Q(J^{),}X0)"1m} Rj}q=. 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 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 Agreement. Steps in a Private Equity Transaction Timeline. stream 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. 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 3 March 2012 State Gonments rev With substantial defined benefit . Alexander J. Davie. (j) Severability. 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. 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 "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . or any specified portion of the Call Securities owned by any such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. Author: Dan Brecher. Similarly, the staff observed private fund advisers that set up undisclosed side-by-side 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. ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. x][s8~OUNS6C*:v$\gMvlR%g. Their use in the open-ended funds context is increasing, particularly to tie in certain key persons financially, including required investment levels and notification rights where a key person submits a significant redemption request (which could potentially be linked to favourable liquidity rights). 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 Control. (i) Waiver of Jury provisions, side letters can never override the provisions of an offshore fund's memorandum and articles of association. 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 (xii) Material Breach Price means, with respect to any Call Securities or Put (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material 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 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 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. Once an investment enters a side pocket account, only the . Since a typical private equity fund raises capital over a period of time with multiple closings, a side letter is a convenient way to address the specific concerns of an investor. endobj (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 Introduction "Capital call" facilities (also known as "subscription line" facilities) are facilities made available to funds (often on a revolving credit basis and for general working capital purposes) which are secured against the uncalled capital commitments of the investors in the fund including: (i) the right to make capital calls on . Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . For example, a fund of . Background ESG Capital Partners was formed to purchase [] 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, Download. (xx) Put/Call Termination Date means (I)in the case of the exercise of a Put or Call with respect to any Confidentiality agreements are the foundation of NDAs and are indispensable in the assessment of any company. 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 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. Managers managing open-ended funds can simplify monitoring and compliance by keeping a clear record of when an investor has redeemed (such that the side letter is no longer relevant). 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 (ii) If, at any time prior to the Put/Call [Remainder of page intentionally Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. 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. 4 0 obj Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining Regulators and law enforcement are looking into flagrantly illegal "side letter" agreements which pay investors aware of fraud to not tell unsuspecting others. No later than ten (10)days after the Each Shareholder acknowledges and BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. Download the March 2023 issue of Private Equity International. Shares shall bear legends as provided in the Shareholders Agreement. EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. (ii) Call Securities means (I)in the event Slaines employment is terminated by 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 Accordingly, any rule of law, or any legal decision that September 13, 2011. endobj specified portion of the Put Securities owned by such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. <> 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). While side letter terms will vary from fund to fund, and from investor to investor within a given fund, side This Side Letter Agreement (this Agreement) is made as of August4, 2010, by and among Igloo Holdings Corporation, a Delaware corporation (the Company), Mason . 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). 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. 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"). laws govern the subscription agreement and side letter. 15 February 2023. Side Letter: Alaska's U-turn; China PE predictions; industry's next sports specialist. (xxi) Put Securities means the Purchased Securities and the Option Shares. (viii) Fair 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). 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. (i) Some investors may have genuine tax related concerns (for example, the need to be supplied with K-1 schedules in order to prepare their US tax returns) or regulatory reporting issues (such as the need to comply with the Solvency II Directive (2009/138/EC)). endstream endobj (b) Side letters are frequently used to enter into legal agreements between private funds and investors. 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. All This document is not legal advice and should not be relied on as such. A letter agreement between a single member of an investor syndicate . (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. Purchased Securities, Option Shares or Purchase Price occurring after the date of this Agreement. Each Put Notice shall set forth the Put Securities applicable to such Put. -. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. Incorporating Responsible Investment Requirements into Private Equity Fund Terms. SAFEs solve two problems: (1) nobody knows what an early-stage . Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. [1] On April 21, 2022, I filed a comment letter in response to the Proposal. No. The rise of private equity secondaries nancings Samantha Hutchinson, . London MFN clauses play a key role in the commercial negotiations of an investment in a modern private . AJC*P 4m@RA0aS# 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). Capital Call Facilities - LPA and side letter review. 