side letter agreement private equity

PEI Staff. In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. Confidentiality agreements are the foundation of NDAs and are indispensable in the assessment of any company. 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 A side letter is an agreement between an investor and a fund that alters the terms of the investor's investment in the fund (i) by superseding some of the applicable terms in the partnership agreement or subscription agreement or (ii) by adding additional terms to the agreements and commitments between the fund and the investor.. 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. LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. 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. The sidecar investment will usually be used when one of . 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. 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. 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. Finally, as a technical drafting point, side-letter covenants should be carefully drafted to ensure that the correct party is making the covenant. A subscription agreement is between a company and a private investor to sell a specific number of shares at a specific price. 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). Certain UK local government pension schemes have recently pooled their investment assets into eight distinct pools to improve the efficiency of the management of their assets. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. 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 WHEREAS, the Shareholders, on the one hand, and Warburg Pincus . 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. No. 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. Download this easily editable template through formats like MS Word and Mac Pages. Q(J^{),}X0)"1m} Rj}q=. fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA 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. (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 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. 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 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 Steps in a Private Equity Transaction Timeline. 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, Certain investors will require side letters, providing them with additional . 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. 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. Any provision of this Agreement may be waived if, but BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. 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. Any Transfer in derogation of the foregoing However, side letters generally raise various fiduciary and other concerns that must be addressed. Regulators and law enforcement are looking into flagrantly illegal "side letter" agreements which pay investors aware of fraud to not tell unsuspecting others. Simple example. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> BROUGHT AND ENFORCED EXCLUSIVELY IN THE COURTS OF THE STATE OF DELAWARE OR (TO THE EXTENT SUBJECT MATTER JURISDICTION EXISTS THEREFOR) THE U.S. DISTRICT COURT FOR THE DISTRICT OF DELAWARE, AND THE PARTIES IRREVOCABLY SUBMIT TO THE JURISDICTION OF RECITALS . (xx) Put/Call Termination Date means (I)in the case of the exercise of a Put or Call with respect to any conditions of this Agreement for all parties remain valid, binding and enforceable. These . 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. Once an investment enters a side pocket account, only the . 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. The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. co-investment rights, not tendered to the investor generally, usually the basis of the single member being the largest investor. 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. One of the simplest (and cheapest) ways to invest in an early-stage company is often through a Simple Agreement for Future Equity (SAFE). 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. 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 . 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 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) Entire Agreement; Third Parties. When you invest in a mutual fund . 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." Under the law of contracts, a side letter has the . the employment of Slaine at any time or for any reason whatsoever, with or without Cause. 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 Rather than a privately negotiated side letter process . Private Equity News & Analysis. laws govern the subscription agreement and side letter. Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. 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. endobj A more detailed analysis of the ILP is available here. 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 . 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 Investors are increasingly looking to funds to make ESG commitments with respect to their investments. Such election by the LP is informational and should not impose any obligation on the general partner (GP) of the fund. Women of Influence: Private equity. agreement (or related side letters), such as limiting outstanding debt to a . 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. 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"). (ii) No failure or delay by any party in exercising any right, power 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. September 13, 2011. Whether it is appropriate to grant such requests should be considered on a case by case basis. (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) The typical management rights letter provides the fund with the minimum . 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 Issues are amplified where any MFN rights are involved. 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). (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 +44 20 7184 7845. Teasers are documents that contains a brief description of the business, its product and service offerings, and financial . 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)). 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 . limitation, pursuant to the exercise of all Puts and Calls) prior to the date of such Material Breach Event over (ii)the Cost of all Purchased Securities and Option Shares, as applicable, previously purchased by the Company or any other Person 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. 