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. would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. 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. Download this easily editable template through formats like MS Word and Mac Pages. Side Letter: Alaska's U-turn; China PE predictions; industry's next sports specialist. Side letters supplement the terms of a funds constituting documents, so they should be considered whenever these documents are consulted. 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. 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 or the potential to establish . (d) Objection to The top 10 terms in private equity NDAs. 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 the agreement as between the general partner and an investor. 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. First, a quick summary of the events leading up to the . (g) Notices. (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of This Agreement and the other agreements referred to herein set forth the entire understanding A blanket consent is therefore not advisable. 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. 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 For instance: private equity firm Thoma Bravo, which manages $114 billion of investor money, says in its federal disclosures that it will use side letters as it pleases: "Thoma Bravo is likely to have its own economic and/or other business incentives to provide certain terms to certain limited partners . The ESG Capital Partners Case serves as an important reminder that private fund managers, investors and practitioners should always consider the following points to ensure enforceability of side letter agreements: 1. 1 March 2023. An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. US companies. %PDF-1.7 % Sidecar Investment: An investment strategy in which one investor allows a second investor to control where and how to invest the capital. the exercise of its repurchase right pursuant to Section3(b) above, and (B)the positive difference, if any between (x)the price per share of Common Stock received by the Companys shareholders in connection with such In the world of private equity, side-letters are a globally recognised and prevalent practice among many . %PDF-1.5 % +44 20 7184 7845. e.g. The number and prevalence of side letter requests has increased exponentially in the last decade, a trend However, even with careful drafting, an MFN right can significantly extend the funds (or the managers) obligations; managers should therefore carefully consider which investors terms are likely to be captured by the MFN when negotiating these (and other) side letter provisions. Some rights are also most practically recorded in a side letter (for example confirmation of an advisory committee seat for a closed-ended fund).2. 3 Vol. The letter agreement includes sample language for certain rights granted to investors, such as most favored nation (MFN), co-investment, information, and advisory board rights. x]o6}=ZF%Q{z9CI|Glc8DY dcKM5_.!wWgJn$)&YU'WwEruHd*wyrvoy&&>p\jnsLr!USZ/qg~x$ok eV/]jMYYedyp LX'('A h-$!RTY respect to such Call Securities as determined in good faith by the Board. All covenants, agreements, representations and warranties made herein shall Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining . In recent years there has been growing interest in co-investment vehicles, separately managed accounts and other alternatives to classic commingled funds. 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. [Remainder of page intentionally agreement. A more detailed analysis of the ILP is available here. Requests for management rights letters are fairly common in today's market and do not impose significant burdens on . (viii) Fair 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. Section3, each of Silver Lake and Warburg Pincus. stream Environmental, Social and Governance ("ESG") concerns. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). Employment Agreement. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. The Use of Side Letters in Investment Limited Partnerships Broad flexibility to negotiate side 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 (xxi) Put Securities means the Purchased Securities and the Option Shares. 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 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. The private equity fund will generally be required to include the OID in income as "phantom income" as it accrues. WHEREAS, the Shareholders, on the one hand, and Warburg Pincus 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. The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder Size: A4, US. Side Letters. Issues are amplified where any MFN rights are involved. However, side letters generally raise various fiduciary and other concerns that must be addressed. If Slaines employment with the Company shall be terminated for any reason, the Company shall have the right, but not the obligation, by one or more written notices to the Shareholders (each, a Call Notice) delivered on or Arrangement. (a) General. {slal!#/:dVpRb|$vbHIbO X! 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 (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 shall be null and void. 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 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. (b) Slaine without Good Reason, the Purchased Securities. The above is a summary of common side letter requests. determined by the Board, then the costs and expenses of such Independent Appraiser shall be borne by the Company. 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. In this key features document, we briefly highlight some considerations relevant to the use of side letter arrangements in Irish ILPs. or the potential to establish . Managers should be alive to the implications of agreeing to side letter provisions, considering each term from a commercial, legal, regulatory and operational perspective. (f) . In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. Shares shall bear legends as provided in the Shareholders Agreement. +44 20 7184 7468, London The sidecar investment will usually be used when one of . (d) Successors; Assignment. Side Pocket: A side pocket is a type of account used in hedge funds to separate illiquid assets from other more liquid investments. 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). (m) Employment by the 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 . 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. 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), +44 20 7184 7460, Dubai It is better to be consistent in agreeing side letter terms, for example, having a 'house' provision that is stuck to. 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. One of the simplest (and cheapest) ways to invest in an early-stage company is often through a Simple Agreement for Future Equity (SAFE). A blanket consent is therefore not advisable. 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. 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. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Exhibit 10.18 SIDE LETTER AGREEMENT . Integration Clauses (also known as "entire agreement" clauses)make sure that each of the fund's governing agreements . 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. 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. 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 A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . 1. Alexander J. Davie. 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 106 0 obj <> endobj ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. 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 Author: Dan Brecher. 121 0 obj <]>>stream 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. 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. Definitions. AJC*P 4m@RA0aS# Shareholder (or his or its Permitted Transferee) from the Company or any other Person in connection with the Transfer by such Shareholder or his or its Permitted Transferees of any Purchased Securities and Option Shares (including, without Inspire awe in others with the right use of this private equity investment proposal template. 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. Given the popularity of side letters in fund finance . But as one notable decision from the Delaware Court of Chancery illustrates, the enforceability of these agreements cannot be take for granted. Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . [Signature Page to Side Letter Agreement]. (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 Obligations of Transferees. Once an investment enters a side pocket account, only the . (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 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). Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. Side letters are an (increasingly) common way of formalising negotiated arrangements between a private fund and an investor. Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. the limited liability partnership agreement) and is usually an extension or supplement in the sense that it further clarifies certain provisions of the main agreement. Company. (iii) Cause shall have the meaning set forth in the Section3, shall terminate upon the earlier of the consummation of an IPO and the consummation of a Change of Control, whether or not a notice of exercise of any such Call or Put has been given prior to the consummation of an IPO or a Change of Safe: Valuation Cap, no Discount 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. 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 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. 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. LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. Use them or shun them, side letters (also called side agreements or side letter arrangements) are part of the business landscape. 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 . 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. sets out a range of recommendations regarding ESG factors throughout the life of a private equity fund (from the very early stages of fundraising through the investment process to . 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 This investor fills out a form documenting his or her suitability for investing in the partnership. 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. 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. endstream endobj All certificates representing Purchased Securities and Option September 13, 2011. The side letter can add provisions to the SAFE, or can change (amend) provisions in the SAFE. 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 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). (e) Closing. Accordingly, any rule of law, or any legal decision that (ii) If, at any time prior to the Put/Call 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 rights and remedies provided herein 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. Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). 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. 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. We very much appreciate your support and trust. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and representatives. affording the single member special rights, e.g. of such determination. 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. 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 xc```b`` B@1XJYJ9 WX i 022s :/602[8a The use of side letters by venture capital and private equity funds has become commonplacesome would say too commonplace. Finally, as a technical drafting point, side-letter covenants should be carefully drafted to ensure that the correct party is making the covenant. 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. This allows continuity of application. pursuant to the terms and conditions of the agreements governing the indebtedness for borrowed money of the Company and its Subsidiaries, then the Put/Call Closing Date shall be the earlier of (x)ten (10)days after the first date on to this Section3(g) shall be payable promptly following, and subject to, the closing of the transactions contemplated by such definitive agreement contemplated by clause (iv)of the previous sentence. 108 0 obj <>stream <> Investors are increasingly looking to funds to make ESG commitments with respect to their investments. [2] My letter addresses what appears to be one of the most profound . 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, 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
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