side letter agreement private equity

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 Similarly, Limited [] <> US companies. The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. Under the law of contracts, a side letter has the . Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). Shares shall bear legends as provided in the Shareholders Agreement. A subscription agreement can also be used to sell stock in a privately owned business. Side letters set out terms that supplement or, in some cases, modify the . Shareholders waiver of his or its rights to trial by jury. A little over a year ago, the Delaware Court of Chancery issued a forceful reminder that not all side letter agreements are enforceable. [2] My letter addresses what appears to be one of the most profound . ) =]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 Regulators and law enforcement are looking into flagrantly illegal "side letter" agreements which pay investors aware of fraud to not tell unsuspecting others. affording the single member special rights, e.g. {slal!#/:dVpRb|$vbHIbO X! side letters. There are three versions of the post-money safe intended for use by US companies, plus an optional side letter. Managers should be alive to the implications of agreeing to side letter provisions, considering each term from a commercial, legal, regulatory and operational perspective. Managers 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. 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). (g) Make-Whole. Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. agreement. endobj agreements and investor side letters to make sure that they authorise a capital call facility and related lender rights. This letter agreement will confirm the agreement between us and you ("you" or the "Investor"), effective as of the . (a) Entire Agreement; Third Parties. 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 All Enhanced reporting and information rights. NDA confidential information. Most favored nation clause samples. left blank]. Q(J^{),}X0)"1m} Rj}q=. Company. +44 20 7184 7468, London PEI Staff. . 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). 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 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. Upon the terms and subject to the conditions set forth in this Section3, (i)if a Call Event occurs, the Company (and, to the extent provided in Section3(b)(ii), Founders tend to lose interest when it comes to the negotiation of capital raising documentation or investment agreement with investors. 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. Purchased Securities pursuant to the Purchase Agreement. When you invest in a mutual fund . 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 In connection with any purchase of Call Securities or Put Securities, 1. 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. 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 EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. (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 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. Breach Event. 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 Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the Side letters are frequently used to enter into legal agreements between private funds and investors. among the parties with respect to the subject matter hereof. or arrangement for the benefit of one or more employees, directors and/or consultants of the Company or any of its Subsidiaries (other than this Agreement). In recent years there has been growing interest in co-investment vehicles, separately managed accounts and other alternatives to classic commingled funds. 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 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 Women of Influence: Private equity. An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. 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 Environmental, Social and Governance ("ESG") concerns. Download the Safe. not to exercise its Call right for all or any portion of its pro rata share of the Call Securities subject to such Call (the Non-Exercised Call Securities), the Company shall promptly notify the other Sponsor of such determination However, these documents are actually the most important as they can make or break your company. 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 A side letter is a document that is ancillary to another contract. 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 A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . This is an area of particular sensitivity in the open-ended fund context where portfolio level information should generally only be provided when stale, e.g., after further trading of the portfolio so that its then-current composition is not selectively shared. (xx) Put/Call Termination Date means (I)in the case of the exercise of a Put or Call with respect to any 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). LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining (ii) No failure or delay by any party in exercising any right, power 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 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 2 0 obj 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, It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters. A more detailed analysis of the ILP is available here. 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), Board, then the costs and expenses of such Independent Appraiser shall be borne by such Shareholder (which costs and expenses may, in whole or in part, be deducted from the cash delivered to such Shareholder and/or his or its Permitted Transferees, This Agreement and the other agreements referred to herein set forth the entire understanding No later than ten (10)days after the Slaine. endstream endobj held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. Such election by the LP is informational and should not impose any obligation on the general partner (GP) of the fund. +44 20 7184 7460, Dubai <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> 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 Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . 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. The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. Inspire awe in others with the right use of this private equity investment proposal template. 4 0 obj (x) Independent Appraiser means an independent investment banking or valuation firm jointly selected by the Company 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. 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. 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. The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder Nb"qA4Sz^Hj26$DVZ 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 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. Investors are increasingly looking to funds to make ESG commitments with respect to their investments. amended from time to time, the Employment Agreement). (a) General. laws govern the subscription agreement and side letter. (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. Issues are amplified where any MFN rights are involved. (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 (d) Successors; Assignment. 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. as applicable, at the closing of the purchase of the Call Securities or Put Securities, as applicable, pursuant to Section3(e)). 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 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 shall apply to the Purchased Securities, as well as any other equity securities of the Company that the Shareholders shall acquire from time to time; and. 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 A blanket consent is therefore not advisable. 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 Investor will execute a side letter that will serve, separate and . 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 Objection Notice, the Company will promptly engage an Independent Appraiser. (g) Notices. (a) Most Favored Nation. 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). 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 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 top 10 terms in private equity NDAs. material analyses used in arriving at such determination) within thirty (30)days of being engaged stating the Independent Appraisers determination of the Put/Call Price and such Put/Call Price as determined by such Independent Appraiser For example, there have been cases in the Cayman Islands where it has been held that a side letter is not enforceable because the beneficiary rather than the registered interest holder was a party to a side letter and because a manager had entered into a side letter on behalf of the fund (and did not have sufficient authority to bind the fund). This Standard Document has integrated notes with important explanations and drafting and negotiating tips. Parties to a side letter negotiation should seek advice on the particular transaction in light of their circumstances. (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) Side Pocket: A side pocket is a type of account used in hedge funds to separate illiquid assets from other more liquid investments. 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. 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 . Ch. (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material shall be null and void. An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors.3However, MFN provisions can be drafted in a number of ways, meaning that what the investor may actually be entitled to elect to receive can vary widely. 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. 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. 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. 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. 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. 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"). stream 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. 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 (xi) Material Breach Event means Slaines material breach of the 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 . 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. 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. (c) Legends. 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 Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. Integration Clauses (also known as "entire agreement" clauses)make sure that each of the fund's governing agreements . 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 Side letter. or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No. Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. x][s8~OUNS6C*:v$\gMvlR%g. acquire from time to time shall be subject to the transfer restrictions and other provisions of the Shareholders Agreement. 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." Trial. Definitions. In the world of private equity, side-letters are a globally recognised and prevalent practice among many . This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and representatives. (f) 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. (ii) If, at any time prior to the Put/Call 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 Options. 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. endobj [Signature Page to Side Letter Agreement]. (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 Alexander J. Davie. A letter agreement between a single member of an investor syndicate . This article provides an overview of common side letter terms and current themes in the private fund market. the Other Shareholder Restricted Period. [Remainder of page intentionally Forms of side letters often have all fund parties (i.e., the manager, Accordingly, any rule of law, or any legal decision that These . The sidecar investment will usually be used when one of . 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 . 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 . NOW, THEREFORE, in consideration of the foregoing, 2 0 obj <> endobj 4 0 obj <>stream Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. 3 March 2012 State Gonments rev With substantial defined benefit . But as one notable decision from the Delaware Court of Chancery illustrates, the enforceability of these agreements cannot be take for granted. The use of side letters by venture capital and private equity funds has become commonplacesome would say too commonplace. (xxi) Put Securities means the Purchased Securities and the Option Shares. (b) Transferability is particularly important to certain investors, for example certain Germanpension funds,4who may need to be able to demonstrate free transferability (or as near to free transferability as the fund can practically offer) for regulatory reasons. 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. 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. EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of investors. The use of side letters is becoming a common theme amongst investors . While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. Any Transfer in derogation of the foregoing (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 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. Pooling of UK local government pension schemes. (m) Employment by the

side letter agreement private equity 2023