side letter agreement private equity

Each Call Notice shall set forth the Call Securities applicable to such Call and the Put/Call Price with 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." 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 (xiii) Non-Interference Agreement shall have the meaning set forth in the Employment Agreement. Thanks to the $2 trillion . 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. endobj Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. 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. 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). 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. 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. BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. VENTURE CAPITAL & PRIVATE EQUITY FUNDS DESKBOOK SERIES . Confidentiality agreements are the foundation of NDAs and are indispensable in the assessment of any company. (i) Waiver of Jury Make sure you reference any fund "gate" provisions in your side letter agreements. (e) Closing. 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 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. All certificates representing Purchased Securities and Option Download the March 2023 issue of Private Equity International. This letter agreement will confirm the agreement between us and you ("you" or the "Investor"), effective as of the . (xiv) Option means any options to purchase shares of Common Stock granted pursuant to any Employee Equity 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 . 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 A letter agreement between a single member of an investor syndicate . (iv) Change in Control shall have the meaning set forth in the Employment Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. Boards Determination of Put/Call Price. Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal . EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. Steps in a Private Equity Transaction Timeline. Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. 3 0 obj A side letter supplements and, where the fund takes contractual form (such as a partnership), can override the terms of the funds constitutional documents and is typically required where an investor has specific commercial, legal, regulatory, taxation or operational concerns with respect to its investment in the fund. Accordingly, any rule of law, or any legal decision that The amount payable pursuant Arrangement. If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the (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 London 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. provisions, side letters can never override the provisions of an offshore fund's memorandum and articles of association. If such Put/Call Price determined by the Independent Appraiser is higher than the Put/Call Price previously 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 Dear Investor: Thank you for your investment in [Name of Company], a [Delaware] corporation (referred to as the "Company" or as "us" and "we" in this letter). The use of side letters is becoming a common theme amongst investors . 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. 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, 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 Call Securities pursuant to Section3(b) above, the Company enters into a definitive agreement that, if consummated, will result in a Change in Control, then, upon and subject to the consummation of such transaction, each Shareholder shall be 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material 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. The top 10 terms in private equity NDAs. 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 (j) Severability. Under the law of contracts, a side letter has the . 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. Issues are amplified where any MFN rights are involved. . material analyses used in arriving at such determination) within thirty (30)days of being engaged stating the Independent Appraisers determination of the Put/Call Price and such Put/Call Price as determined by such Independent Appraiser Set out below are some current themes that are relevant to negotiating side letter terms. 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 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). shall be null and void. There are three versions of the post-money safe intended for use by US companies, plus an optional side letter. (xvi) Purchase Price means the per-share consideration paid by the Shareholders for the While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. (c) Exercise of Put. 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. 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). These . An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors.3However, MFN provisions can be drafted in a number of ways, meaning that what the investor may actually be entitled to elect to receive can vary widely. LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. Securities, such Call Securities or Put Securities, as applicable, as of the date of Slaines termination of employment and (y)with respect to any Option Shares, such Call Securities or Put Securities, as applicable, as of the Put/Call IN WITNESS WHEREOF, Sidecar Investment: An investment strategy in which one investor allows a second investor to control where and how to invest the capital. We very much appreciate your support and trust. However, side letters generally raise various fiduciary and other concerns that must be addressed. 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 (ii) Call Securities means (I)in the event Slaines employment is terminated by 4) These are commonly referred to as so-called VAG investors, i.e., those which are either a German insurance company, pension pool, pension fund or other pension scheme which is directly or indirectly subject to the provisions of the German Insurance Supervision Law or the Ordinance on the investment of restricted assets of pension schemes, funeral expenses funds and small insurance companies or the Ordinance on the investment of restricted assets of pension funds regarding the investment of their restricted assets. 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 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. The sidecar investment will usually be used when one of . MFN. endobj 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. 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"). Teaser Sent by Bankers. 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 No later than ten (10)days after the 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. Nb"qA4Sz^Hj26$DVZ (xi) Material Breach Event means Slaines material breach of the [Remainder of page intentionally ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. from such Shareholder or his or its Permitted Transferees. 19, No. For example, a fund of . AJC*P 4m@RA0aS# 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. 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. 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). Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. Exhibit 10.18 SIDE LETTER AGREEMENT . 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 Obligations of Transferees. Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). Counterparts. This article provides an overview of common side letter terms and current themes in the private fund market. Side letters supplement the terms of a funds constituting documents, so they should be considered whenever these documents are consulted. N~o@XR" i the Purchase Agreement. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. SAFEs solve two problems: (1) nobody knows what an early-stage . 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. 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. Forms of side letters often have all fund parties (i.e., the manager, private equity and real assets sectors. 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. 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. 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. 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. co-investment rights, not tendered to the investor generally, usually the basis of the single member being the largest investor. A side letter is a document that is ancillary to another contract. From a U.S. Securities and Exchange Commission ("SEC") perspective, there is concern about an investor being given preferential treatment in a side letter that may have a negative impact on other investors, such as preferred liquidity and information rights. Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. A blanket consent is therefore not advisable. <>>> affording the single member special rights, e.g. In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. (c) Legal Counsel and Interpretation. 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. 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. 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 . 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. 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. When you invest in a mutual fund . 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 . 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 the terms and conditions of this Section3 in the same manner as the Company. 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. (i)when delivered by hand or electronic e-mail, (ii)upon confirmation of receipt when delivered by facsimile transmission, (iii)one (1)day after deposit with a reputable overnight delivery service or (iv)three (g) Make-Whole. You should . However, these documents are actually the most important as they can make or break your company. Background ESG Capital Partners was formed to purchase [] 1 March 2023. 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. 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. 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. NOW, THEREFORE, in consideration of the foregoing, 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. xc```b`` B@1XJYJ9 WX i 022s :/602[8a <> In particular, any preferential treatment accorded to one or more investors must not result in an overall material disadvantage to other investors. 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). A blanket consent is therefore not advisable. 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.