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 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 April 15, 2021. 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. If such Shareholder timely delivers such an 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 (g) Notices. Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. (f) 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. (k) Governing Law; Jurisdiction. 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 Agreement. Arrangement. 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. 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 While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. the Call Securities pursuant to Section3(b) above, (iii)a Material Breach Event has not occurred, and (iv)within four (4)months following the Companys (or its designees) exercise of its option to repurchase the side letters. Slaine without Good Reason, the Purchased Securities. Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . 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. This Agreement and the other agreements referred to herein set forth the entire understanding shall be cumulative and not exclusive of any rights or remedies provided by law. e.g. For instance: Private equity firm Thoma Bravo, which manages $114 billion of investor money, says in its federal disclosures that it will use side letters as it pleases: "Thoma Bravo is likely to have its own economic and/or other business incentives to provide certain terms to certain limited partners or the potential to establish . The MFN exercise ensures that all investors who are allowed to see/elect to receive other investors side letter provisions are presented with their options within the agreed timeframe. Steps in a Private Equity Transaction Timeline. of such determination. -. Firm Insights. 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. However, these documents are actually the most important as they can make or break your company. BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. %PDF-1.5 % the terms and conditions of this Section3 in the same manner as the Company. 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 Women of Influence: Private equity. General Partners ("GPs") have an interest in reducing the length of side letter agreements, providing fundraising certainty, and lowering their fund formation costs. 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. US companies. 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." Incorporating Responsible Investment Requirements into Private Equity Fund Terms. LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. Side letters supplement the terms of a funds constituting documents, so they should be considered whenever these documents are consulted. A side letter is a side agreement between the company and the investor made at the time the investor invests in the SAFE. endobj Download the Safe. 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. United Nations-supported Principles for Responsible Investment (PRI) offers guidance on the placement of ESG provisions in LPAs and side letters on pages 13-14 of their Incorporating Responsible Investment Requirements into Private Equity Fund Terms report. xc```b`` B@1XJYJ9 WX i 022s :/602[8a 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. specified portion of the Put Securities owned by such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. agreement (or related side letters), such as limiting outstanding debt to a . and a Shareholder within fifteen (15)days after the date of the Companys receipt of an Objection Notice; provided that if the Company and such Shareholder are unable to agree upon who shall serve as the Independent Appraiser Side letters may provide the ability for an investor to elect to receive the benefit of side letter provisions the fund has entered into with other investors. to obtain required governmental or other approvals), and (II) in the event that an Objection Notice has been timely delivered with respect to the Call Notice or Put Pricing Notice, as applicable, ten (10)days after the determination of the 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. A subscription agreement can also be used to sell stock in a privately owned business. Confidentiality agreements are the foundation of NDAs and are indispensable in the assessment of any company. or valuation firms. held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. 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. (l) Stock Splits and Similar Transactions. Except as expressly provided in this Agreement (including Section3, which shall be for the benefit of the Company, Silver Lake, Warburg Pincus and their respective Affiliates), The amount payable pursuant The side letter can add provisions to the SAFE, or can change (amend) provisions in the SAFE. 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 the limited partners of a venture, private equity or hedge fund . Private Equity News & Analysis. NDA confidential information. Nb"qA4Sz^Hj26$DVZ (j) Severability. Side Letters. A subscription agreement is between a company and a private investor to sell a specific number of shares at a specific price. However, side letters generally raise various fiduciary and other concerns that must be addressed. Forms of side letters often have all fund parties (i.e., the manager, No. Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. Shares shall bear legends as provided in the Shareholders Agreement. %PDF-1.5 (xiii) Non-Interference Agreement shall have the meaning set forth in the Employment Agreement. c'5HJ~L;x}=u! 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 (ii) No failure or delay by any party in exercising any right, power This Side Letter Agreement (this Agreement) is made as of August4, 2010, by and among Igloo Holdings Corporation, a Delaware corporation (the Company), Mason 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. 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 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 . 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). If VENTURE CAPITAL & PRIVATE EQUITY FUNDS DESKBOOK SERIES . Introduction. 