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. the Company without Cause, by Slaine with Good Reason or by reason of Slaines death or Disability, the Purchased Securities and the Option Shares and (II) in the event Slaines employment is terminated by the Company for Cause or by (m) Employment by the Ground Rules for Secondary Deals - And Variations. Purchased Securities pursuant to the Purchase Agreement. Legally, a side letter is nothing more than a contract between the fund or the GP and the investor, which sits alongside the other contractual relationships they have in the form of the LPA and . -. Set out below are some current themes that are relevant to negotiating side letter terms. 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 A side letter, or side agreement, is a collective bargaining agreement that is not part of the underlying or primary collective bargaining agreement (CBA) but is used by the parties to the contract to reach agreement on issues that the CBA does not cover, to clarify issues in the CBA or to modify the CBA (permanently or temporarily). 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 . 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. (f) A side letter is a document that is ancillary to another contract. 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 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and representatives. Alexander J. Davie. N~o@XR" i and a Shareholder within fifteen (15)days after the date of the Companys receipt of an Objection Notice; provided that if the Company and such Shareholder are unable to agree upon who shall serve as the Independent Appraiser 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. Control. Considerations for Private Fund Advisers. 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 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. Co-investments and other alternative ways of investing. (B)the earlier of (x)the fifth anniversary of the Closing Date and (y)the 25% Float Date; provided, however, that following the six month anniversary of the consummation of the IPO, the Other Shareholder Restricted as applicable, at the closing of the purchase of the Call Securities or Put Securities, as applicable, pursuant to Section3(e)). A subscription agreement can also be used to sell stock in a privately owned business. Breach Event. only if, such waiver is in writing and is signed by (A)the party against whom the waiver is to be effective and (B)solely with respect to a waiver by the Company of any provisions for the benefit of Silver Lake and Warburg Pincus in (iv) Change in Control shall have the meaning set forth in the Employment 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 %PDF-1.5 AJC*P 4m@RA0aS# 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), (ii) Call Securities means (I)in the event Slaines employment is terminated by +44 20 7184 7460, Dubai In the world of private equity, side-letters are a globally recognised and prevalent practice among many . The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. (ii) If, at any time prior to the Put/Call Put). Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . This allows continuity of application. A letter agreement between a single member of an investor syndicate . Exhibit 10.18 SIDE LETTER AGREEMENT . Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. Employment Agreement. 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 (e) Survival. 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 Forms of side letters often have all fund parties (i.e., the manager, x[}S7KJbI!++[mT%,@te5[qfVgo.z^xW/Y-W"F4(e3zo\62[_kcLm95/^e.w]sKh0+(p e9 /drePPnY)EmqY'{mmy;rYm +u'lwogjfY6fV8yg_on@,~Vn3jva9[)>{Izscl_-rEvC_ k g_\_k:w+`-q)\iwvm~ n[; x%-{gglw/qG3:9[->[-tNuCGkAiz%Njqll G L Ye`[n6nK-v^lASRTKCv}A$X3a$j$FG+t,JX.9{ ^y!E 6}9b'Fsqy [Remainder of page intentionally Author: Dan Brecher. Incorporating Responsible Investment Requirements into Private Equity Fund Terms. (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 ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Firm Insights. 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, 1. 19, No. Given the popularity of side letters in fund finance . The pooling of these entities continues to evolve and a standard approach may develop over time. 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 Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. -. Download the Safe. April 15, 2021. You should . The use of side letters by venture capital and private equity funds has become commonplacesome would say too commonplace. Counterparts. 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. 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. (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 Options. (l) Stock Splits and Similar Transactions. <> 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 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). Company. This Standard Document has integrated notes with important explanations and drafting and negotiating tips. (g) Make-Whole. 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. Purchased Securities, Option Shares or Purchase Price occurring after the date of this Agreement. shall be null and void. Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . (f) %PDF-1.7 % This Agreement and the other agreements referred to herein set forth the entire understanding 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. 3 Vol. 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. stream This investor fills out a form documenting his or her suitability for investing in the partnership. 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 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. (d) Successors; Assignment. A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . Each Shareholder acknowledges and Slaine without Good Reason, the Purchased Securities. the Other Shareholder Restricted Period. (k) Governing Law; Jurisdiction. c'5HJ~L;x}=u! ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE 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 Typically it is more appropriate for the manager rather than the fund to sign up to these requests. Accordingly, any rule of law, or any legal decision that 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. Shares shall bear legends as provided in the Shareholders Agreement. Similarly, Limited [] Objection Notice, the Company will promptly engage an Independent Appraiser. 7. Most favored nation clause samples. 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. (e) Closing. and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). Side letter. There are three versions of the post-money safe intended for use by US companies, plus an optional side letter.