AGREEMENT . 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. ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. Upon the exercise of any Put or Call pursuant to this Section3, (i)the Company shall, on the Put/Call Closing Date, purchase such Call Securities or Put Securities, as This investor fills out a form documenting his or her suitability for investing in the partnership. Make sure you reference any fund "gate" provisions in your side letter agreements. For example, a fund of . For example, if a private equity fund buys $100 of debt of a related portfolio company for $75, the portfolio company will generally have $25 of COD income and the debt will be treated as having been reissued to . Below are some practical considerations that could be relevant when managing a fund with side letters: Side letters are becoming an increasingly significant part of a fundraise. Environmental, Social and Governance ("ESG") concerns. 7. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. Transfer, each Permitted Transferee to which such Purchased Securities or Option Shares are to be Transferred shall, and the applicable Shareholder shall cause his or its Permitted Transferees to agree in writing with the Company to, Transfer as applicable, at the closing of the purchase of the Call Securities or Put Securities, as applicable, pursuant to Section3(e)). back to such Shareholder (or to another Permitted Transferee of such Shareholder) any Purchased Securities or Option Shares he, she or it owns if such Permitted Transferee ceases to be a Permitted Transferee of such Shareholder prior to the end of The private equity fund will generally be required to include the OID in income as "phantom income" as it accrues. the Call Securities pursuant to Section3(b) above, (iii)a Material Breach Event has not occurred, and (iv)within four (4)months following the Companys (or its designees) exercise of its option to repurchase the All certificates representing Purchased Securities and Option Certain UK local government pension schemes have recently pooled their investment assets into eight distinct pools to improve the efficiency of the management of their assets. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Shareholders Agreement substantially in the form %PDF-1.5
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 (xvii) Incorporating Responsible Investment Requirements into Private Equity Fund Terms. In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. The themes identified in this note also demonstrate that the private fund space continues to evolve and that managers also need to adapt in order to ensure that they move with the times, rather than getting caught out by a term that is hastily agreed to without the overall implications receiving proper attention. agreement. 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. WHEREAS, the Shareholders, on the one hand, and Warburg Pincus . (g) Make-Whole. agrees that a violation of any of the terms of this Agreement will cause the Company irreparable injury for which adequate remedy at law is not available. While these are just a handful of the most important provisions commonly found in a side letter agreement, GPs are often dealing with thousands of individual obligations, to . (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 typical management rights letter provides the fund with the minimum . 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. Investors are increasingly looking to funds to make ESG commitments with respect to their investments. The Use of Side Letters in Investment Limited Partnerships Broad flexibility to negotiate side (iii) Cause shall have the meaning set forth in the 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 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. e.g. The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. When you invest in a mutual fund . 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. US companies. Co-investments and other alternative ways of investing. 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. Pooling of UK local government pension schemes. This allows continuity of application. 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. Considerations for Private Fund Advisers. ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. However, the schemes have not pooled using a consistent structure so, as it stands, requests should be considered on a case by case basis it may be that the various schemes do not necessarily fall within a funds definition of affiliate (which is generally how entities are grouped together for the purposes of an MFN clause). Slaine without Good Reason, the Purchased Securities. 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. Author: Dan Brecher. VENTURE CAPITAL & PRIVATE EQUITY FUNDS DESKBOOK SERIES . Size: A4, US. (i) 2 0 obj
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This is typically achieved through an election form and can take some time to coordinate if a significant number of side letters are involved and/or if a complex set of carve outs apply. -. The top 10 terms in private equity NDAs. Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. 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. 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 An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. the limited partners of a venture, private equity or hedge fund . (vii) Employee Equity Arrangement means any option pool, stock option, stock bonus, stock ownership, stock purchase, phantom stock or other equity incentive plan, agreement, commitment These . Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . Letter Agreement - Artemis America Partnership, Apollo Investment Fund LP and Samsonite Corp. (Jul 13, 1999) Lock-Up Agreement - Sirius Satellite Radio Inc., Apollo Management LP, Blackstone Group LP, Space Systems/Loral Inc. and Lehman Commercial Paper Inc. (Oct 17, 2002) Firm Insights.