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. The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. PEI Staff. IN WITNESS WHEREOF, Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. (xiv) Option means any options to purchase shares of Common Stock granted pursuant to any Employee Equity Use them or shun them, side letters (also called side agreements or side letter arrangements) are part of the business landscape. The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the Call) and (ii)if 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, each Shareholder (or 1. 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 Each Put Notice shall set forth the Put Securities applicable to such Put. 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. (e) Closing. However, they pose certain distinct issues with respect to side letters which can be problematic, particularly where the lenders ability to take security is compromised or the borrowing base is otherwise restricted. (c) Exercise of Put. 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 . You should . ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. the Company without Cause, by Slaine with Good Reason or by reason of Slaines death or Disability, the Purchased Securities and the Option Shares and (II) in the event Slaines employment is terminated by the Company for Cause or by Below, we've outlined some of the most important terms of NDAs in the private equity space, which draw nuance from changing business conditions. Integration Clauses (also known as "entire agreement" clauses)make sure that each of the fund's governing agreements . rQpg$cj'?w8+6+*CVt-[PsuiO;yL4PQ#LZK0!zDPSh]o'S$V&\]V. 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. In particular, any preferential treatment accorded to one or more investors must not result in an overall material disadvantage to other investors. 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 Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. (vi) Disability shall have the meaning set forth in the Employment Agreement. 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 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). (xii) Material Breach Price means, with respect to any Call Securities or Put London <> Private Equity and Hedge Funds. 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. 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 This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. There are three versions of the post-money safe intended for use by US companies, plus an optional side letter. from such Shareholder or his or its Permitted Transferees. Breach Event. 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, 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 Author: Dan Brecher. left blank]. Capital Call Facilities - LPA and side letter review. SAFEs solve two problems: (1) nobody knows what an early-stage . Download. 1 0 obj 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 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. We very much appreciate your support and trust. (B)the earlier of (x)the fifth anniversary of the Closing Date and (y)the 25% Float Date; provided, however, that following the six month anniversary of the consummation of the IPO, the Other Shareholder Restricted 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 Whether it is appropriate to grant such requests should be considered on a case by case basis. A side letter is an agreement apart from the main agreement (e.g. 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). (i) (xx) Put/Call Termination Date means (I)in the case of the exercise of a Put or Call with respect to any EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of 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. The Use of Side Letters in Investment Limited Partnerships Broad flexibility to negotiate side Shares Transferred by the Sponsors as of such date either in connection with the consummation of the IPO or following the consummation of the IPO (other than to a Permitted Transferee), and the denominator of which is the aggregate number of Shares <> 3 0 obj 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 (ii) If, at any time prior to the Put/Call Co-investments and other alternative ways of investing. 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 has made multibillionaires of executives like Blackstone's Steve Schwarzman (net worth: $17.5 billion) and Apollo's Leon Black ($7.5 billion). Definitions. MFN. The letter agreement includes sample language for certain rights granted to investors, such as most favored nation (MFN), co-investment, information, and advisory board rights. e4 Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ Options. This is an area of particular sensitivity in the open-ended fund context where portfolio level information should generally only be provided when stale, e.g., after further trading of the portfolio so that its then-current composition is not selectively shared. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Shareholders Agreement substantially in the form Managers may therefore wish to include a carve-out in their standard MFN clause in respect of side letter provisions which affect the funds credit facility. Make sure you reference any fund "gate" provisions in your side letter agreements. This investor fills out a form documenting his or her suitability for investing in the partnership. {slal!#/:dVpRb|$vbHIbO X! 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. 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. (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material +44 20 7184 7460, Dubai If the scope of the prohibited investments is stated in the side letter itself, it is generally helpful to state why they are prohibited in order to increase the chance that the provision is taken outside the scope of any relevant MFN right. (b) Securities or Put Securities to be transferred free and clear of all liens, claims and other encumbrances. But as one notable decision from the Delaware Court of Chancery illustrates, the enforceability of these agreements cannot be take for granted. The number and prevalence of side letter requests has increased exponentially in the last decade, a trend Company. other remedy to which it may be entitled at law or equity. 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 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. Employment Agreement. Counterparts. 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 Requests for management rights letters are fairly common in today's market and do not impose significant burdens on . 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)