(i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material A side letter is an agreement apart from the main agreement (e.g. 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, Side letters set out terms that supplement or, in some cases, modify the . Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining The rights and remedies provided herein Each Shareholder acknowledges and 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). 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. (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 (e) Closing. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. While investors commonly seek an acknowledgement in a side letter that they are interested in co-investment opportunities (or a similar election right), the range of alternative investment structures currently in vogue introduces new side letter concerns, particularly in relation to strategy and allocation issues (for example strategy caps and successor fund provisions). (vi) Disability shall have the meaning set forth in the Employment Agreement. Certain investors will require side letters, providing them with additional . 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. 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. (xii) Material Breach Price means, with respect to any Call Securities or Put transaction, and (y)the per share Put/Call Price paid by the Company (or its designee, as applicable) to repurchase the Call Securities upon the exercise of its repurchase right pursuant to Section3(b) above. 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 letter agreement includes sample language for certain rights granted to investors, such as most favored nation (MFN), co-investment, information, and advisory board rights. LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. Ch. The Use of Side Letters in Investment Limited Partnerships Broad flexibility to negotiate side Trial. %PDF-1.5
Silver Lake and Warburg Pincus) shall have the right, but not the obligation, to purchase, from time to time, all or any portion of the Call Securities then owned by any Shareholder or any of his or its Permitted Transferees (a While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. Employment Agreement. Purchase Agreement, dated as of August4, 2010 (thePurchase Agreement), pursuant to which the Shareholders have agreed to purchase from the Sponsors, and the Sponsors have agreed to sell to the Shareholders, 20,000,000 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. Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. Founders tend to lose interest when it comes to the negotiation of capital raising documentation or investment agreement with investors. Investor will execute a side letter that will serve, separate and . is ninety (90)days following the date of termination of employment of Slaine and (y)the date that is two hundred seventy (270)days following the date of exercise of the Option pursuant to which such Option Shares were issued to The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder 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 This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. 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), BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. Slaine without Good Reason, the Purchased Securities.
Download. Regulators and law enforcement are looking into flagrantly illegal "side letter" agreements which pay investors aware of fraud to not tell unsuspecting others. 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 Arrangement. NDA confidential information. 3 March 2012 State Gonments rev With substantial defined benefit . 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 (m) Employment by the 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. This article provides an overview of common side letter terms and current themes in the private fund market. Side letters supplement the terms of a funds constituting documents, so they should be considered whenever these documents are consulted. 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 . 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. (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 among the parties with respect to the subject matter hereof. survive the execution and delivery hereof and transfer of any Purchased Securities and Option Shares. Similarly, the staff observed private fund advisers that set up undisclosed side-by-side limitation, pursuant to the exercise of all Puts and Calls) prior to the date of such Material Breach Event over (ii)the Cost of all Purchased Securities and Option Shares, as applicable, previously purchased by the Company or any other Person 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 . (i) An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. Shares shall bear legends as provided in the Shareholders Agreement. 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. No Shareholder shall assign Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. Confidentiality agreements are the foundation of NDAs and are indispensable in the assessment of any company. If such Put/Call Price determined by the Independent Appraiser is higher than the Put/Call Price previously the Purchase Agreement. BROUGHT AND ENFORCED EXCLUSIVELY IN THE COURTS OF THE STATE OF DELAWARE OR (TO THE EXTENT SUBJECT MATTER JURISDICTION EXISTS THEREFOR) THE U.S. DISTRICT COURT FOR THE DISTRICT OF DELAWARE, AND THE PARTIES IRREVOCABLY SUBMIT TO THE JURISDICTION OF MFN. A side letter is a side agreement between the company and the investor made at the time the investor invests in the SAFE. 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. United Nations-supported Principles for Responsible Investment (PRI) offers guidance on the placement of ESG provisions in LPAs and side letters on pages 13-14 of their Incorporating Responsible Investment Requirements into Private Equity Fund Terms report. Private Equity and Hedge Funds. 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 . If the limited liability partnership agreement) and is usually an extension or supplement in the sense that it further clarifies certain provisions of the main agreement. 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. As a result, some investors were unaware of the potential harm that could be caused if the selected investors exercised the special terms granted by the side letters. stream
Put/Call Closing Date means, with respect to the relevant Call or Put, the later of (I)twenty five (25)days after delivery of the Call Notice or Put Notice, as applicable (subject to extension to the extent necessary Incorporating Responsible Investment Requirements into Private Equity Fund Terms. [2] My letter addresses what appears to be one of the most profound . A letter agreement between a single member of an investor syndicate . 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 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). Managers may therefore wish to include a carve-out in their standard MFN clause in respect of side letter provisions which affect the funds credit facility. Teasers are documents that contains a brief description of the business, its product and service offerings, and financial . 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. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>>
