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 . EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of investors. Dec. 16, 2015) (the ESG Capital Partners Case), the court found that a side letter agreement issued to a limited partner investor in a Delaware . side letters. other remedy to which it may be entitled at law or equity. No later than ten (10)days after the Side letters are an (increasingly) common way of formalising negotiated arrangements between a private fund and an investor. [Signature Page to Side Letter Agreement]. Issues are amplified where any MFN rights are involved. private equity and real assets sectors. (e) Closing. (b) -. A subscription agreement is between a company and a private investor to sell a specific number of shares at a specific price. 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 . %
the agreement as between the general partner and an investor. Non-Interference Agreement. General Partners ("GPs") have an interest in reducing the length of side letter agreements, providing fundraising certainty, and lowering their fund formation costs. 4 0 obj
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. Side letters: This aspect of the Proposed Rules represents a significant departure from the current practice of many private fund advisers and institutional and other investors with respect to side letters and other similar written agreements. The introductory recitals of AIFMD also require that any preferential treatment is disclosed in the AIFs rules or instruments of incorporation this can be achieved through broad disclosure in the private placement memorandum or partnership agreement (although some managers prefer to include more tailored terms to ensure investors are not provided with too much of a 'shopping list'). All covenants, agreements, representations and warranties made herein shall Trial. In recent years there has been growing interest in co-investment vehicles, separately managed accounts and other alternatives to classic commingled funds. BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. 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. prior to the Put/Call Termination Date (unless such Call is being exercised after the occurrence of a Material Breach Event, in which case such Call Notice may be delivered at any time after the occurrence of such Material Breach Event), to Call all 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 . The use of side letters is becoming a common theme amongst investors . In this key features document, we briefly highlight some considerations relevant to the use of side letter arrangements in Irish ILPs. (xxi) Put Securities means the Purchased Securities and the Option Shares. the Purchase Agreement. No Shareholder shall assign 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. 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 The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder Q(J^{),}X0)"1m} Rj}q=. 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 . 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 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. Any provision of this Agreement may be waived if, but 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. 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. 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"). (i) 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 . as applicable, pursuant to this Section3, the Company will be entitled to receive customary representations and warranties from the applicable Shareholder (or his or its Permitted Transferees, if applicable) regarding the purchase of such Call 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 Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. Forms of side letters often have all fund parties (i.e., the manager, 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. A letter agreement between a single member of an investor syndicate . 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 We very much appreciate your support and trust. 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 Including appropriate provisions to accommodate a capital call . (xii) Material Breach Price means, with respect to any Call Securities or Put %PDF-1.5
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-. 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. Obligations of Transferees. PEI Staff. (a) General. (ix) Good Reason shall have the meaning set forth in the Employment Agreement. A side letter is an agreement between an investor and a fund that alters the terms of the investor's investment in the fund (i) by superseding some of the applicable terms in the partnership agreement or subscription agreement or (ii) by adding additional terms to the agreements and commitments between the fund and the investor.. The top 10 terms in private equity NDAs. Similarly, Limited [] Whether it is appropriate to grant such requests should be considered on a case by case basis. (iv) Change in Control shall have the meaning set forth in the Employment Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . Counterparts. WHEREAS, the Shareholders, on the one hand, and Warburg Pincus 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 recurring theme in private equity fund investing is the use of 'side letters' between individual limited partners and the general partner of the fund. 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 the terms and conditions of this Section3 in the same manner as the Company. provisions, side letters can never override the provisions of an offshore fund's memorandum and articles of association. (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 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. The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. Investors are increasingly looking to funds to make ESG commitments with respect to their investments. 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. EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. Capital Call Facilities - LPA and side letter review. A number of private equity funds and hedge funds are structured as limited partnerships that are governed by the terms of a limited partnership agreement (an 'LPA'). Background ESG Capital Partners was formed to purchase [] (j) Severability. 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 . 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. 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 Side Pocket: A side pocket is a type of account used in hedge funds to separate illiquid assets from other more liquid investments. The need for consistency between side letter terms (including any MFN rights granted) becomes particularly apparent when conducting this exercise. Environmental, Social and Governance ("ESG") concerns. agreement (or related side letters), such as limiting outstanding debt to a . 1. 3 March 2012 State Gonments rev With substantial defined benefit . 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 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. 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. (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 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. Incorporating Responsible Investment Requirements into Private Equity Fund Terms. Most favored nation clause samples. Purchased Securities pursuant to the Purchase Agreement. x]o6}=ZF%Q{z9CI|Glc8DY dcKM5_.!wWgJn$)&YU'WwEruHd*wyrvoy&&>p\jnsLr!USZ/qg~x$ok eV/]jMYYedyp
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S~sq`]EX62 For example, if a private equity fund buys $100 of debt of a related portfolio company for $75, the portfolio company will generally have $25 of COD income and the debt will be treated as having been reissued to . 15 February 2023. For example, a request for portfolio level information should not result in the investor holding information it could use to its competitive advantage or to the detriment of other investors. Provisions regarding no bad acts are also common, especially in seed arrangements or where significant investments are made and are often particularly relevant for smaller managers where the conduct of a key person is more likely to impact performance of a fund. Securities or Option Shares, as applicable, in accordance with Section4.02 of the Shareholders Agreement) shall be required, at the time of and as a condition precedent to such Transfer, to become a party to this Agreement (unless such Make sure you reference any fund "gate" provisions in your side letter agreements. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>>
