(xx) Put/Call Termination Date means (I)in the case of the exercise of a Put or Call with respect to any The number and prevalence of side letter requests has increased exponentially in the last decade, a trend Given the popularity of side letters in fund finance . Including appropriate provisions to accommodate a capital call . (xix) Put/Call Price means, with respect to any Call Securities or Put Securities, as applicable, (I)if Slaines employment is terminated by the Company for Cause or by 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 . 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) 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. 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. 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. 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. <>
Trial. 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. 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), Incorporating Responsible Investment Requirements into Private Equity Fund Terms. amended from time to time, the Employment Agreement). In connection with any purchase of Call Securities or Put Securities, of such determination. specified portion of the Put Securities owned by such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). Download this easily editable template through formats like MS Word and Mac Pages. But as one notable decision from the Delaware Court of Chancery illustrates, the enforceability of these agreements cannot be take for granted. 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. 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. Accordingly, any rule of law, or any legal decision that 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 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), (xiv) Option means any options to purchase shares of Common Stock granted pursuant to any Employee Equity 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 . Any provision of this Agreement may be waived if, but Managers should be alive to the implications of agreeing to side letter provisions, considering each term from a commercial, legal, regulatory and operational perspective. 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. shall be cumulative and not exclusive of any rights or remedies provided by law. 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). (l) Stock Splits and Similar Transactions. This Agreement and the other agreements referred to herein set forth the entire understanding conditions of this Agreement for all parties remain valid, binding and enforceable. held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. 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 N~o@XR" i
(i) This 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 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. 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 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 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. as applicable, at the closing of the purchase of the Call Securities or Put Securities, as applicable, pursuant to Section3(e)). Below, we've outlined some of the most important terms of NDAs in the private equity space, which draw nuance from changing business conditions. Private Equity and Hedge Funds. the terms and conditions of this Section3 in the same manner as the Company. Founders tend to lose interest when it comes to the negotiation of capital raising documentation or investment agreement with investors. All (g) Notices. 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 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 is determined to be invalid, illegal or unenforceable by any governmental entity, the remaining provisions of this Agreement, to the extent permitted by law shall remain in full force and effect provided, that the essential terms and A more detailed analysis of the ILP is available here. 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. US companies. 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 the agreement as between the general partner and an investor. 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 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 Definitions. 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, 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). WHEREAS, the Shareholders, on the one hand, and Warburg Pincus e4
Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ If any provision of this Agreement (iii) Cause shall have the meaning set forth in the 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 . Deficiencies in this area can result in negative written findings at the conclusion of an examination and, in sufficiently serious cases, could result in an enforcement referral. (a) Transfer Restrictions. Section3, each of Silver Lake and Warburg Pincus. 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 . (d) Successors; Assignment. If such Put/Call Price determined by the Independent Appraiser is higher than the Put/Call Price previously Download the Safe. 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. Market Value means, with respect to any Call Securities or Put Securities, as applicable, as of the relevant date, (I)the price that a willing buyer would pay for such Call Securities or Put Securities, as applicable, from a willing 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 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 . (e) Survival. No Shareholder shall assign Side Pocket: A side pocket is a type of account used in hedge funds to separate illiquid assets from other more liquid investments. (ix) Good Reason shall have the meaning set forth in the Employment Agreement. Ground Rules for Secondary Deals - And Variations. 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. 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. PEI Staff. the exercise of its repurchase right pursuant to Section3(b) above, and (B)the positive difference, if any between (x)the price per share of Common Stock received by the Companys shareholders in connection with 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. 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. 1) In certain circumstances the manager may also be a party. . Considerations for Private Fund Advisers. In partnership with Aumni, a leading provider of investment analytics for the private capital markets, NVCA offers a new Enhanced Model Term Sheet v.3.0 and a new Enhanced Investors' Rights Agreement, each with an embedded market analysis of deal term frequency and usage. Side letters set out terms that supplement or, in some cases, modify the . A subscription agreement can also be used to sell stock in a privately owned business. endobj