(c) Exercise of Put. WHEREAS, the Shareholders, on the one hand, and Warburg Pincus . 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 However, these documents are actually the most important as they can make or break your company. 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). (xvii) #+Cq..mw>@>J6@\?%'SFm!K*k_K!Zx'"AVboBEqp_D"9j }$w[u?"1GT!nAY\#BuhTloC? other remedy to which it may be entitled at law or equity. If any provision of this Agreement A side letter is a document that is ancillary to another contract. (d) Successors; Assignment. You should . Purchased Securities pursuant to the Purchase Agreement. While it is tempting to immediately move on to the next project after a closed-ended funds final closing, it is important to ensure the MFN exercise is handled immediately in order to avoid any technical breaches. No later than ten (10)days after the 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. Author: Dan Brecher. 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 In the world of private equity, side-letters are a globally recognised and prevalent practice among many . This Standard Document has integrated notes with important explanations and drafting and negotiating tips. AJC*P 4m@RA0aS#
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 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 applicable, from the applicable Shareholder and/or his or its Permitted Transferees, as applicable, for the Put/Call Price, in each case (x)payable in cash and (y)minus any applicable tax withholdings to satisfy the Companys 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 . 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 A more detailed analysis of the ILP is available here. 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 However, such provisions may be acceptable if sufficiently disclosed to the other investors who are able to take the information into account when making their investment decision. ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. (j) Severability. Download this easily editable template through formats like MS Word and Mac Pages. (y)the Fair Market Value of such Call Securities or Put Securities, as applicable, on the applicable Put/Call Exercise Date and (z)the Cost of such Call Securities or Put Securities, as applicable and (II) with respect to any Option 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. (xviii) Put/Call Exercise Date means, as applicable, (I)the date on which the Company delivers a Call Notice to a Shareholder with respect to the Companys exercise of a Call (a) Most Favored Nation. (a) General. Transferability is particularly important to certain investors, for example certain Germanpension funds. 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. 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. 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 Issues are amplified where any MFN rights are involved. e4
Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ While side letters can be helpful in securing key investments, it is imperative to fully understand their legal . Side letters are the separate arrangements with the fund managers which either will address matters that are not covered in the partnership agreement of the applicable fund or will override some . One of the simplest (and cheapest) ways to invest in an early-stage company is often through a Simple Agreement for Future Equity (SAFE). 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 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 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). Company. (iv) Change in Control shall have the meaning set forth in the Employment 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 . It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. 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. fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA 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. Teaser Sent by Bankers. IN WITNESS WHEREOF, (ix) Good Reason shall have the meaning set forth in the Employment Agreement. ESG provisions may include a confirmation that the fund will comply with the UN Principles for Responsible Investment when making investments or that investee companies comply with the ten principles of the United Nations Global Compact or other guidelines that are more specifically tailored to the investor in question, including restrictions on making investments in companies engaged in certain lines of business. Obligations of Transferees. 3 0 obj
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. 2 0 obj
Breach Event. Make sure you reference any fund "gate" provisions in your side letter agreements. Side letter. 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. . The amount payable pursuant 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 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 [1] On April 21, 2022, I filed a comment letter in response to the Proposal. acquire from time to time shall be subject to the transfer restrictions and other provisions of the Shareholders Agreement. endobj
(ii) Call Securities means (I)in the event Slaines employment is terminated by Control. 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. 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. 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. London
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. 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. Developing business ideas and pioneering products is a fun thing to do, but the procedures of finding investors and raising capital may be long and complex. seller, in an arms length transaction on such date, it being understood that the voting and economic rights associated with such Call Securities or Put Securities, as applicable, shall be taken into consideration but no control premium, the limited partners of a venture, private equity or hedge fund . The typical management rights letter provides the fund with the minimum . 11053-VCL (Del. 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 If these issues arise, managers should ensure that the concessions are achievable, do not unduly limit their firms growth and development strategy and that they can be effectively monitored. c'5HJ~L;x}=u! pursuant to the terms and conditions of the agreements governing the indebtedness for borrowed money of the Company and its Subsidiaries, then the Put/Call Closing Date shall be the earlier of (x)ten (10)days after the first date on GPs and LPs should take care when crafting ESG-related provisions for LPAs and side letters to ensure agreement on the legal interpretation of such provisions. It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters. This Agreement and the other agreements referred to herein set forth the entire understanding Non-Interference Agreement. 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. If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the To the extent a fund has a credit facility and any of the provisions described above are also covered by an MFN right, these issues can be exacerbated because multiple investors may be able to elect to receive the problematic provisions. Side letters are frequently used to enter into legal agreements between private funds and investors. Introduction. +44 20 7184 7460, Dubai
agreement (or related side letters), such as limiting outstanding debt to a . All notices, consents and other communications required or contemplated by this Agreement shall be in writing and shall be delivered in the manner specified herein or, in the absence of such specification, shall be deemed to have been duly given Put). As a general matter, to avoid any enforceability issues, care should be taken to ensure that the correct parties are parties to the side letter and in the right capacity. 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 Side letters are frequently used to enter into legal agreements between private funds and investors. These . Set out below are some current themes that are relevant to negotiating side letter terms. Counterparts. Slaine. (xiv) Option means any options to purchase shares of Common Stock granted pursuant to any Employee Equity (viii) Fair 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 . laws govern the subscription agreement and side letter. (i) This the Other Shareholder Restricted Period. 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.
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