If a fund is willing to negotiate excusal rights, it should try to limit the amount of investor discretion in determining what an excused investment is as the emphasis should be on using the investors full commitment rather than allowing it to cherry pick deals. Securities, such Call Securities or Put Securities, as applicable, as of the date of Slaines termination of employment and (y)with respect to any Option Shares, such Call Securities or Put Securities, as applicable, as of the Put/Call Side letters supplement the terms of a funds constituting documents, so they should be considered whenever these documents are consulted. Dear Investor: Thank you for your investment in [Name of Company], a [Delaware] corporation (referred to as the "Company" or as "us" and "we" in this letter). respect to such Call Securities as determined in good faith by the Board. x@g1c:/Zpd$ 9PGF (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) (xx) Put/Call Termination Date means (I)in the case of the exercise of a Put or Call with respect to any 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 The rise of private equity secondaries nancings Samantha Hutchinson, . Inspire awe in others with the right use of this private equity investment proposal template. 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 Below, we've outlined some of the most important terms of NDAs in the private equity space, which draw nuance from changing business conditions. or the potential to establish . or valuation firms. Any Transfer in derogation of the foregoing
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 . of such determination. 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 specified portion of the Put Securities owned by such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. This document is not legal advice and should not be relied on as such. 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. 106 0 obj
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Ground Rules for Secondary Deals - And Variations. Side letters are frequently used to enter into legal agreements between private funds and investors. Size: A4, US. 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. Each Put Notice shall set forth the Put Securities applicable to such Put. 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 Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. Securities, a price equal to (I)with respect to any Purchased Securities, the lowest of (x)the Fair Market Value of such Call Securities or Put Securities, as applicable, as of the date of Slaines termination of employment, N~o@XR" i
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 Safe. All certificates representing Purchased Securities and Option It is better to be consistent in agreeing side letter terms, for example, having a 'house' provision that is stuck to. For example, a fund of . (vi) Disability shall have the meaning set forth in the Employment Agreement. minimum statutory withholding requirements, and (ii)the applicable Shareholder and/or his or its Permitted Transferees, as applicable, shall, simultaneously therewith, transfer and deliver such Call Securities or Put Securities, as applicable, Purchased Securities, Option Shares or Purchase Price occurring after the date of this Agreement. (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 The amount payable pursuant 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. 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 within such fifteen (15)day period, (I)each of the Company and such Shareholder within five (5)days of the end of such fifteen (15)day period shall submit a list of the names of four nationally recognized investment banking This allows continuity of application. If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the Accordingly, any rule of law, or any legal decision that 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 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 It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. 1. 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. 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. A blanket consent is therefore not advisable. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. 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. Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . 1) In certain circumstances the manager may also be a party. 1 March 2023. Integration Clauses (also known as "entire agreement" clauses)make sure that each of the fund's governing agreements . 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. (ii) No failure or delay by any party in exercising any right, power A more detailed analysis of the ILP is available here. Investor will execute a side letter that will serve, separate and . 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 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. 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 . 3 0 obj
In the world of private equity, side-letters are a globally recognised and prevalent practice among many . 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. Nb"qA4Sz^Hj26$DVZ would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE 107 0 obj
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From a side letter perspective, this effectively increases their negotiating power, particularly if one of the schemes is granted an MFN which is extended to all members of its pool. Our new programme spotlights women whose achievements, innovation and leadership are reshaping private markets across a broad range of asset classes. 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 (f) In the event a Material Breach Event occurs, at any time thereafter upon delivery of written notice by the Company, each Shareholder shall be obligated to deliver promptly (and, in any event, no later than five Given the popularity of side letters in fund finance . 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 The sidecar investment will usually be used when one of . Once an investment enters a side pocket account, only the . 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 (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material A side letter, or side agreement, is a collective bargaining agreement that is not part of the underlying or primary collective bargaining agreement (CBA) but is used by the parties to the contract to reach agreement on issues that the CBA does not cover, to clarify issues in the CBA or to modify the CBA (permanently or temporarily). Boards Determination of Put/Call Price. April 15, 2021. Use them or shun them, side letters (also called side agreements or side letter arrangements) are part of the business landscape. Safe: Valuation Cap, no Discount 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 such Shareholder or his or its Permitted Transferees. This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. 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. Prior to the expiration of the Other Shareholder Restricted Period, any Transferee of Purchased Securities or Option Shares (including Permitted Transferees of a Shareholder that have acquired their Purchased 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 . 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. 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. 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 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. shall be null and void.
(k) Governing Law; Jurisdiction. 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) Under the law of contracts, a side letter has the . 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. 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. Co-investments and other alternative ways of investing. Disgorgement of Profits. 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 Slaine. 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 .