(d) Objection to It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters. [Remainder of page intentionally Each Call Notice shall set forth the Call Securities applicable to such Call and the Put/Call Price with Below are some practical considerations that could be relevant when managing a fund with side letters: Side letters are becoming an increasingly significant part of a fundraise. Any Transfer in derogation of the foregoing 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 . 3 March 2012 State Gonments rev With substantial defined benefit . affording the single member special rights, e.g. 3 0 obj Private equity investments involve significant risks, including the loss of the entire investment. 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 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. 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 (f) 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. 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) Thanks to the $2 trillion . [2] My letter addresses what appears to be one of the most profound . [Signature Page to Side Letter Agreement]. While side letters can be helpful in securing key investments, it is imperative to fully understand their legal . 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. Side letters supplement the terms of a funds constituting documents, so they should be considered whenever these documents are consulted. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> (i) Employment Agreement. 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 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. Once an investment enters a side pocket account, only the . (d) Successors; Assignment. (a) Entire Agreement; Third Parties. All Founders tend to lose interest when it comes to the negotiation of capital raising documentation or investment agreement with investors. Non-Interference Agreement. 4 0 obj The rise of private equity secondaries nancings Samantha Hutchinson, . Most favored nation clause samples. 3 Vol. 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 Simple example. 1. 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. A side letter is an agreement apart from the main agreement (e.g. the limited partners of a venture, private equity or hedge fund . survive the execution and delivery hereof and transfer of any Purchased Securities and Option Shares. 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). Section3, each of Silver Lake and Warburg Pincus. Download the Safe. 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 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. (a) General. Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. 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. Nb"qA4Sz^Hj26$DVZ NDA confidential information. (xxi) Put Securities means the Purchased Securities and the Option Shares. Control. Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . 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. shall be null and void. Integration Clauses (also known as "entire agreement" clauses)make sure that each of the fund's governing agreements . Rather than a privately negotiated side letter process . (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 (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 BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. MFN. To the extent a fund has a credit facility and any of the provisions described above are also covered by an MFN right, these issues can be exacerbated because multiple investors may be able to elect to receive the problematic provisions. A side letter is a document that is ancillary to another contract. While side letter terms will vary from fund to fund, and from investor to investor within a given fund, side agreements and investor side letters to make sure that they authorise a capital call facility and related lender rights. Ground Rules for Secondary Deals - And Variations. 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. IN WITNESS WHEREOF, All certificates representing Purchased Securities and Option 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. 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 Women of Influence: Private equity. e.g. PEI Staff. You should . 11053-VCL (Del. If such Put/Call Price determined by the Independent Appraiser is higher than the Put/Call Price previously 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 %PDF-1.5 The Use of Side Letters in Investment Limited Partnerships Broad flexibility to negotiate side The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. The need for consistency between side letter terms (including any MFN rights granted) becomes particularly apparent when conducting this exercise. 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 Safe: Valuation Cap, no Discount 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 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 (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 (iv) Change in Control shall have the meaning set forth in the Employment endobj 19, No. %PDF-1.7 % 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. 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). 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. WHEREAS, the Shareholders, on the one hand, and Warburg Pincus . stream rQpg$cj'?w8+6+*CVt-[PsuiO;yL4PQ#LZK0!zDPSh]o'S$V&\]V. 106 0 obj <> endobj 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. Law portal; A side letter or side agreement or side letter arrangement is an agreement that is not part of the underlying or primary contract or agreement, and which some or all parties to the contract use to reach agreement on issues the primary contract does not cover or for which they require clarification, or to amend the primary contract. 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"). with respect to all or a portion of the Call Securities owned by such Shareholder and/or his or its Permitted Transferees and (II) the date on which a Shareholder delivers a Put Notice to the Company with respect to such Shareholders exercise The side letter can add provisions to the SAFE, or can change (amend) provisions in the SAFE. In this key features document, we briefly highlight some considerations relevant to the use of side letter arrangements in Irish ILPs. 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. endstream endobj Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. laws govern the subscription agreement and side letter. April 15, 2021. 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). Download. %PDF-1.5 % Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. 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 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. ) =]xIm"LU5-N%v$TjG&VD#ZWU_JP3HCcQp/&z@H2WK$#0IP)Z:*ji(Zz6HLOCh}4=R\{x9+O ;V= l xO!