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 . Issues are amplified where any MFN rights are involved. survive the execution and delivery hereof and transfer of any Purchased Securities and Option Shares. Obligations of Transferees. IN WITNESS WHEREOF, Download the Safe. 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 as of such date equal to the Permitted Transfer Share Amount. 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 3 Vol. Most favored nation clause samples. . 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. 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. 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, 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). Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . Once an investment enters a side pocket account, only the . 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 (d) Successors; Assignment. US companies. respect to such Call Securities as determined in good faith by the Board. Counterparts. 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. (k) Governing Law; Jurisdiction. 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. endobj Section3, shall terminate upon the earlier of the consummation of an IPO and the consummation of a Change of Control, whether or not a notice of exercise of any such Call or Put has been given prior to the consummation of an IPO or a Change of While these are just a handful of the most important provisions commonly found in a side letter agreement, GPs are often dealing with thousands of individual obligations, to . Safe: Valuation Cap, no Discount 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. LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. 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. (e) Survival. 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 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 endstream endobj 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. (l) Stock Splits and Similar Transactions. Side letters are the separate arrangements with the fund managers which either will address matters that are not covered in the partnership agreement of the applicable fund or will override some . Employment Agreement. A side letter is a side agreement between the company and the investor made at the time the investor invests in the SAFE. Options. 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. fWEbQ#]qe|"Dc}6n~2Q!/qDvp2@YA AJC*P 4m@RA0aS# From the hundreds of nominations for the inaugural Women of Influence in Private Markets list, we could select just 10 from the private equity sphere. 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. This disclosure obligation applies prior to investment and following any material changes to such preferential treatments. 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 xc```b`` B@1XJYJ9 WX i 022s :/602[8a This investor fills out a form documenting his or her suitability for investing in the partnership. (i) Credit facilities are an increasingly popular tool used by closed-ended funds to satisfy short-term bridging needs and smooth the capital call process. 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 They can be used to alter the terms of a limited partnership agreement or even override certain provisions. 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. The need for consistency between side letter terms (including any MFN rights granted) becomes particularly apparent when conducting this exercise. laws govern the subscription agreement and side letter. 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. 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. [Signature Page to Side Letter Agreement]. back to such Shareholder (or to another Permitted Transferee of such Shareholder) any Purchased Securities or Option Shares he, she or it owns if such Permitted Transferee ceases to be a Permitted Transferee of such Shareholder prior to the end of 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 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. amended from time to time, the Employment Agreement). 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 (vi) Disability shall have the meaning set forth in the Employment Agreement. It is better to be consistent in agreeing side letter terms, for example, having a 'house' provision that is stuck to. 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. to this Section3(g) shall be payable promptly following, and subject to, the closing of the transactions contemplated by such definitive agreement contemplated by clause (iv)of the previous sentence. In particular, any preferential treatment accorded to one or more investors must not result in an overall material disadvantage to other investors. PEI Staff. No Shareholder shall assign Nb"qA4Sz^Hj26$DVZ A blanket consent is therefore not advisable. The above is a summary of common side letter requests. Each Shareholder acknowledges and 1 0 obj Market Value means, with respect to any Call Securities or Put Securities, as applicable, as of the relevant date, (I)the price that a willing buyer would pay for such Call Securities or Put Securities, as applicable, from a willing PEI Staff. ) =]xIm"LU5-N%v$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 ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. only if, such waiver is in writing and is signed by (A)the party against whom the waiver is to be effective and (B)solely with respect to a waiver by the Company of any provisions for the benefit of Silver Lake and Warburg Pincus in Although the usual intention is that side letters will give rise to legally enforceable rights and obligations, this is by no means guaranteed and, in some cases, they have nothing more than moral effect. Sidecar Investment: An investment strategy in which one investor allows a second investor to control where and how to invest the capital. An investor in a PE fund will often indicate (commonly in the subscription agreement or a side letter entered into with the fund) whether it is interested in co-investment opportunities. 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. Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. 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. (xxi) Put Securities means the Purchased Securities and the Option Shares. (xii) Material Breach Price means, with respect to any Call Securities or Put 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. ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. A key man is an important employee or executive who is critical to the operation of the business, and whose death, absence, or . Side Letters.
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