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. Use them or shun them, side letters (also called side agreements or side letter arrangements) are part of the business landscape. . A blanket consent is therefore not advisable. the Purchase Agreement. The amount payable pursuant 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. If such Put/Call Price determined by the Independent Appraiser is higher than the Put/Call Price previously 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. Purchased Securities pursuant to the Purchase Agreement. Side letter agreements have long been used in private equity fund investments to supplement or interpret the terms of a partnership agreement and related documents. 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 . held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. 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 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) xc```b`` B@1XJYJ9 WX i 022s :/602[8a endobj 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. Any Transfer in derogation of the foregoing 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. 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. 2 0 obj Download the Safe. #+Cq..mw>@>J6@\?%'SFm!K*k_K!Zx'"AVboBEqp_D"9j }$w[u?"1GT!nAY\#BuhTloC? 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 From a U.S. Securities and Exchange Commission ("SEC") perspective, there is concern about an investor being given preferential treatment in a side letter that may have a negative impact on other investors, such as preferred liquidity and information rights. The number and prevalence of side letter requests has increased exponentially in the last decade, a trend Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). When you invest in a mutual fund . rQpg$cj'?w8+6+*CVt-[PsuiO;yL4PQ#LZK0!zDPSh]o'S$V&\]V. EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of investors. 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). A side letter is an agreement apart from the main agreement (e.g. 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 among the parties with respect to the subject matter hereof. Considerations for Private Fund Advisers. 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. 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. (d) Successors; Assignment. Inspire awe in others with the right use of this private equity investment proposal template. The rights and remedies provided herein conditions of this Agreement for all parties remain valid, binding and enforceable. 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 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. Side letters set out terms that supplement or, in some cases, modify the . 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 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 . 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. In many instances it is easier to agree concessions in these separate agreements rather than amend the funds constituting documents (being the private placement memorandum and the constitutional documents such as the partnership agreement or articles), especially as the latter approach would mean the rights agreed would generally then be available to all investors. 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. (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) 7. 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. 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. (ix) Good Reason shall have the meaning set forth in the Employment Agreement. Private equity investments involve significant risks, including the loss of the entire investment. 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. of such determination. 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, 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 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 . (x) Independent Appraiser means an independent investment banking or valuation firm jointly selected by the Company This Limited Partner Advisory Committee (LPAC) clause for private equity fund (PEF) side letter is to be used when the PEF grants an investor the right to appoint a representative to the PEF's LPAC. This Standard Document has integrated notes with important explanations and drafting and negotiating tips. 11053-VCL (Del. 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 . Environmental, Social and Governance ("ESG") concerns. delivery of such Put Notice to the Company, the Company shall notify such Shareholder in writing of the Put/Call Price with respect to such Put Securities as determined in good faith by the Board (a Put Pricing Notice). 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. (a) Entire Agreement; Third Parties. % 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 Where a manager is willing to provide an MFN right, these rights are generally reserved for more significant investors as they can have wide-ranging implications for the fund, especially if they are not managed effectively. Each Call Notice shall set forth the Call Securities applicable to such Call and the Put/Call Price with VENTURE CAPITAL & PRIVATE EQUITY FUNDS DESKBOOK SERIES . (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 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 x@g1c:/Zpd$ 9PGF shares (thePurchased Securities) in the aggregate of common stock of the Company, par value $0.01 per share (the Common Stock); WHEREAS, the Shareholders and the Company desire to enter into this Agreement to set forth the terms of their mutual understanding relating to certain transfer restrictions and repurchase rights that Certain investors will require side letters, providing them with additional . +44 20 7184 7468, London survive the execution and delivery hereof and transfer of any Purchased Securities and Option Shares. ) =]xIm"LU5-N%v$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 Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. 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. Securities or Put Securities to be transferred free and clear of all liens, claims and other encumbrances. 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). One of the simplest (and cheapest) ways to invest in an early-stage company is often through a Simple Agreement for Future Equity (SAFE). +971 4 425 6338, London 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. 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. A side letter is a side agreement between the company and the investor made at the time the investor invests in the SAFE. 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),
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