the terms and conditions of this Section3 in the same manner as the Company. Shares shall bear legends as provided in the Shareholders Agreement. (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 3 0 obj 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 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 +44 20 7184 7460, Dubai 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 The private equity fund will generally be required to include the OID in income as "phantom income" as it accrues. 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. London 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. If any provision of this Agreement c'5HJ~L;x}=u! 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. Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. Q(J^{),}X0)"1m} Rj}q=. would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. Inspire awe in others with the right use of this private equity investment proposal template. 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 MFN. Whether it is appropriate to grant such requests should be considered on a case by case basis. 108 0 obj <>stream 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. These . In the event a Material Breach Event occurs, at any time thereafter upon delivery of written notice by the Company, each Shareholder shall be obligated to deliver promptly (and, in any event, no later than five These side letter requests can come in many guises, including requests to vary the frequency, format and content of reporting. In the world of private equity, side-letters are a globally recognised and prevalent practice among many . In recent years there has been growing interest in co-investment vehicles, separately managed accounts and other alternatives to classic commingled funds. 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. 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 . 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). Including appropriate provisions to accommodate a capital call . The pooling of these entities continues to evolve and a standard approach may develop over time. 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. (c) Exercise of Put. In such event, Silver Lake (and/or its assignee) and Warburg Pincus (and/or its assignee) shall have a pro rata right (based on their relative ownership of Shares at the time of delivery of such notification by the Company) to The above is a summary of common side letter requests. Arrangement. 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. Make sure you reference any fund "gate" provisions in your side letter agreements. (xi) Material Breach Event means Slaines material breach of the Ground Rules for Secondary Deals - And Variations. other remedy to which it may be entitled at law or equity. [1] On April 21, 2022, I filed a comment letter in response to the Proposal. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. 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 Private Equity X, L.P., Warburg Pincus X Partner, L.P., Silver Lake Partners III, L.P., and Silver Lake Technology Investors III, L.P., on the other hand (collectively, theSponsors), have entered into that certain Stock 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) provisions, side letters can never override the provisions of an offshore fund's memorandum and articles of association. NDA confidential information. 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. 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 "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . 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 stream 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 No. SAFEs solve two problems: (1) nobody knows what an early-stage . IN WITNESS WHEREOF, 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 It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. Agreement. 1. Parties to a side letter negotiation should seek advice on the particular transaction in light of their circumstances. 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. (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material %PDF-1.5 % Women of Influence: Private equity. 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. e4 Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ Forms of side letters often have all fund parties (i.e., the manager, (d) Successors; Assignment. 15 February 2023. 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 While side letter terms will vary from fund to fund, and from investor to investor within a given fund, side the Purchase Agreement. 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). This is typically achieved through an election form and can take some time to coordinate if a significant number of side letters are involved and/or if a complex set of carve outs apply. (d) Objection to Enter to open, tab to navigate, enter to select, Practical Law Standard Document w-016-5805, https://content.next.westlaw.com/practical-law/document/Iba4bc2fcb68611e8a5b3e3d9e23d7429/Side-Letter-to-Limited-Partnership-Agreement?viewType=FullText&transitionType=Default&contextData=(sc.Default), Side Letter to Limited Partnership Agreement. 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. 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 . endobj Simple example. shall be cumulative and not exclusive of any rights or remedies provided by law. 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 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 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 private equity and real assets sectors. Boards Determination of Put/Call Price. Investors are increasingly looking to funds to make ESG commitments with respect to their investments. NOW, THEREFORE, in consideration of the foregoing, respect to such Call Securities as determined in good faith by the Board. +44 20 7184 7845. (e) Survival. 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. Certain investors will require side letters, providing them with additional . (f) . fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA 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. Typically it is more appropriate for the manager rather than the fund to sign up to these requests. Regulators and law enforcement are looking into flagrantly illegal "side letter" agreements which pay investors aware of fraud to not tell unsuspecting others. A subscription agreement can also be used to sell stock in a privately owned business. This article provides an overview of common side letter terms and current themes in the private fund market. 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. 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. Lenders should be mindful of any such provisions, commonly referred to as most favoured nation ("MFN") provisions (which may also be set out in the LPA). 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. {slal!#/:dVpRb|$vbHIbO X! 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 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 The number and prevalence of side letter requests has increased exponentially in the last decade, a trend 1 Whilst 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 . (ii) If, at any time prior to the Put/Call EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of investors. 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." The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder 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. Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . A letter agreement between a single member of an investor syndicate . 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 . amended from time to time, the Employment Agreement). 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. Private Equity News & Analysis. 3 Vol. <> 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 But as one notable decision from the Delaware Court of Chancery illustrates, the enforceability of these agreements cannot be take for granted. 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 The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. (i) This 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). 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. %PDF-1.7 % 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 Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). 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. The use of side letters by venture capital and private equity funds has become commonplacesome would say too commonplace. held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. -. Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. x][s8~OUNS6C*:v$\gMvlR%g. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH PARTY HERETO WAIVES, AND COVENANTS THAT SUCH PARTY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN You should . The Use of Side Letters in Investment Limited Partnerships Broad flexibility to negotiate side A blanket consent is therefore not advisable. (5)Business Days after delivery of such notice) to the Company in immediately available funds to an account designated by the Company in such notice the excess, if any, of (i)the aggregate gross proceeds previously received by such #+Cq..mw>@>J6@\?%'SFm!K*k_K!Zx'"AVboBEqp_D"9j }$w[u?"1GT!nAY\#BuhTloC? Private Equity: Legal Perspectives & Documentation is designed to provide you with a solid understanding of how law and finance work together in the private equity industry to ensure informed decision-making. 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). Each Call Notice shall set forth the Call Securities applicable to such Call and the Put/Call Price with (3)days after deposit in the U.S. mail, to the respective addresses, facsimile numbers or electronic email addresses of the parties set forth below: (i) If to the Company, to it at the following address: (ii) If to any Shareholder or any of his or its Permitted Transferees, to Slaine at the following address: (h) Injunctive Relief. [Remainder of page intentionally Control. Slaine. 1 March 2023. 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.
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