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. references to numbers of Purchased Securities, Option Shares and Purchase Price in this Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization or similar transaction affecting the A blanket consent is therefore not advisable. 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. In many instances it is easier to agree concessions in these separate agreements rather than amend the funds constituting documents (being the private placement memorandum and the constitutional documents such as the partnership agreement or articles), especially as the latter approach would mean the rights agreed would generally then be available to all investors. 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, securities of the Company on such date) of the aggregate fees and expenses that would reasonably be expected to be incurred by the Company and its Subsidiaries in connection with a Change of Control. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and representatives. The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder 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 side letters. There are three versions of the post-money safe intended for use by US companies, plus an optional side letter. agreement (or related side letters), such as limiting outstanding debt to a . 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 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. (c) Legends. (vi) Disability shall have the meaning set forth in the Employment Agreement. (ii) No failure or delay by any party in exercising any right, power US companies. 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 . 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. 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 endobj 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). A key man clause is a contractual clause that prohibits an investment firm or fund manager from making new investments if one or more key persons are not available to devote the necessary time to the investment. Investors are increasingly looking to funds to make ESG commitments with respect to their investments. 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 In recent years there has been growing interest in co-investment vehicles, separately managed accounts and other alternatives to classic commingled funds. is ninety (90)days following the date of termination of employment of Slaine and (y)the date that is two hundred seventy (270)days following the date of exercise of the Option pursuant to which such Option Shares were issued to 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. No later than ten (10)days after the EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of investors. 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. No Shareholder shall assign Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. Forms of side letters often have all fund parties (i.e., the manager, 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. 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. (iv) Change in Control shall have the meaning set forth in the Employment (ix) Good Reason shall have the meaning set forth in the Employment Agreement. <> or any specified portion of the Call Securities owned by any such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. the agreement as between the general partner and an investor. 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 Agreement can be amended only by an instrument in writing signed by (x)each of the parties hereto and (y)solely with respect to Section3, each of Silver Lake and Warburg Pincus. <> +971 4 425 6338, London Issues are amplified where any MFN rights are involved. However, these documents are actually the most important as they can make or break your company. (x) Independent Appraiser means an independent investment banking or valuation firm jointly selected by the Company 1 March 2023. 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 . 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 left blank]. Confidentiality agreements are the foundation of NDAs and are indispensable in the assessment of any company. Put/Call Price by the Independent Appraiser; provided, however, that if, as of the date that otherwise would be the Put/Call Closing Date pursuant to the foregoing clauses (I)and (II), the Company is restricted or prohibited from The rise of private equity secondaries nancings Samantha Hutchinson, . Thanks to the $2 trillion . affording the single member special rights, e.g. No. <>>> (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) (j) Severability. Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . In the world of private equity, side-letters are a globally recognised and prevalent practice among many . Founders tend to lose interest when it comes to the negotiation of capital raising documentation or investment agreement with investors. These . 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. prior to the Put/Call Termination Date (unless such Call is being exercised after the occurrence of a Material Breach Event, in which case such Call Notice may be delivered at any time after the occurrence of such Material Breach Event), to Call all among the parties with respect to the subject matter hereof. (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 . 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. (b) 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 If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the 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. +44 20 7184 7460, Dubai 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'). minimum statutory withholding requirements, and (ii)the applicable Shareholder and/or his or its Permitted Transferees, as applicable, shall, simultaneously therewith, transfer and deliver such Call Securities or Put Securities, as applicable, 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 respect to such Call Securities as determined in good faith by the Board. rQpg$cj'?w8+6+*CVt-[PsuiO;yL4PQ#LZK0!zDPSh]o'S$V&\]V. Board, then the costs and expenses of such Independent Appraiser shall be borne by such Shareholder (which costs and expenses may, in whole or in part, be deducted from the cash delivered to such Shareholder and/or his or its Permitted Transferees, 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. 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. Side Letters. Use of Side Letters. (k) Governing Law; Jurisdiction. Purchased Securities pursuant to the Purchase Agreement. But as one notable decision from the Delaware Court of Chancery illustrates, the enforceability of these agreements cannot be take for granted. 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. Each Put Notice shall set forth the Put Securities applicable to such Put. (a) Most Favored Nation. 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 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 . (a) General. Investor will execute a side letter that will serve, separate and . 4 0 obj 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 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 xc```b`` B@1XJYJ9 WX i 022s :/602[8a 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. 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. 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. Sidecar Investment: An investment strategy in which one investor allows a second investor to control where and how to invest the capital. All EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. 