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. A side letter is an agreement apart from the main agreement (e.g. 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 . 2 0 obj
Agreement. 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. 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 {slal!#/:dVpRb|$vbHIbO X! Obligations of Transferees. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal . Side Letters. minority discount, discount for illiquidity or other similar type of discount shall be taken into consideration minus (II) such Call Securities or Put Securities, as applicable, pro rata portion (based on the aggregate outstanding equity Incorporating Responsible Investment Requirements into Private Equity Fund Terms. any of his or its rights hereunder except in connection with a Transfer of the Purchased Securities in compliance with the terms and conditions of the Shareholders Agreement and Section2 hereof. In the world of private equity, side-letters are a globally recognised and prevalent practice among many . Except as expressly provided in this Agreement (including Section3, which shall be for the benefit of the Company, Silver Lake, Warburg Pincus and their respective Affiliates), x]o6}=ZF%Q{z9CI|Glc8DY dcKM5_.!wWgJn$)&YU'WwEruHd*wyrvoy&&>p\jnsLr!USZ/qg~x$ok eV/]jMYYedyp
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h-$!RTY Confidentiality agreements are the foundation of NDAs and are indispensable in the assessment of any company. Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). 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. 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). 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). [2] My letter addresses what appears to be one of the most profound . Securities or Put Securities to be transferred free and clear of all liens, claims and other encumbrances. 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 Slaine without Good Reason and a Material Breach Event has not occurred prior to the Put/Call Closing Date, a price equal to the lower of (x)the Fair Market Value of (A)with respect to any Purchased Securities, such Call Securities as of affording the single member special rights, e.g. Disgorgement of Profits. transaction, and (y)the per share Put/Call Price paid by the Company (or its designee, as applicable) to repurchase the Call Securities upon the exercise of its repurchase right pursuant to Section3(b) above. acquire from time to time shall be subject to the transfer restrictions and other provisions of the Shareholders Agreement. 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. (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of 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. not to exercise its Call right for all or any portion of its pro rata share of the Call Securities subject to such Call (the Non-Exercised Call Securities), the Company shall promptly notify the other Sponsor of such determination side letters. 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. PEI Staff. 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. two-page letter agreement, commonly known as the "management rights letter," in connection with all of their portfolio investments, even though the DOL only requires this with regard to 50% of their investments. <>
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 . Breach Event. Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. 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 Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. other remedy to which it may be entitled at law or equity. Transferability is particularly important to certain investors, for example certain Germanpension funds. 3 Vol. Under the law of contracts, a side letter has the . 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 . The need for consistency between side letter terms (including any MFN rights granted) becomes particularly apparent when conducting this exercise. The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. While side letter terms will vary from fund to fund, and from investor to investor within a given fund, side Purchased Securities, the date that is ninety (90)days following the date of Slaines termination of employment and (II) in the case of the exercise of a Put or Call with respect to any Option Shares, the later of (x)the date that (ii) No failure or delay by any party in exercising any right, power respect to such Call Securities as determined in good faith by the Board. 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). Use them or shun them, side letters (also called side agreements or side letter arrangements) are part of the business landscape. Including appropriate provisions to accommodate a capital call . endobj
Below we've outlined key side letter terms, highlighted some of the challenges in complying with those terms, and assessed the potential operational impact for GPs. 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. No. One of the simplest (and cheapest) ways to invest in an early-stage company is often through a Simple Agreement for Future Equity (SAFE). Our new programme spotlights women whose achievements, innovation and leadership are reshaping private markets across a broad range of asset classes. 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 Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. (x) Independent Appraiser means an independent investment banking or valuation firm jointly selected by the Company ) =]xIm"LU5-N%v$TjG&VD#ZWU_JP3HCcQp/&z@H2WK$#0IP)Z:*ji(Zz6HLOCh}4=R\{x9+O ;V= l xO!{Qxy2 a#
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S~sq`]EX62 xc```b`` B@1XJYJ9 WX i 022s :/602[8a 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 (e) Survival. First, a quick summary of the events leading up to the . 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 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. 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 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 Considerations for Private Fund Advisers. Environmental, Social and Governance ("ESG") concerns. 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 (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) the terms and conditions of this Section3 in the same manner as the Company. Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. 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). Shareholders waiver of his or its rights to trial by jury. Teaser Sent by Bankers. Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining as of such date equal to the Permitted Transfer Share Amount. 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 You should . 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. It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters.
