side letter agreement private equity side letter agreement private equity

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. N~o@XR" i 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 Private Equity News & Analysis. 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. London The typical management rights letter provides the fund with the minimum . In this key features document, we briefly highlight some considerations relevant to the use of side letter arrangements in Irish ILPs. General Partners ("GPs") have an interest in reducing the length of side letter agreements, providing fundraising certainty, and lowering their fund formation costs. endstream endobj 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 the date of Slaines termination of employment and (B)with respect to any Option Shares, such Call Securities as of the Put/Call Exercise Date and (y)the Cost of such Call Securities, (II) if Slaines employment is terminated 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. Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). Sidecar Investment: An investment strategy in which one investor allows a second investor to control where and how to invest the capital. No later than ten (10)days after the 3 Vol. Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. 15 February 2023. 1 0 obj (vii) Employee Equity Arrangement means any option pool, stock option, stock bonus, stock ownership, stock purchase, phantom stock or other equity incentive plan, agreement, commitment The 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. AJC*P 4m@RA0aS# Put/Call Price by the Independent Appraiser; provided, however, that if, as of the date that otherwise would be the Put/Call Closing Date pursuant to the foregoing clauses (I)and (II), the Company is restricted or prohibited from Similarly, Limited [] the employment of Slaine at any time or for any reason whatsoever, with or without Cause. 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. Section3, each of Silver Lake and Warburg Pincus. The above is a summary of common side letter requests. The Use of Side Letters in Investment Limited Partnerships Broad flexibility to negotiate side Integration Clauses (also known as "entire agreement" clauses)make sure that each of the fund's governing agreements . 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 This allows continuity of application. Ch. 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)). We very much appreciate your support and trust. (g) Make-Whole. Use of Side Letters. Teasers are documents that contains a brief description of the business, its product and service offerings, and financial . +44 20 7184 7460, Dubai 4 0 obj Breach Event. Ground Rules for Secondary Deals - And Variations. No. 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 . held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. 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 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 . rQpg$cj'?w8+6+*CVt-[PsuiO;yL4PQ#LZK0!zDPSh]o'S$V&\]V. 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. 19, No. ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. 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). One of the first steps of buy-side M&A (in a private equity transaction timeline) is when the bankers send teasers to the Private Equity players. In recent years there has been growing interest in co-investment vehicles, separately managed accounts and other alternatives to classic commingled funds. to the Company free and clear of all liens, claims or other encumbrances by delivering to the Company such instruments of transfer as shall reasonably be requested by the Company. 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 Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . (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 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 (iv) Change in Control shall have the meaning set forth in the Employment (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . . 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. . (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of Side Letter: Alaska's U-turn; China PE predictions; industry's next sports specialist. 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 Arrangement. provisions, side letters can never override the provisions of an offshore fund's memorandum and articles of association. 2 0 obj 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. 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. 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 (k) Governing Law; Jurisdiction. Alexander J. Davie. 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. 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. Steps in a Private Equity Transaction Timeline. +44 20 7184 7845. 1. (ii) No failure or delay by any party in exercising any right, power 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. Private equity investments involve significant risks, including the loss of the entire investment. Shareholders waiver of his or its rights to trial by jury. In particular, any preferential treatment accorded to one or more investors must not result in an overall material disadvantage to other investors. A side letter is a document that is ancillary to another contract. -. Each Put Notice shall set forth the Put Securities applicable to such Put. 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 . 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 Investor will execute a side letter that will serve, separate and . affording the single member special rights, e.g. In the world of private equity, side-letters are a globally recognised and prevalent practice among many . Side letters supplement the terms of a funds constituting documents, so they should be considered whenever these documents are consulted. 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). +44 20 7184 7468, London 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 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. shall be null and void. SAFEs solve two problems: (1) nobody knows what an early-stage . However, side letters generally raise various fiduciary and other concerns that must be addressed. [Remainder of page intentionally Private Equity and Hedge Funds. In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. While it is tempting to immediately move on to the next project after a closed-ended funds final closing, it is important to ensure the MFN exercise is handled immediately in order to avoid any technical breaches. 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. 7. Q(J^{),}X0)"1m} Rj}q=. Our new programme spotlights women whose achievements, innovation and leadership are reshaping private markets across a broad range of asset classes. Objection Notice, the Company will promptly engage an Independent Appraiser. A most favoured nation (MFN) clause entitles an investor to have visibility of side letter entitlements of other investors in the private equity fund and, in certain circumstances, allows such investor to elect to benefit from those entitlements. 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 . (5)Business Days after delivery of such notice) to the Company in immediately available funds to an account designated by the Company in such notice the excess, if any, of (i)the aggregate gross proceeds previously received by such Regulators and law enforcement are looking into flagrantly illegal "side letter" agreements which pay investors aware of fraud to not tell unsuspecting others. private equity and real assets sectors. 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, 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 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. (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 Capitalized terms used but not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Shareholders Agreement substantially in the form In connection with any purchase of Call Securities or Put Securities, (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material Put). 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. 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. (l) Stock Splits and Similar Transactions. % (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 US companies. 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), (iii) Cause shall have the meaning set forth in the 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. <> 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. Side letters set out terms that supplement or, in some cases, modify the . 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 3 0 obj However, these documents are actually the most important as they can make or break your company. You should . x]o6}=ZF%Q{z9CI|Glc8DY dcKM5_.!wWgJn$)&YU'WwEruHd*wyrvoy&&>p\jnsLr!USZ/qg~x$ok eV/]jMYYedyp LX'('A h-$!RTY . Securities or Put Securities to be transferred free and clear of all liens, claims and other encumbrances. Pooling of UK local government pension schemes. Forms of side letters often have all fund parties (i.e., the manager, 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. Download the March 2023 issue of Private Equity International. "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . {slal!#/:dVpRb|$vbHIbO X! Considerations for Private Fund Advisers. The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. Finally, as a technical drafting point, side-letter covenants should be carefully drafted to ensure that the correct party is making the covenant. 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 Rather than a privately negotiated side letter process . Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. Environmental, Social and Governance ("ESG") concerns. Side letters are frequently used to enter into legal agreements between private funds and investors. All covenants, agreements, representations and warranties made herein shall 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 . Introduction. respect to such Call Securities as determined in good faith by the Board. 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. This investor fills out a form documenting his or her suitability for investing in the partnership. A number of private equity funds and hedge funds are structured as limited partnerships that are governed by the terms of a limited partnership agreement (an 'LPA'). 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. 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 (c) Legends. Private Equity: Legal Perspectives & Documentation is designed to provide you with a solid understanding of how law and finance work together in the private equity industry to ensure informed decision-making. PEI Staff. Make sure you reference any fund "gate" provisions in your side letter agreements. Including appropriate provisions to accommodate a capital call . Founders tend to lose interest when it comes to the negotiation of capital raising documentation or investment agreement with investors.