The pooling of these entities continues to evolve and a standard approach may develop over time. A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . (vi) Disability shall have the meaning set forth in the Employment Agreement. (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of 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. 2 0 obj
Arrangement. 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. 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. 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. (ii) If, at any time prior to the Put/Call They can be used to alter the terms of a limited partnership agreement or even override certain provisions. 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 These . 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 Put Securities to be transferred free and clear of all liens, claims and other encumbrances. 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. 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. 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 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). 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). Each Shareholder acknowledges and agreement (or related side letters), such as limiting outstanding debt to a . Ch. +44 20 7184 7468, London
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)). While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. %PDF-1.5
(ii) Call Securities means (I)in the event Slaines employment is terminated by The side letter can add provisions to the SAFE, or can change (amend) provisions in the SAFE. 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. . 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). the employment of Slaine at any time or for any reason whatsoever, with or without Cause. (g) Make-Whole. Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. paying (or the Companys Subsidiaries are prohibited or restricted from delivering funds to the Company sufficient to permit the Company to pay) the Put/Call Price with respect to the Call Securities or the Put Securities, as applicable, Under the law of contracts, a side letter has the . London
(xiii) Non-Interference Agreement shall have the meaning set forth in the Employment Agreement. Teaser Sent by Bankers. Similarly, Limited [] If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. Enter to open, tab to navigate, enter to select, Practical Law Standard Document w-016-5805, https://content.next.westlaw.com/practical-law/document/Iba4bc2fcb68611e8a5b3e3d9e23d7429/Side-Letter-to-Limited-Partnership-Agreement?viewType=FullText&transitionType=Default&contextData=(sc.Default), Side Letter to Limited Partnership Agreement. applicable, from the applicable Shareholder and/or his or its Permitted Transferees, as applicable, for the Put/Call Price, in each case (x)payable in cash and (y)minus any applicable tax withholdings to satisfy the Companys Background ESG Capital Partners was formed to purchase [] (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 LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. Requests for management rights letters are fairly common in today's market and do not impose significant burdens on . It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. the Purchase Agreement. for any reason (other than by the Company for Cause or by Slaine without Good Reason) and a Material Breach Event has not occurred prior to the Put/Call Closing Date, a price equal to the Fair Market Value of (x)with respect to any Purchased laws govern the subscription agreement and side letter. 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 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 . Key person terms are common in the closed-ended fund context (where a key person event is likely to trigger the suspension of the investment period). The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder 11053-VCL (Del. 106 0 obj
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Shareholders waiver of his or its rights to trial by jury. Teasers are documents that contains a brief description of the business, its product and service offerings, and financial . 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. seller, in an arms length transaction on such date, it being understood that the voting and economic rights associated with such Call Securities or Put Securities, as applicable, shall be taken into consideration but no control premium, Each of the parties hereto acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. The top 10 terms in private equity NDAs. 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. Any Transfer in derogation of the foregoing <>
No. survive the execution and delivery hereof and transfer of any Purchased Securities and Option Shares. 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 April 15, 2021. 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). 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 RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH THE DEALINGS OF ANY PARTY HERETO IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER Side letters are frequently used to enter into legal agreements between private funds and investors.
(f) x@g1c:/Zpd$ 9PGF 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. Sidecar Investment: An investment strategy in which one investor allows a second investor to control where and how to invest the capital. Company. When you invest in a mutual fund . 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. (iv) Change in Control shall have the meaning set forth in the Employment Side letters are frequently used to enter into legal agreements between private funds and investors. {slal!#/:dVpRb|$vbHIbO X! A side letter is an agreement apart from the main agreement (e.g. VENTURE CAPITAL & PRIVATE EQUITY FUNDS DESKBOOK SERIES . 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 . 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, the schemes have not pooled using a consistent structure so, as it stands, requests should be considered on a case by case basis it may be that the various schemes do not necessarily fall within a funds definition of affiliate (which is generally how entities are grouped together for the purposes of an MFN clause). 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. 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. +44 20 7184 7460, Dubai
Similarly, the staff observed private fund advisers that set up undisclosed side-by-side 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