side letter agreement private equity

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 Exhibit 10.18 SIDE LETTER AGREEMENT . (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. (xvi) Purchase Price means the per-share consideration paid by the Shareholders for the (a) Entire Agreement; Third Parties. Side Letters. Environmental, Social and Governance ("ESG") concerns. Q(J^{),}X0)"1m} Rj}q=. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. 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. (f) The sidecar investment will usually be used when one of . 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. Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . All 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 Introduction "Capital call" facilities (also known as "subscription line" facilities) are facilities made available to funds (often on a revolving credit basis and for general working capital purposes) which are secured against the uncalled capital commitments of the investors in the fund including: (i) the right to make capital calls on . This document is not legal advice and should not be relied on as such. 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. 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. 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 letter agreement includes sample language for certain rights granted to investors, such as most favored nation (MFN), co-investment, information, and advisory board rights. In this key features document, we briefly highlight some considerations relevant to the use of side letter arrangements in Irish ILPs. Securities or Put Securities to be transferred free and clear of all liens, claims and other encumbrances. Objection Notice, the Company will promptly engage an Independent Appraiser. c'5HJ~L;x}=u! shall be null and void. the Purchase Agreement. Accordingly, any rule of law, or any legal decision that 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. 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. x]o6}=ZF%Q{z9CI|Glc8DY dcKM5_.!wWgJn$)&YU'WwEruHd*wyrvoy&&>p\jnsLr!USZ/qg~x$ok eV/]jMYYedyp LX'('A h-$!RTY Purchased Securities, the date that is ninety (90)days following the date of Slaines termination of employment and (II) in the case of the exercise of a Put or Call with respect to any Option Shares, the later of (x)the date that Slaine without Good Reason, the Purchased Securities. The themes identified in this note also demonstrate that the private fund space continues to evolve and that managers also need to adapt in order to ensure that they move with the times, rather than getting caught out by a term that is hastily agreed to without the overall implications receiving proper attention. 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. (d) Objection to Background ESG Capital Partners was formed to purchase [] with the evaluation, preparation, negotiation and execution of this letter agreement, the Back-to-Back Equity Commitment Letter, the LP Agreement, the Subscription Agreement and any other agreement, document or instrument entered into in connection therewith or related thereto and the consummation of the transactions contemplated hereby or thereby. 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 19, No. Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . Forms of side letters often have all fund parties (i.e., the manager, 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. Trial. A side letter is a side agreement between the company and the investor made at the time the investor invests in the SAFE. 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 4 0 obj 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 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. 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. 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 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 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. A side letter is an agreement between the fund and one particular investor to vary the terms of the limited partnership agreement with respect to that particular investor (almost always to the benefit of the investor). (a) Most Favored Nation. [Remainder of page intentionally e4 Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ NOW, THEREFORE, in consideration of the foregoing, 121 0 obj <]>>stream or valuation firms. 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 . 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 Managers should be alive to the implications of agreeing to side letter provisions, considering each term from a commercial, legal, regulatory and operational perspective. A side letter is a document that is ancillary to another contract. 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. 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. 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 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 -. 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 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. Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. 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. Options. 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) Any provision of this Agreement may be waived if, but Put). {slal!#/:dVpRb|$vbHIbO X! Securities or Put Securities as may be reasonably requested by the Company, including but not limited to the representation that such Shareholder (or his or its Permitted Transferees, if applicable) has good and marketable title to such Call Investors are increasingly looking to funds to make ESG commitments with respect to their investments. the limited partners of a venture, private equity or hedge fund . private equity and real assets sectors. the Other Shareholder Restricted Period. 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. 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. (vi) Disability shall have the meaning set forth in the Employment Agreement. 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 RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH THE DEALINGS OF ANY PARTY HERETO IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER Founders tend to lose interest when it comes to the negotiation of capital raising documentation or investment agreement with investors. 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). This article provides an overview of common side letter terms and current themes in the private fund market. fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA agreement (or related side letters), such as limiting outstanding debt to a . (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 The top 10 terms in private equity NDAs. Control. 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. 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. 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. or valuation firms, (II) each of the Company and such Shareholder shall strike two of the names submitted by the other party and (III) the Independent Appraiser shall be selected by lot from the four remaining names of investment banking All notices, consents and other communications required or contemplated by this Agreement shall be in writing and shall be delivered in the manner specified herein or, in the absence of such specification, shall be deemed to have been duly given Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. Private Equity and Hedge Funds. All covenants, agreements, representations and warranties made herein shall 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 Private Equity News & Analysis. Co-investments and other alternative ways of investing. These . [Signature Page to Side Letter Agreement]. Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. 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 conditions of this Agreement for all parties remain valid, binding and enforceable. (i) This (e) Survival. 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. -. respect to such Call Securities as determined in good faith by the Board. 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 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. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. 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). 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 While it is tempting to immediately move on to the next project after a closed-ended funds final closing, it is important to ensure the MFN exercise is handled immediately in order to avoid any technical breaches. +44 20 7184 7460, Dubai Whether it is appropriate to grant such requests should be considered on a case by case basis. 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. No later than ten (10)days after the (e) Closing. Similarly, the staff observed private fund advisers that set up undisclosed side-by-side 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 An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. Employment Agreement. the employment of Slaine at any time or for any reason whatsoever, with or without Cause. 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. Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). (f) LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. In the world of private equity, side-letters are a globally recognised and prevalent practice among many . "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining e.g. Parties to a side letter negotiation should seek advice on the particular transaction in light of their circumstances. N~o@XR" i (x) Independent Appraiser means an independent investment banking or valuation firm jointly selected by the Company shall be cumulative and not exclusive of any rights or remedies provided by law. 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. No Shareholder shall assign . 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. 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. %PDF-1.7 % Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. Regulators and law enforcement are looking into flagrantly illegal "side letter" agreements which pay investors aware of fraud to not tell unsuspecting others. 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 . . Side Letters. 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 . 7. 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. 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 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. . x][s8~OUNS6C*:v$\gMvlR%g. While these are just a handful of the most important provisions commonly found in a side letter agreement, GPs are often dealing with thousands of individual obligations, to . 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 . 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). (xx) Put/Call Termination Date means (I)in the case of the exercise of a Put or Call with respect to any Obligations of Transferees. Breach Event. Boards Determination of Put/Call Price. Simple example. While side letter terms will vary from fund to fund, and from investor to investor within a given fund, side Finally, as a technical drafting point, side-letter covenants should be carefully drafted to ensure that the correct party is making the covenant. Teasers are documents that contains a brief description of the business, its product and service offerings, and financial . Including appropriate provisions to accommodate a capital call . The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. agreement. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. 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), seller, in an arms length transaction on such date, it being understood that the voting and economic rights associated with such Call Securities or Put Securities, as applicable, shall be taken into consideration but no control premium, London 15 February 2023. Company. 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. (m) Employment by the 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)). The rise of private equity secondaries nancings Samantha Hutchinson, . the terms and conditions of this Section3 in the same manner as the Company. Set out below are some current themes that are relevant to negotiating side letter terms. Alexander J. Davie. Download the Safe. 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. 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 These side letter requests can come in many guises, including requests to vary the frequency, format and content of reporting. agreements and investor side letters to make sure that they authorise a capital call facility and related lender rights. 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 . 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 Side letters are an (increasingly) common way of formalising negotiated arrangements between a private fund and an investor. endstream endobj affording the single member special rights, e.g. 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. (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) (ix) Good Reason shall have the meaning set forth in the Employment Agreement. 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. First, a quick summary of the events leading up to the . Enhanced reporting and information rights. Each Put Notice shall set forth the Put Securities applicable to such Put. (c) Legends. (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 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 Make sure you reference any fund "gate" provisions in your side letter agreements. Issues are amplified where any MFN rights are involved. (c) Exercise of Put. 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 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 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. 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"). Notwithstanding anything herein to the contrary, in the event that (i)Slaines employment is terminated by the Company without Cause or by Slaine for Good Reason, (ii)the Company (or its designee) exercises its option to repurchase All certificates representing Purchased Securities and Option 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. from such Shareholder or his or its Permitted Transferees. paying (or the Companys Subsidiaries are prohibited or restricted from delivering funds to the Company sufficient to permit the Company to pay) the Put/Call Price with respect to the Call Securities or the Put Securities, as applicable, WHEREAS, in connection with the execution and delivery of this Agreement, Slaine has entered into an Employment Agreement, dated as of the date hereof, among the Company, IDC and Slaine (as it may be co-investment rights, not tendered to the investor generally, usually the basis of the single member being the largest investor. (xvii) It is better to be consistent in agreeing side letter terms, for example, having a 'house' provision that is stuck to. 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." 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). 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. 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. This allows continuity of application. ) =]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 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. 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.

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