{Qxy2 a# g7@ [V: +6k.:f*`h+g~sc[u-)goO.wYKc{v8/q6C1:s13 7#e}m S~sq`]EX62 When you invest in a mutual fund . endobj Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. Prior to the expiration of the Other Shareholder Restricted Period, any Transferee of Purchased Securities or Option Shares (including Permitted Transferees of a Shareholder that have acquired their Purchased (including the amount of Non-Exercised Call Securities) and, in such event, such other Sponsor (and/or its assignees) shall have a right to exercise such Call right with respect to all or any portion of the Non-Exercised Call Securities pursuant to Options. 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. An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. The introductory recitals of AIFMD also require that any preferential treatment is disclosed in the AIFs rules or instruments of incorporation this can be achieved through broad disclosure in the private placement memorandum or partnership agreement (although some managers prefer to include more tailored terms to ensure investors are not provided with too much of a 'shopping list'). 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. All covenants, agreements, representations and warranties made herein shall Side letters: This aspect of the Proposed Rules represents a significant departure from the current practice of many private fund advisers and institutional and other investors with respect to side letters and other similar written agreements. 1 0 obj NOW, THEREFORE, in consideration of the foregoing, VENTURE CAPITAL & PRIVATE EQUITY FUNDS DESKBOOK SERIES . 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. Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). They can be used to alter the terms of a limited partnership agreement or even override certain provisions. 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. 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. This document is not legal advice and should not be relied on as such. Termination Date, the Company shall determine not to exercise a Call right pursuant to this Section3 with respect to any Shareholder and/or his or its Permitted Transferees, then the Company shall promptly notify Silver Lake and Warburg Pincus fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA 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. with respect to any Option Share, the exercise price paid upon the exercise of the Option pursuant to which such Option Share was issued to Slaine. 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 While investors commonly seek an acknowledgement in a side letter that they are interested in co-investment opportunities (or a similar election right), the range of alternative investment structures currently in vogue introduces new side letter concerns, particularly in relation to strategy and allocation issues (for example strategy caps and successor fund provisions). 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. 7. Trial. the Other Shareholder Restricted Period. 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. (ii) Call Securities means (I)in the event Slaines employment is terminated by Definitions. The above is a summary of common side letter requests. (xii) Material Breach Price means, with respect to any Call Securities or Put or valuation firms. Typically it is more appropriate for the manager rather than the fund to sign up to these requests. (xvi) Purchase Price means the per-share consideration paid by the Shareholders for the 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. In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. The Independent Appraiser will be engaged to deliver to the Company and such Shareholder a written determination (such determination to include a report setting forth all Purchased Securities, Option Shares or Purchase Price occurring after the date of this Agreement. The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder 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. Slaine. The typical management rights letter provides the fund with the minimum . Including appropriate provisions to accommodate a capital call . 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 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 Private Equity News & Analysis. (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 This article provides an overview of common side letter terms and current themes in the private fund market. Steps in a Private Equity Transaction Timeline. It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. 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. 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. left blank]. Each of the parties hereto acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . Side Letter: Alaska's U-turn; China PE predictions; industry's next sports specialist. If any provision of this Agreement No Shareholder shall assign 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. the Purchase Agreement. 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. Similarly, the staff observed private fund advisers that set up undisclosed side-by-side other remedy to which it may be entitled at law or equity. (f) 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, Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. 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 . 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 PEI Staff. (j) Severability. Side Letters. (l) Stock Splits and Similar Transactions. Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. conditions of this Agreement for all parties remain valid, binding and enforceable. ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. A side letter is an agreement between an investor and a fund that alters the terms of the investor's investment in the fund (i) by superseding some of the applicable terms in the partnership agreement or subscription agreement or (ii) by adding additional terms to the agreements and commitments between the fund and the investor.. as of such date equal to the Permitted Transfer Share Amount. In particular, any preferential treatment accorded to one or more investors must not result in an overall material disadvantage to other investors. In this example, a side-letter may be executed between the general partner and the investor regarding a different date when the investor can withdraw their investment. private equity and real assets sectors. 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 Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining 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. 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), 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
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