(i) This (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . 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] My letter addresses what appears to be one of the most profound . among the parties with respect to the subject matter hereof. stream
(xiv) Option means any options to purchase shares of Common Stock granted pursuant to any Employee Equity This article provides an overview of common side letter terms and current themes in the private fund market. The letter agreement includes sample language for certain rights granted to investors, such as most favored nation (MFN), co-investment, information, and advisory board rights. The above is a summary of common side letter requests. Managers with a number of side letters should consider keeping a centralised record of all side letters agreed for the fund, allowing compliance to be monitored on an ongoing basis. 3 Vol. In this key features document, we briefly highlight some considerations relevant to the use of side letter arrangements in Irish ILPs. However, they pose certain distinct issues with respect to side letters which can be problematic, particularly where the lenders ability to take security is compromised or the borrowing base is otherwise restricted. Requests for management rights letters are fairly common in today's market and do not impose significant burdens on . 11053-VCL (Del. Where a manager is willing to provide an MFN right, these rights are generally reserved for more significant investors as they can have wide-ranging implications for the fund, especially if they are not managed effectively. (viii) Fair Some rights are also most practically recorded in a side letter (for example confirmation of an advisory committee seat for a closed-ended fund).2. Download. Under the law of contracts, a side letter has the . There are three versions of the post-money safe intended for use by US companies, plus an optional side letter. A side letter is an agreement between the fund and one particular investor to vary the terms of the limited partnership agreement with respect to that particular investor (almost always to the benefit of the investor). 3 0 obj
Managers should be alive to the implications of agreeing to side letter provisions, considering each term from a commercial, legal, regulatory and operational perspective. Managers that are subject to the Alternative Investment Fund Managers Directive (2011/61/EU; "AIFMD") (whether as a European Economic Area ("EEA") based alternative investment fund manager ("AIFM"), managing an EEA alternative investment fund ("AIF") or through marketing an AIF to investors located in the EEA) must comply with the AIFMD rules on preferential treatment. MFN clauses play a key role in the commercial negotiations of an investment in a modern private . This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and representatives. 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. 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). (m) Employment by the endobj
Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). Ch. paying (or the Companys Subsidiaries are prohibited or restricted from delivering funds to the Company sufficient to permit the Company to pay) the Put/Call Price with respect to the Call Securities or the Put Securities, as applicable, (c) Legends.
(i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material amended from time to time, the Employment Agreement). Introduction. %PDF-1.5
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Set out below are some current themes that are relevant to negotiating side letter terms. private equity and real assets sectors. This letter agreement will confirm the agreement between us and you ("you" or the "Investor"), effective as of the . Each Call Notice shall set forth the Call Securities applicable to such Call and the Put/Call Price with (i)the aggregate number of Shares held by such Shareholder and his or its Permitted Transferees immediately following the consummation of the IPO multiplied by (ii)a fraction, the numerator of which is the aggregate number of The private equity due diligence process is a lengthy sequence of steps that involves a lot of research and information gathering, analytics, discussions, and assessments. Some investors may have genuine tax related concerns (for example, the need to be supplied with K-1 schedules in order to prepare their US tax returns) or regulatory reporting issues (such as the need to comply with the Solvency II Directive (2009/138/EC)).
c'5HJ~L;x}=u! (ii) No failure or delay by any party in exercising any right, power Slaine. . the exercise of its repurchase right pursuant to Section3(b) above, and (B)the positive difference, if any between (x)the price per share of Common Stock received by the Companys shareholders in connection with such the terms and conditions of this Section3 in the same manner as the Company. An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors.3However, MFN provisions can be drafted in a number of ways, meaning that what the investor may actually be entitled to elect to receive can vary widely. 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. endobj
They can be used to alter the terms of a limited partnership agreement or even override certain provisions. or valuation firms, (II) each of the Company and such Shareholder shall strike two of the names submitted by the other party and (III) the Independent Appraiser shall be selected by lot from the four remaining names of investment banking The need for consistency between side letter terms (including any MFN rights granted) becomes particularly apparent when conducting this exercise. Counterparts. Parties to a side letter negotiation should seek advice on the particular transaction in light of their circumstances. 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. which such restriction or prohibition has terminated and (y)the one-year anniversary of the delivery of the Call Notice or Put Notice, as applicable. Slaines estate, as applicable) shall have the right, but not the obligation, to cause the Company to purchase, from time to time, all or any portion of the Put Securities owned by such Shareholder or any of his or its Permitted Transferees (a Enter to open, tab to navigate, enter to select, Practical Law Standard Document w-016-5805, https://content.next.westlaw.com/practical-law/document/Iba4bc2fcb68611e8a5b3e3d9e23d7429/Side-Letter-to-Limited-Partnership-Agreement?viewType=FullText&transitionType=Default&contextData=(sc.Default), Side Letter to Limited Partnership Agreement. Whether it is appropriate to grant such requests should be considered on a case by case basis.