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. for any reason (other than by the Company for Cause or by Slaine without Good Reason) and a Material Breach Event has not occurred prior to the Put/Call Closing Date, a price equal to the Fair Market Value of (x)with respect to any Purchased The sidecar investment will usually be used when one of . (f) 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 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. 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 This allows continuity of application. the terms and conditions of this Section3 in the same manner as the Company. 3 Vol. This Agreement and the other agreements referred to herein set forth the entire understanding ) =]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 Shareholders waiver of his or its rights to trial by jury. Environmental, Social and Governance ("ESG") concerns. of such determination. 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 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. (g) Notices. 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 The top 10 terms in private equity NDAs. Download the March 2023 issue of Private Equity International. 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 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 . [1] On April 21, 2022, I filed a comment letter in response to the Proposal. +44 20 7184 7845. . N~o@XR" i between a private equity fund (a "Fund") and an investor (an "Investor") are generally contained in the constituent documents of the Fund, often a limited partnership agreement (an "LPA"), which sets forth the rights and obligations of the general partner and each . 3 March 2012 State Gonments rev With substantial defined benefit . specified portion of the Put Securities owned by such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. the date of Slaines termination of employment and (B)with respect to any Option Shares, such Call Securities as of the Put/Call Exercise Date and (y)the Cost of such Call Securities, (II) if Slaines employment is terminated 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 endobj 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). NDA confidential information. 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 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). Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. SAFEs solve two problems: (1) nobody knows what an early-stage . 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. 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. 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. 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 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. Parties to a side letter negotiation should seek advice on the particular transaction in light of their circumstances. BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. . Q(J^{),}X0)"1m} Rj}q=. In this key features document, we briefly highlight some considerations relevant to the use of side letter arrangements in Irish ILPs. Side Pocket: A side pocket is a type of account used in hedge funds to separate illiquid assets from other more liquid investments. 121 0 obj <]>>stream ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. Obligations of Transferees. the Purchase Agreement. Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. MFN clauses play a key role in the commercial negotiations of an investment in a modern private . Simple example. conditions of this Agreement for all parties remain valid, binding and enforceable. Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. Side letters supplement the terms of a funds constituting documents, so they should be considered whenever these documents are consulted. +44 20 7184 7468, London fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA The use of side letters is becoming a common theme amongst investors . 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. The need for consistency between side letter terms (including any MFN rights granted) becomes particularly apparent when conducting this exercise. Company. It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. (m) Employment by the This document is not legal advice and should not be relied on as such. c'5HJ~L;x}=u! Download. 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. Side letter. The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. (ii) Call Securities means (I)in the event Slaines employment is terminated by NOW, THEREFORE, in consideration of the foregoing, (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of If such Put/Call Price determined by the Independent Appraiser is higher than the Put/Call Price previously Enhanced reporting and information rights. This article provides an overview of common side letter terms and current themes in the private fund market. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. 106 0 obj <> endobj . 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 Managers with a number of side letters should consider keeping a centralised record of all side letters agreed for the fund, allowing compliance to be monitored on an ongoing basis. 108 0 obj <>stream 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 AJC*P 4m@RA0aS# 2 0 obj <> endobj 4 0 obj <>stream 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. Ch. If co-investment rights, not tendered to the investor generally, usually the basis of the single member being the largest investor. 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). Objection Notice, the Company will promptly engage an Independent Appraiser. In connection with any purchase of Call Securities or Put Securities, held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. 1) In certain circumstances the manager may also be a party. In partnership with Aumni, a leading provider of investment analytics for the private capital markets, NVCA offers a new Enhanced Model Term Sheet v.3.0 and a new Enhanced Investors' Rights Agreement, each with an embedded market analysis of deal term frequency and usage. (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 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)). % Introduction. 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 (xiv) Option means any options to purchase shares of Common Stock granted pursuant to any Employee Equity as of such date equal to the Permitted Transfer Share Amount. However, side letters generally raise various fiduciary and other concerns that must be addressed. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. Rather than a privately negotiated side letter process . 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. (xvii) 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 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). (iii) Cause shall have the meaning set forth in the When you invest in a mutual fund . For example, a fund of . 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. (i) Waiver of Jury (g) Make-Whole. It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters. 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). Women of Influence: Private equity. 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 Once an investment enters a side pocket account, only the . All certificates representing Purchased Securities and Option Safe: Valuation Cap, no Discount 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." (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 (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 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.

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