108 0 obj <>stream Issues are amplified where any MFN rights are involved. which such restriction or prohibition has terminated and (y)the one-year anniversary of the delivery of the Call Notice or Put Notice, as applicable. 4 0 obj endstream endobj Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. 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, If 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. If the scope of the prohibited investments is stated in the side letter itself, it is generally helpful to state why they are prohibited in order to increase the chance that the provision is taken outside the scope of any relevant MFN right. 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 Size: A4, US. xc```b`` B@1XJYJ9 WX i 022s :/602[8a All notices, consents and other communications required or contemplated by this Agreement shall be in writing and shall be delivered in the manner specified herein or, in the absence of such specification, shall be deemed to have been duly given -. (ii) No failure or delay by any party in exercising any right, power Make sure you reference any fund "gate" provisions in your side letter agreements. Transferability is particularly important to certain investors, for example certain Germanpension funds. The private equity due diligence process is a lengthy sequence of steps that involves a lot of research and information gathering, analytics, discussions, and assessments. Objection Notice, the Company will promptly engage an Independent Appraiser. Side letters are frequently used to enter into legal agreements between private funds and investors. (xiii) Non-Interference Agreement shall have the meaning set forth in the Employment Agreement. 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. %PDF-1.7 % 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. Ground Rules for Secondary Deals - And Variations. US companies. Each Put Notice shall set forth the Put Securities applicable to such Put. (c) Legal Counsel and Interpretation. Accordingly, any rule of law, or any legal decision that Investors are increasingly looking to funds to make ESG commitments with respect to their investments. Options. An investor in a PE fund will often indicate (commonly in the subscription agreement or a side letter entered into with the fund) whether it is interested in co-investment opportunities. Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). Control. the employment of Slaine at any time or for any reason whatsoever, with or without Cause. % Safe: Valuation Cap, no Discount Although the usual intention is that side letters will give rise to legally enforceable rights and obligations, this is by no means guaranteed and, in some cases, they have nothing more than moral effect. (xvii) [Signature Page to Side Letter Agreement]. (k) Governing Law; Jurisdiction. (x) Independent Appraiser means an independent investment banking or valuation firm jointly selected by the Company A little over a year ago, the Delaware Court of Chancery issued a forceful reminder that not all side letter agreements are enforceable. 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 . 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 Often an investor must notify the fund of any restrictions before it invests and/or require the opinion of external legal counsel to confirm that it is so restricted. Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . 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 . It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters. 1) In certain circumstances the manager may also be a party. All covenants, agreements, representations and warranties made herein shall Side Letter to Limited Partnership Agreement | Practical Law respect to such Call Securities as determined in good faith by the Board. 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 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). 106 0 obj <> endobj 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. 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), While investors commonly seek an acknowledgement in a side letter that they are interested in co-investment opportunities (or a similar election right), the range of alternative investment structures currently in vogue introduces new side letter concerns, particularly in relation to strategy and allocation issues (for example strategy caps and successor fund provisions). This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. 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 rules and regulations for starting a private equity or hedge fund are quite complex, especially when it comes to claiming the correct exemption from registration. stream Background ESG Capital Partners was formed to purchase [] A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . 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). Environmental, Social and Governance ("ESG") concerns. WHEREAS, the Shareholders, on the one hand, and Warburg Pincus . Securities or Put Securities to be transferred free and clear of all liens, claims and other encumbrances. Trial. 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 . Boards Determination of Put/Call Price. (xiv) Option means any options to purchase shares of Common Stock granted pursuant to any Employee Equity Private Capital Markets - Legal Templates & Insights - VC Experts to obtain required governmental or other approvals), and (II) in the event that an Objection Notice has been timely delivered with respect to the Call Notice or Put Pricing Notice, as applicable, ten (10)days after the determination of the Shareholders waiver of his or its rights to trial by jury. In recent years there has been growing interest in co-investment vehicles, separately managed accounts and other alternatives to classic commingled funds. (i) Waiver of Jury Side Letter Archives | Private Equity International Subscription Agreement: Everything to Know - UpCounsel (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of Forms of side letters often have all fund parties (i.e., the manager, 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. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. Securing Funding: The Top 3 Capital Raising and Investment - DocPro Side letters: binding or not binding? | Practical Law 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), 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 Private Equity Contracts - Sample Contracts and Business Forms - OneCLE 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) 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). Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. PDF Most Favored Nations Clauses: Potential Impact on Subscription-Backed It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. The top 10 terms in private equity NDAs. 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 WHEREAS, the Shareholders, on the one hand, and Warburg Pincus GPs and LPs should take care when crafting ESG-related provisions for LPAs and side letters to ensure agreement on the legal interpretation of such provisions. Below, we've outlined some of the most important terms of NDAs in the private equity space, which draw nuance from changing business conditions. 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 Q(J^{),}X0)"1m} Rj}q=. 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. 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 BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. While side letter terms will vary from fund to fund, and from investor to investor within a given fund, side PEI Staff. e4 Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ Key Man Clause - Understanding How the Key Man Clause Works Such election by the LP is informational and should not impose any obligation on the general partner (GP) of the fund. side letters. In this example, a side-letter may be executed between the general partner and the investor regarding a different date when the investor can withdraw their investment. Rather than a privately negotiated side letter process . Side letter vs Fiduciary Duty: Conflict in Private Equity Firms The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. 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 Agreement and the other agreements referred to herein set forth the entire understanding A side letter is an agreement apart from the main agreement (e.g. (xxi) Put Securities means the Purchased Securities and the Option Shares. Side Letter Agreement - SEC fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA Private Equity Pays To Silence Investor-Whistleblowers Aware - Forbes 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. (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 The Use of Side Letters in Investment Limited Partnerships Broad flexibility to negotiate side Most favoured nation provisions and their use in private equity funds Agreement. 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 1 0 obj or the potential to establish . 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 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).