The constitutional documents of closed-ended funds typically include a mechanism whereby an investor can be excused from participating in particular types of investments (generally due to regulatory or other internal constraints). 1. conditions of this Agreement for all parties remain valid, binding and enforceable. or the potential to establish . 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. (f) 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 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. 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 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. A side letter is a document that is ancillary to another contract. . Investor will execute a side letter that will serve, separate and . (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) Download the Safe. Use them or shun them, side letters (also called side agreements or side letter arrangements) are part of the business landscape. Alexander J. Davie. Securities or Put Securities to be transferred free and clear of all liens, claims and other encumbrances. 2 0 obj . (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 or valuation firms. 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 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. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and representatives. Non-Interference Agreement. 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 -. rQpg$cj'?w8+6+*CVt-[PsuiO;yL4PQ#LZK0!zDPSh]o'S$V&\]V. 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. 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 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. The private equity due diligence process is a lengthy sequence of steps that involves a lot of research and information gathering, analytics, discussions, and assessments. 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. Slaine without Good Reason, the Purchased Securities. <> Set out below are some current themes that are relevant to negotiating side letter terms. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. +44 20 7184 7460, Dubai 19, No. Capital Call Facilities - LPA and side letter review. 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 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 General Partners ("GPs") have an interest in reducing the length of side letter agreements, providing fundraising certainty, and lowering their fund formation costs. 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 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 +44 20 7184 7845. Put). From a side letter perspective, this effectively increases their negotiating power, particularly if one of the schemes is granted an MFN which is extended to all members of its pool. 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. 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 (c) Exercise of Put. other remedy to which it may be entitled at law or equity. 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. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> This Standard Document has integrated notes with important explanations and drafting and negotiating tips. 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, Side Letter: Alaska's U-turn; China PE predictions; industry's next sports specialist. 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 (ii) If, at any time prior to the Put/Call There are three versions of the post-money safe intended for use by US companies, plus an optional side letter. EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of investors. Under the law of contracts, a side letter has the . 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). Slaine. -. 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. (a) Most Favored Nation. The rules and regulations for starting a private equity or hedge fund are quite complex, especially when it comes to claiming the correct exemption from registration. (d) Successors; Assignment. LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. 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 within such fifteen (15)day period, (I)each of the Company and such Shareholder within five (5)days of the end of such fifteen (15)day period shall submit a list of the names of four nationally recognized investment banking 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. A subscription agreement is between a company and a private investor to sell a specific number of shares at a specific price. (i) Waiver of Jury 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). 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, (ii) No failure or delay by any party in exercising any right, power as applicable, at the closing of the purchase of the Call Securities or Put Securities, as applicable, pursuant to Section3(e)). 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 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. Purchase Agreement, dated as of August4, 2010 (thePurchase Agreement), pursuant to which the Shareholders have agreed to purchase from the Sponsors, and the Sponsors have agreed to sell to the Shareholders, 20,000,000 The private equity fund will generally be required to include the OID in income as "phantom income" as it accrues. x]o6}=ZF%Q{z9CI|Glc8DY dcKM5_.!wWgJn$)&YU'WwEruHd*wyrvoy&&>p\jnsLr!USZ/qg~x$ok eV/]jMYYedyp LX'('A h-$!RTY Shares, the lower or (x)the Fair Market Value of such Call Securities or Put Securities, as applicable, on the applicable Put/Call Exercise Date and (y)the Cost of such Call Securities or Put Securities, as applicable. private equity and real assets sectors. Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). shall be null and void. The rights and remedies provided herein N~o@XR" i 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. 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. A side letter is an agreement apart from the main agreement (e.g. (x) Independent Appraiser means an independent investment banking or valuation firm jointly selected by the Company WHEREAS, the Shareholders, on the one hand, and Warburg Pincus A letter agreement between a single member of an investor syndicate . 121 0 obj <]>>stream 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. EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. US companies. This document is not legal advice and should not be relied on as such. e.g. . 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. respect to such Call Securities as determined in good faith by the Board. 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 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 March 2012 State Gonments rev With substantial defined benefit . Focusing on key legal steps and documentation with sample agreements, you will learn about the latest trends, developments and legal . 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 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 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. (xviii) Put/Call Exercise Date means, as applicable, (I)the date on which the Company delivers a Call Notice to a Shareholder with respect to the Companys exercise of a Call 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"). Environmental, Social and Governance ("ESG") concerns. 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, 1) In certain circumstances the manager may also be a party. 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 All covenants, agreements, representations and warranties made herein shall All certificates representing Purchased Securities and Option would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. Private Equity and Hedge Funds. exercise such Call right pursuant to the terms and conditions of this Section3 in the same manner as the Company; provided that in the event that any Sponsor (and/or its assignees) (the Non-Exercising Sponsor) elects 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 . amended from time to time, the Employment Agreement). Teaser Sent by Bankers. % 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. Breach Event. 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 (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of (iii) Cause shall have the meaning set forth in the This investor fills out a form documenting his or her suitability for investing in the partnership. 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 endobj (c) Legal Counsel and Interpretation. (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 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 . Managers that are subject to the Alternative Investment Fund Managers Directive (2011/61/EU; "AIFMD") (whether as a European Economic Area ("EEA") based alternative investment fund manager ("AIFM"), managing an EEA alternative investment fund ("AIF") or through marketing an AIF to investors located in the EEA) must comply with the AIFMD rules on preferential treatment. Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. 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." Trial. A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . 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. 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. specified portion of the Put Securities owned by such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. 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 of such determination. [Signature Page to Side Letter Agreement]. 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. %PDF-1.7 % Purchased Securities, Option Shares or Purchase Price occurring after the date of this Agreement. The side letter can be used to facilitate a large investment that attracts other strategic investors, which could benefit the fund and the execution of its investment strategy. (viii) Fair (e) Survival. Side letter. Disgorgement of Profits. [1] On April 21, 2022, I filed a comment letter in response to the Proposal. 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. 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. Download. 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. 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. +44 20 7184 7468, London #+Cq..mw>@>J6@\?%'SFm!K*k_K!Zx'"AVboBEqp_D"9j }$w[u?"1GT!nAY\#BuhTloC? 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 left blank]. It is better to be consistent in agreeing side letter terms, for example, having a 'house' provision that is stuck to. Side Pocket: A side pocket is a type of account used in hedge funds to separate illiquid assets from other more liquid investments. +971 4 425 6338, London Ground Rules for Secondary Deals - And Variations. 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 . 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. 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. IN WITNESS WHEREOF, 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'). All Managers should be alive to the implications of agreeing to side letter provisions, considering each term from a commercial, legal, regulatory and operational perspective. Including appropriate provisions to accommodate a capital call . 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 and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. 15 February 2023. BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. 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), MFN. (i) This 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. (ix) Good Reason shall have the meaning set forth in the Employment Agreement. Rather than a privately negotiated side letter process . 108 0 obj <>stream SAFEs solve two problems: (1) nobody knows what an early-stage . The sidecar investment will usually be used when one of . 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. 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 4 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
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