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 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 ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. e.g. 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. 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. Parties to a side letter negotiation should seek advice on the particular transaction in light of their circumstances. N~o@XR" i It is also common to carve out certain terms from the MFN, for example, rights granted to first closing or seed investors, rights granted due to an investors specific legal, regulatory or taxation concerns and the right to an advisory committee seat. Once an investment enters a side pocket account, only the . Download the March 2023 issue of Private Equity International. side letters. ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. Side letters are frequently used to enter into legal agreements between private funds and investors. 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). IN WITNESS WHEREOF, Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. (k) Governing Law; Jurisdiction. NOW, THEREFORE, in consideration of the foregoing, 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, Co-investments and other alternative ways of investing. Such election by the LP is informational and should not impose any obligation on the general partner (GP) of the fund. Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. This Agreement and the other agreements referred to herein set forth the entire understanding 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. 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 determined by the Board, then the costs and expenses of such Independent Appraiser shall be borne by the Company. 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. First, a quick summary of the events leading up to the . 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 . NDA confidential information. Any provision of this Agreement may be waived if, but 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"). 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)days after deposit in the U.S. mail, to the respective addresses, facsimile numbers or electronic email addresses of the parties set forth below: (i) If to the Company, to it at the following address: (ii) If to any Shareholder or any of his or its Permitted Transferees, to Slaine at the following address: (h) Injunctive Relief. There are three versions of the post-money safe intended for use by US companies, plus an optional side letter. 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 . Under the law of contracts, a side letter has 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. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal . % shall be deemed to be the Put/Call Price with respect to such Call or Put, as applicable, and shall be final and binding on the parties. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. Thanks to the $2 trillion . 1. endstream endobj the employment of Slaine at any time or for any reason whatsoever, with or without Cause. endobj 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 Shares, the lower or (x)the Fair Market Value of such Call Securities or Put Securities, as applicable, on the applicable Put/Call Exercise Date and (y)the Cost of such Call Securities or Put Securities, as applicable. 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. Investor will execute a side letter that will serve, separate and . Private equity has made multibillionaires of executives like Blackstone's Steve Schwarzman (net worth: $17.5 billion) and Apollo's Leon Black ($7.5 billion). 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. 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. The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder and a Shareholder within fifteen (15)days after the date of the Companys receipt of an Objection Notice; provided that if the Company and such Shareholder are unable to agree upon who shall serve as the Independent Appraiser Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. 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). Women of Influence: Private equity. Similarly, Limited [] 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. of a Put with respect to all or a portion of the Put Securities owned by such Shareholder and/or his or its Permitted Transferees. The private equity due diligence process is a lengthy sequence of steps that involves a lot of research and information gathering, analytics, discussions, and assessments. 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. If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the Section3, shall terminate upon the earlier of the consummation of an IPO and the consummation of a Change of Control, whether or not a notice of exercise of any such Call or Put has been given prior to the consummation of an IPO or a Change of 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 4 0 obj 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. These . A more detailed analysis of the ILP is available here. %PDF-1.5 1. Notwithstanding any other provision of this Agreement or any subscription agreement, in addition to this Agreement and any subscription agreements, the Limited Partners hereby acknowledge and agree that the General Partner or any Affiliate of the General Partner, on its own behalf or on behalf of the Partnership, may enter into side letters or other written agreements to or with . Although the usual intention is that side letters will give rise to legally enforceable rights and obligations, this is by no means guaranteed and, in some cases, they have nothing more than moral effect. 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 The number and prevalence of side letter requests has increased exponentially in the last decade, a trend The use of side letters by venture capital and private equity funds has become commonplacesome would say too commonplace. 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. 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). This Side Letter Agreement (this Agreement) is made as of August4, 2010, by and among Igloo Holdings Corporation, a Delaware corporation (the Company), Mason private equity and real assets sectors. While side letter terms will vary from fund to fund, and from investor to investor within a given fund, side and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. The typical management rights letter provides the fund with the minimum . 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 19, No. 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. 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. The side letter can add provisions to the SAFE, or can change (amend) provisions in the SAFE. A side letter is a document that is ancillary to another contract. If such Put/Call Price determined by the Independent Appraiser is higher than the Put/Call Price previously %PDF-1.5 % from such Shareholder or his or its Permitted Transferees. 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. +44 20 7184 7845. 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. Alexander J. Davie. SAFEs solve two problems: (1) nobody knows what an early-stage . -. It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. For example, the drafting may vary in respect of: (i) whether the MFN applies to all side letter provisions or just, for example, to the fee provisions, (ii) the MFN only applying in respect of those provisions negotiated by other investors with an equal or smaller investment in the fund (typically affiliated investors will be aggregated), and (iii) whether the investor can see all side letter provisions negotiated (regardless of whether it is allowed to elect to receive them) or just those it may elect to receive. Side Pocket: A side pocket is a type of account used in hedge funds to separate illiquid assets from other more liquid investments. 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. If 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 (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material Investors are increasingly looking to funds to make ESG commitments with respect to their investments. 7. ) =]xIm"LU5-N%v$TjG&VD#ZWU_JP3HCcQp/&z@H2WK$#0IP)Z:*ji(Zz6HLOCh}4=R\{x9+O ;V= l xO!