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. Managers may therefore wish to include a carve-out in their standard MFN clause in respect of side letter provisions which affect the funds credit facility. A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . United Nations-supported Principles for Responsible Investment (PRI) offers guidance on the placement of ESG provisions in LPAs and side letters on pages 13-14 of their Incorporating Responsible Investment Requirements into Private Equity Fund Terms report. Pooling of UK local government pension schemes. 11053-VCL (Del. In recent years there has been growing interest in co-investment vehicles, separately managed accounts and other alternatives to classic commingled funds. A blanket consent is therefore not advisable. (xiv) Option means any options to purchase shares of Common Stock granted pursuant to any Employee Equity private equity and real assets sectors. Slaine without Good Reason, the Purchased Securities. e4
Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ agreement (or related side letters), such as limiting outstanding debt to a . However, side letters generally raise various fiduciary and other concerns that must be addressed. 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. An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. 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). Below, we've outlined some of the most important terms of NDAs in the private equity space, which draw nuance from changing business conditions. Exhibit 10.18 SIDE LETTER AGREEMENT . Rather than a privately negotiated side letter process . Restricted Period shall mean, with respect to the Shareholders and their respective Permitted Transferees, the period from the Closing Date until the later of (A)the second (2nd)anniversary of the consummation of the IPO and The rise of private equity secondaries nancings Samantha Hutchinson, . (m) Employment by the While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. 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. 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. Capital Call Facilities - LPA and side letter review. The typical management rights letter provides the fund with the minimum . 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 and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Similarly, Limited [] Founders tend to lose interest when it comes to the negotiation of capital raising documentation or investment agreement with investors. 4 0 obj
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From the hundreds of nominations for the inaugural Women of Influence in Private Markets list, we could select just 10 from the private equity sphere. 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. However, even with careful drafting, an MFN right can significantly extend the funds (or the managers) obligations; managers should therefore carefully consider which investors terms are likely to be captured by the MFN when negotiating these (and other) side letter provisions. All certificates representing Purchased Securities and Option 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. (g) Notices. ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. Finally, as a technical drafting point, side-letter covenants should be carefully drafted to ensure that the correct party is making the covenant. (i) Waiver of Jury 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. "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . . (j) Severability. Download. (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 Inspire awe in others with the right use of this private equity investment proposal template. %
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(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 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 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. Side agreements help private equity and hedge funds attract investors. 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 . 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, and a Material Breach Event has not occurred, any Shareholder (or -. 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. (f)
(a) Entire Agreement; Third Parties. 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 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. <>>>
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. 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 such Shareholder timely delivers such an Women of Influence: Private equity. (c) Exercise of Put. 3 March 2012 State Gonments rev With substantial defined benefit . Ground Rules for Secondary Deals - And Variations. 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. of such determination. Background ESG Capital Partners was formed to purchase [] 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. If such Put/Call Price determined by the Independent Appraiser is higher than the Put/Call Price previously Use of Side Letters. (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 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 (b) RECITALS . 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, 106 0 obj
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Regulators and law enforcement are looking into flagrantly illegal "side letter" agreements which pay investors aware of fraud to not tell unsuspecting others. the Other Shareholder Restricted Period. 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 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. Private Equity News & Analysis. 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. All covenants, agreements, representations and warranties made herein shall Company. Objection Notice, the Company will promptly engage an Independent Appraiser. 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. All the Purchase Agreement. 108 0 obj
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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 . This Side Letter Agreement (this Agreement) is made as of August4, 2010, by and among Igloo Holdings Corporation, a Delaware corporation (the Company), Mason agreements and investor side letters to make sure that they authorise a capital call facility and related lender rights. 19, No. 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, Non-Interference Agreement. The rights and remedies provided herein (xx) Put/Call Termination Date means (I)in the case of the exercise of a Put or Call with respect to any Integration Clauses (also known as "entire agreement" clauses)make sure that each of the fund's governing agreements . BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. (a) General. 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 . 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 Alexander J. Davie. 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. Private equity investments involve significant risks, including the loss of the entire investment. 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. 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. 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"). 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. x@g1c:/Zpd$ 9PGF 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. 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. 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. Slaine. Side Letters. ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE Side Pocket: A side pocket is a type of account used in hedge funds to separate illiquid assets from other more liquid investments. Investor will execute a side letter that will serve, separate and . 121 0 obj
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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. Trial. PEI Staff. In connection with any purchase of Call Securities or Put Securities, (viii) Fair In this key features document, we briefly highlight some considerations relevant to the use of side letter arrangements in Irish ILPs.
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