side letter agreement private equityside letter agreement private equity

Q(J^{),}X0)"1m} Rj}q=. 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. Side Letter: Alaska's U-turn; China PE predictions; industry's next sports specialist. 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 Side letters: This aspect of the Proposed Rules represents a significant departure from the current practice of many private fund advisers and institutional and other investors with respect to side letters and other similar written agreements. Side agreements help private equity and hedge funds attract investors. Control. A subscription agreement is between a company and a private investor to sell a specific number of shares at a specific price. side letters. (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 Finally, a private equity fund of funds may seek side letter pro-visions to ensure that the terms of an invest-ment do not conflict with the fund of funds' governing documents. 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. 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 . 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. conditions of this Agreement for all parties remain valid, binding and enforceable. 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 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 more detailed analysis of the ILP is available here. This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. While investors commonly seek an acknowledgement in a side letter that they are interested in co-investment opportunities (or a similar election right), the range of alternative investment structures currently in vogue introduces new side letter concerns, particularly in relation to strategy and allocation issues (for example strategy caps and successor fund provisions). {slal!#/:dVpRb|$vbHIbO X! However, even with careful drafting, an MFN right can significantly extend the funds (or the managers) obligations; managers should therefore carefully consider which investors terms are likely to be captured by the MFN when negotiating these (and other) side letter provisions. specified portion of the Put Securities owned by such Shareholder or any of his or its Permitted Transferees at the Put/Call Price. Author: Dan Brecher. the employment of Slaine at any time or for any reason whatsoever, with or without Cause. Firm Insights. The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. 15 February 2023. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and representatives. This Standard Document has integrated notes with important explanations and drafting and negotiating tips. Requests for management rights letters are fairly common in today's market and do not impose significant burdens on . If at any time from the date of this Agreement until the earlier of the (i) Maturity Date of the Convertible Note and (ii) payment in full of principal and interest of the Convertible Note, the Company sells equity, including debt convertible into equity, in cash to third party . Put). ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE <>>> x[}S7KJbI!++[mT%,@te5[qfVgo.z^xW/Y-W"F4(e3zo\62[_kcLm95/^e.w]sKh0+(p e9 /drePPnY)EmqY'{mmy;rYm +u'lwogjfY6fV8yg_on@,~Vn3jva9[)>{Izscl_-rEvC_ k g_\_k:w+`-q)\iwvm~ n[; x%-{gglw/qG3:9[->[-tNuCGkAiz%Njqll G L Ye`[n6nK-v^lASRTKCv}A$X3a$j$FG+t,JX.9{ ^y!E 6}9b'Fsqy 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 It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters. 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 (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of 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. 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 AJC*P 4m@RA0aS# Side Letters. Trial. Securities or Put Securities to be transferred free and clear of all liens, claims and other encumbrances. agreements and investor side letters to make sure that they authorise a capital call facility and related lender rights. 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. 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. "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . 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. 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. EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. (ii) Call Securities means (I)in the event Slaines employment is terminated by 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 . (ix) Good Reason shall have the meaning set forth in the Employment Agreement. 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. 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). The pooling of these entities continues to evolve and a standard approach may develop over time. 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. Background ESG Capital Partners was formed to purchase [] If a fund is willing to negotiate excusal rights, it should try to limit the amount of investor discretion in determining what an excused investment is as the emphasis should be on using the investors full commitment rather than allowing it to cherry pick deals. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. 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. However, the schemes have not pooled using a consistent structure so, as it stands, requests should be considered on a case by case basis it may be that the various schemes do not necessarily fall within a funds definition of affiliate (which is generally how entities are grouped together for the purposes of an MFN clause). 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 SAFEs solve two problems: (1) nobody knows what an early-stage . Download. fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. from such Shareholder or his or its Permitted Transferees. . 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 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. In particular, any preferential treatment accorded to one or more investors must not result in an overall material disadvantage to other investors. The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder Private Equity and Hedge Funds. (e) Survival. 1) In certain circumstances the manager may also be a party. EEA based AIFMs are also subject to an additional requirement to ensure the fair treatment of investors. 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 106 0 obj <> endobj WHEREAS, the Shareholders, on the one hand, and Warburg Pincus 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)). 7. Breach Event. Non-Interference Agreement. Confidentiality agreements are the foundation of NDAs and are indispensable in the assessment of any company. co-investment rights, not tendered to the investor generally, usually the basis of the single member being the largest investor. 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. (c) Legal Counsel and Interpretation. 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 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. Each Put Notice shall set forth the Put Securities applicable to such Put. (viii) Fair 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. acquire from time to time shall be subject to the transfer restrictions and other provisions of the Shareholders Agreement. Use of Side Letters. 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. Lenders should be mindful of any such provisions, commonly referred to as most favoured nation ("MFN") provisions (which may also be set out in the LPA). would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. written notice of objection to the Board within ten (10)days of delivery to such Shareholder of such Call Notice or Put Pricing Notice, as applicable (an Objection Notice). 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) This Side Letter Agreement (this Agreement) is made as of August4, 2010, by and among Igloo Holdings Corporation, a Delaware corporation (the Company), Mason stream Ground Rules for Secondary Deals - And Variations. All covenants, agreements, representations and warranties made herein shall %PDF-1.7 % 3 0 obj (e) Closing. (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 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. ) =]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 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. Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. 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.
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