endobj 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. 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 (xvi) Purchase Price means the per-share consideration paid by the Shareholders for the N~o@XR" i Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. (i) EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. Counterparts. 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. 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 . Transferee is already a party to this Agreement) by executing and delivering such documents as may be necessary, in the determination of the Company, to make such Person a party hereto, whereupon, except as otherwise expressly provided herein, such Download this easily editable template through formats like MS Word and Mac Pages. 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. If such Put/Call Price determined by the Independent Appraiser is higher than the Put/Call Price previously +44 20 7184 7845. Purchased Securities pursuant to the Purchase Agreement. In partnership with Aumni, a leading provider of investment analytics for the private capital markets, NVCA offers a new Enhanced Model Term Sheet v.3.0 and a new Enhanced Investors' Rights Agreement, each with an embedded market analysis of deal term frequency and usage. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH PARTY HERETO WAIVES, AND COVENANTS THAT SUCH PARTY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN the agreement as between the general partner and an investor. Set out below are some current themes that are relevant to negotiating side letter terms. 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 . If 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 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. applicable, from the applicable Shareholder and/or his or its Permitted Transferees, as applicable, for the Put/Call Price, in each case (x)payable in cash and (y)minus any applicable tax withholdings to satisfy the Companys 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 (viii) Fair For example, a fund of . side letters. All certificates representing Purchased Securities and Option (g) Notices. This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. MFN clauses play a key role in the commercial negotiations of an investment in a modern private . An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. determined by the Board, then the costs and expenses of such Independent Appraiser shall be borne by the Company. 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 A sample side letter to a limited partnership agreement (LPA) that can be used by a limited partner investing in a private equity fund that is structured as a limited partnership. (c) Legal Counsel and Interpretation. 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 Shareholders waiver of his or its rights to trial by jury. 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. e.g. Options. x@g1c:/Zpd$ 9PGF 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. If these issues arise, managers should ensure that the concessions are achievable, do not unduly limit their firms growth and development strategy and that they can be effectively monitored. 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. This is an area of particular sensitivity in the open-ended fund context where portfolio level information should generally only be provided when stale, e.g., after further trading of the portfolio so that its then-current composition is not selectively shared. Inside: The price is right - the ins and outs of portfolio valuation; From regulation to collaboration - a 17-page special report on co-investing; Expert comment and analysis from industry leaders; Plus much more. A little over a year ago, the Delaware Court of Chancery issued a forceful reminder that not all side letter agreements are enforceable. (x) Independent Appraiser means an independent investment banking or valuation firm jointly selected by the Company London Forms of side letters often have all fund parties (i.e., the manager, (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 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 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 NDA confidential information. A sample side letter to a limited partnership agreement (LPA) that can be used by a limited partner investing in a private equity fund that is structured as a limited partnership. 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. If a Shareholder believes in good faith that the Put/Call Price is greater than the amount set forth in the Call Notice or the Put Pricing Notice, as applicable, then such Shareholder may deliver a All Women of Influence: Private equity. Control. Side agreements help private equity and hedge funds attract investors. Nothing contained in this Agreement shall be deemed to obligate the Company or any Subsidiary of the Company to employ Slaine in any capacity whatsoever or to prohibit or restrict the Company (or any such Subsidiary) from terminating 107 0 obj <>/Metadata 16 0 R/ViewerPreferences 161 0 R>> endobj 109 0 obj <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI]>>/MediaBox[0 0 612 792]/Contents 110 0 R/Group<>/Tabs/S/StructParents 0/CropBox[ 0 0 612 792]/Rotate 0>> endobj 110 0 obj <>stream Side letters are an (increasingly) common way of formalising negotiated arrangements between a private fund and an investor.1Whilst used more widely in the closed-ended fund context (given the limited withdrawal rights associated with such funds, the typically higher level of negotiation and greater structural complexity), they are also a feature of open-ended funds, for instance where there is a seed or cornerstone investor investing significant capital or an investor subject to specific tax or regulatory regimes that require bespoke terms. Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. e4 Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ 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 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. 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 Typically it is more appropriate for the manager rather than the fund to sign up to these requests. The amount payable pursuant This Side Letter Agreement (this Agreement) is made as of August4, 2010, by and among Igloo Holdings Corporation, a Delaware corporation (the Company), Mason 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). For example, there have been cases in the Cayman Islands where it has been held that a side letter is not enforceable because the beneficiary rather than the registered interest holder was a party to a side letter and because a manager had entered into a side letter on behalf of the fund (and did not have sufficient authority to bind the fund). BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. If any provision of this Agreement as applicable, at the closing of the purchase of the Call Securities or Put Securities, as applicable, pursuant to Section3(e)). 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. of such determination. Considerations for Private Fund Advisers. PEI Staff. 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). laws govern the subscription agreement and side letter. The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder +44 20 7184 7460, Dubai endstream endobj Ch. 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 VENTURE CAPITAL & PRIVATE EQUITY FUNDS DESKBOOK SERIES . A subscription agreement can also be used to sell stock in a privately owned business. Agreement. (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of x][s8~OUNS6C*:v$\gMvlR%g. We very much appreciate your support and trust. 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 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 (ii) Call Securities means (I)in the event Slaines employment is terminated by You should . Pooling of UK local government pension schemes. 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. There are three versions of the post-money safe intended for use by US companies, plus an optional side letter. 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 Such election by the LP is informational and should not impose any obligation on the general partner (GP) of the fund. 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. Side letters set out terms that supplement or, in some cases, modify the . 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 The right of the Company (or, to the extent provided in Section3(b)(ii), Silver Lake and Warburg Pincus) to effect a Call and the right of the Shareholders to effect a Put, in each case as set forth in this 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. (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 If a fund is willing to negotiate excusal rights, it should try to limit the amount of investor discretion in determining what an excused investment is as the emphasis should be on using the investors full commitment rather than allowing it to cherry pick deals. ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE 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. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> 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)). . xc```b`` B@1XJYJ9 WX i 022s :/602[8a 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). 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. Download the March 2023 issue of Private Equity International. 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. In the world of private equity, side-letters are a globally recognised and prevalent practice among many . 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 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. 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.