x[}S7KJbI!++[mT%,@te5[qfVgo.z^xW/Y-W"F4(e3zo\62[_kcLm95/^e.w]sKh0+(p e9 /drePPnY)EmqY'{mmy;rYm +u'lwogjfY6fV8yg_on@,~Vn3jva9[)>{Izscl_-rEvC_ k g_\_k:w+`-q)\iwvm~ n[; x%-{gglw/qG3:9[->[-tNuCGkAiz%Njqll G L Ye`[n6nK-v^lASRTKCv}A$X3a$j$FG+t,JX.9{ ^y!E 6}9b'Fsqy or valuation firms. Section3, each of Silver Lake and Warburg Pincus. Model Legal Documents - National Venture Capital Association - NVCA It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. laws govern the subscription agreement and side letter. 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. of such determination. Obligations of Transferees. A subscription agreement can also be used to sell stock in a privately owned business. Background ESG Capital Partners was formed to purchase [] 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 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 WHEREAS, in connection with the execution and delivery of this Agreement, Slaine has entered into an Employment Agreement, dated as of the date hereof, among the Company, IDC and Slaine (as it may be Simple Agreement for Future Equity - SAFE: An Innovative Investment The use of side letters is becoming a common theme amongst investors . This Standard Document has integrated notes with important explanations and drafting and negotiating tips. PDF VENTURE CAPITAL & PRIVATE EQUITY FUNDS - Morgan, Lewis & Bockius the limited partners of a venture, private equity or hedge fund . 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. 2 0 obj Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. Market Value means, with respect to any Call Securities or Put Securities, as applicable, as of the relevant date, (I)the price that a willing buyer would pay for such Call Securities or Put Securities, as applicable, from a willing and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. 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. Too Big to Fail, COVID-19 Edition: How Private Equity Is Winning the Each Shareholder acknowledges and [Signature Page to Side Letter Agreement]. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> 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 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. While side letter terms will vary from fund to fund, and from investor to investor within a given fund, side Side Letters: A Round-Up of Common Issues for Lenders | May 17, 2019 survive the execution and delivery hereof and transfer of any Purchased Securities and Option Shares. minority discount, discount for illiquidity or other similar type of discount shall be taken into consideration minus (II) such Call Securities or Put Securities, as applicable, pro rata portion (based on the aggregate outstanding equity A New Year's wish: may all your side letters be enforceable (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material the terms and conditions of this Section3 in the same manner as the Company. EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of investors. endstream endobj Notwithstanding anything herein to the contrary, in the event that (i)Slaines employment is terminated by the Company without Cause or by Slaine for Good Reason, (ii)the Company (or its designee) exercises its option to repurchase US companies. One of the first steps of buy-side M&A (in a private equity transaction timeline) is when the bankers send teasers to the Private Equity players. +44 20 7184 7468, London (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 amended from time to time, the Employment Agreement). Considerations for Private Fund Advisers. 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 . co-investment rights, not tendered to the investor generally, usually the basis of the single member being the largest investor. Agreement can be amended only by an instrument in writing signed by (x)each of the parties hereto and (y)solely with respect to Section3, each of Silver Lake and Warburg Pincus. 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. 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 or the potential to establish . PDF Observations from Examinations of Investment Advisers Managing Private This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and representatives. 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. 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. 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. If at any time from the date of this Agreement until the earlier of the (i) Maturity Date of the Convertible Note and (ii) payment in full of principal and interest of the Convertible Note, the Company sells equity, including debt convertible into equity, in cash to third party . Side letters: binding or not binding? | Practical Law Under the law of contracts, a side letter has the . The Use of Side Letters in Investment Limited Partnerships Broad flexibility to negotiate side The main source for these ground rules are the Company's Shareholders Agreement or Investor Rights Agreement (each of which we refer to in this article as the Shareholders Agreement).The Company's organizational documents, and any confidentiality agreements and side letters with shareholders, may also contain applicable requirements or . 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 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. (c) Exercise of Put. Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. Capital Call Facilities - LPA and side letter review. No later than ten (10)days after the 3 0 obj Options for ESG provisions in private equity fund terms endstream endobj Private Funds' Secretive 'Side Letter' Deals Are Targeted by SEC Except as expressly provided in this Agreement (including Section3, which shall be for the benefit of the Company, Silver Lake, Warburg Pincus and their respective Affiliates), One of the simplest (and cheapest) ways to invest in an early-stage company is often through a Simple Agreement for Future Equity (SAFE). Transferee is already a party to this Agreement) by executing and delivering such documents as may be necessary, in the determination of the Company, to make such Person a party hereto, whereupon, except as otherwise expressly provided herein, such Use Caution When Entering Into Side Letters With Investors Often an investor must notify the fund of any restrictions before it invests and/or require the opinion of external legal counsel to confirm that it is so restricted. 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 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. Under the AIFMD, investors must be provided with a "description of how the AIFM ensures a fair treatment of investors and, whenever an investor obtains preferential treatment or the right to obtain preferential treatment, a description of that preferential treatment, the type of investors who obtain such preferential treatment and, where relevant, their legal or economic links with the AIF or AIFM." Download the March 2023 issue of Private Equity International. (b) The Use of Side Letters by Asset Managers - KB Associates {slal!#/:dVpRb|$vbHIbO X! (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 RECITALS . The amount payable pursuant This investor fills out a form documenting his or her suitability for investing in the partnership. Safe: Valuation Cap, no Discount 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). Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. If to obtain required governmental or other approvals), and (II) in the event that an Objection Notice has been timely delivered with respect to the Call Notice or Put Pricing Notice, as applicable, ten (10)days after the determination of the (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 The Benefits and Pitfalls of Using Side Letters for Private Placements For purposes of this Section2(a), Permitted Transfer Share Amount shall mean, with respect to a Shareholder as of any date, a number of Shares equal to Firm Insights. written notice of objection to the Board within ten (10)days of delivery to such Shareholder of such Call Notice or Put Pricing Notice, as applicable (an Objection Notice). Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . (e) Closing. Enhanced reporting and information rights. 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 The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal . Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. 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. 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 Below we've outlined key side letter terms, highlighted some of the challenges in complying with those terms, and assessed the potential operational impact for GPs. 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. <> (a) Most Favored Nation. 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. sets out a range of recommendations regarding ESG factors throughout the life of a private equity fund (from the very early stages of fundraising through the investment process to . 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. 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. ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE Side Letter to Limited Partnership Agreement | Practical Law the agreement as between the general partner and an investor. Company. AJC*P 4m@RA0aS# Side Letter Archives | Private Equity International Side Pocket: Definition, How Side Pocketing Works, Pros & Cons What is a management rights letter and why is my investor asking for it Managers managing open-ended funds can simplify monitoring and compliance by keeping a clear record of when an investor has redeemed (such that the side letter is no longer relevant). specified portion of the Put Securities owned by such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. only if, such waiver is in writing and is signed by (A)the party against whom the waiver is to be effective and (B)solely with respect to a waiver by the Company of any provisions for the benefit of Silver Lake and Warburg Pincus in e.g. 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 . Side Letter to Limited Partnership Agreement | Practical Law - Westlaw among the parties with respect to the subject matter hereof. agreements and investor side letters to make sure that they authorise a capital call facility and related lender rights. Each Call Notice shall set forth the Call Securities applicable to such Call and the Put/Call Price with 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, and a Material Breach Event has not occurred, any Shareholder (or This Side Letter Agreement (this Agreement) is made as of August4, 2010, by and among Igloo Holdings Corporation, a Delaware corporation (the Company), Mason 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 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. 4) These are commonly referred to as so-called VAG investors, i.e., those which are either a German insurance company, pension pool, pension fund or other pension scheme which is directly or indirectly subject to the provisions of the German Insurance Supervision Law or the Ordinance on the investment of restricted assets of pension schemes, funeral expenses funds and small insurance companies or the Ordinance on the investment of restricted assets of pension funds regarding the investment of their restricted assets. Alexander J. Davie. 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