{Qxy2 a# g7@ [V: +6k.:f*`h+g~sc[u-)goO.wYKc{v8/q6C1:s13 7#e}m S~sq`]EX62 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. (ii) No failure or delay by any party in exercising any right, power This 7-page template has everything you could ever want: business-standard fonts, the right color space, and it is available in many file formats. 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. (e) Closing. x@g1c:/Zpd$ 9PGF Capital Call Facilities - LPA and side letter review. 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. (f) [Signature Page to Side Letter Agreement]. (e) Survival. the terms and conditions of this Section3 in the same manner as the Company. The private equity fund will generally be required to include the OID in income as "phantom income" as it accrues. would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. 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 (viii) Fair with respect to all or a portion of the Call Securities owned by such Shareholder and/or his or its Permitted Transferees and (II) the date on which a Shareholder delivers a Put Notice to the Company with respect to such Shareholders exercise They can be used to alter the terms of a limited partnership agreement or even override certain provisions. 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) These side letter requests can come in many guises, including requests to vary the frequency, format and content of reporting. Boards Determination of Put/Call Price. 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. No Shareholder shall assign +44 20 7184 7468, London 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. In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. Side Letters. <>>> respect to such Call Securities as determined in good faith by the Board. shares (thePurchased Securities) in the aggregate of common stock of the Company, par value $0.01 per share (the Common Stock); WHEREAS, the Shareholders and the Company desire to enter into this Agreement to set forth the terms of their mutual understanding relating to certain transfer restrictions and repurchase rights that agreements and investor side letters to make sure that they authorise a capital call facility and related lender rights. You should . September 13, 2011. Slaine without Good Reason, the Purchased Securities. (d) Successors; Assignment. If these issues arise, managers should ensure that the concessions are achievable, do not unduly limit their firms growth and development strategy and that they can be effectively monitored. (m) Employment by the Private Equity X, L.P., Warburg Pincus X Partner, L.P., Silver Lake Partners III, L.P., and Silver Lake Technology Investors III, L.P., on the other hand (collectively, theSponsors), have entered into that certain Stock Private Equity News & Analysis. Securities, such Call Securities or Put Securities, as applicable, as of the date of Slaines termination of employment and (y)with respect to any Option Shares, such Call Securities or Put Securities, as applicable, as of the Put/Call Managers should be alive to the implications of agreeing to side letter provisions, considering each term from a commercial, legal, regulatory and operational perspective. -. Simple example. RECITALS . as applicable, pursuant to this Section3, the Company will be entitled to receive customary representations and warranties from the applicable Shareholder (or his or its Permitted Transferees, if applicable) regarding the purchase of such Call {slal!#/:dVpRb|$vbHIbO X! . Enhanced reporting and information rights. Side agreements help private equity and hedge funds attract investors. +44 20 7184 7460, Dubai Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining [2] My letter addresses what appears to be one of the most profound . Section3, each of Silver Lake and Warburg Pincus. Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. (xvii) 15 February 2023. London Side Letter: Alaska's U-turn; China PE predictions; industry's next sports specialist. amended from time to time, the Employment Agreement). Obligations of Transferees. Shareholders waiver of his or its rights to trial by jury. Put). 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. 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 An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. 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 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. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. No. 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'). 2 0 obj <> endobj 4 0 obj <>stream 106 0 obj <> endobj MFN. <> 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. Teasers are documents that contains a brief description of the business, its product and service offerings, and financial . 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. endstream endobj For instance: private equity firm Thoma Bravo, which manages $114 billion of investor money, says in its federal disclosures that it will use side letters as it pleases: "Thoma Bravo is likely to have its own economic and/or other business incentives to provide certain terms to certain limited partners . General Partners ("GPs") have an interest in reducing the length of side letter agreements, providing fundraising certainty, and lowering their fund formation costs. Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. . within such fifteen (15)day period, (I)each of the Company and such Shareholder within five (5)days of the end of such fifteen (15)day period shall submit a list of the names of four nationally recognized investment banking back to such Shareholder (or to another Permitted Transferee of such Shareholder) any Purchased Securities or Option Shares he, she or it owns if such Permitted Transferee ceases to be a Permitted Transferee of such Shareholder prior to the end of x][s8~OUNS6C*:v$\gMvlR%g. 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). The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. MFN clauses play a key role in the commercial negotiations of an investment in a modern private . Teaser Sent by Bankers. 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), (c) Legends. 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. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. Author: Dan Brecher. 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 survive the execution and delivery hereof and transfer of any Purchased Securities and Option Shares. Side letters are frequently used to enter into legal agreements between private funds and investors. This article provides an overview of common side letter terms and current themes in the private fund market. Side letters may provide the ability for an investor to elect to receive the benefit of side letter provisions the fund has entered into with other investors. Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . Whether it is appropriate to grant such requests should be considered on a case by case basis. 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. Set out below are some current themes that are relevant to negotiating side letter terms. Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. 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. 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 The Company or any Shareholder may file an original counterpart or a copy of this Section4(i) with any court as written evidence of the consent of the Companys or such 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. Q(J^{),}X0)"1m} Rj}q=. Including appropriate provisions to accommodate a capital call . EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of investors. 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 . exercise such Call right pursuant to the terms and conditions of this Section3 in the same manner as the Company; provided that in the event that any Sponsor (and/or its assignees) (the Non-Exercising Sponsor) elects The Shareholders acknowledge and agree that the Purchased Securities and any other equity securities of the Company or any of its Subsidiaries that the Shareholders shall 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. 108 0 obj <>stream %PDF-1.7 % Accordingly, any rule of law, or any legal decision that Download this easily editable template through formats like MS Word and Mac Pages. 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. 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 (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
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