WHEREAS, the Shareholders, on the one hand, and Warburg Pincus Side Letters. The amount payable pursuant Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. 106 0 obj <> endobj 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 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). (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) Examples of this include where excusal or transfer rights affect the existing credit assessment on the borrowing base. If such Put/Call Price determined by such Independent Appraiser is not higher than the Put/Call Price previously determined by the Parties to a side letter negotiation should seek advice on the particular transaction in light of their circumstances. Side letters supplement the terms of a funds constituting documents, so they should be considered whenever these documents are consulted. -. The Shareholders acknowledge and agree that the Purchased Securities and any other equity securities of the Company or any of its Subsidiaries that the Shareholders shall (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 Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. 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. Slaine without Good Reason, the Purchased Securities. Environmental, Social and Governance ("ESG") concerns. (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 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. 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). Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. agreement (or related side letters), such as limiting outstanding debt to a . 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 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). 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. order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any Section3, each of Silver Lake and Warburg Pincus. to the Company free and clear of all liens, claims or other encumbrances by delivering to the Company such instruments of transfer as shall reasonably be requested by the Company. 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"). stream shall be deemed to be the Put/Call Price with respect to such Call or Put, as applicable, and shall be final and binding on the parties. 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. endobj 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 (g) Make-Whole. 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 The ESG Capital Partners Case serves as an important reminder that private fund managers, investors and practitioners should always consider the following points to ensure enforceability of side letter agreements: 1. Download this easily editable template through formats like MS Word and Mac Pages. with respect to any Option Share, the exercise price paid upon the exercise of the Option pursuant to which such Option Share was issued to Slaine. 19, No. 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 . While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. (f) Size: A4, US. affording the single member special rights, e.g. 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. Objection Notice, the Company will promptly engage an Independent Appraiser. Make sure you reference any fund "gate" provisions in your side letter agreements. (i) Investors are increasingly looking to funds to make ESG commitments with respect to their investments. -. as applicable, at the closing of the purchase of the Call Securities or Put Securities, as applicable, pursuant to Section3(e)). 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 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 While side letters can be helpful in securing key investments, it is imperative to fully understand their legal . 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). 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. MFN. 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). We very much appreciate your support and trust. Boards Determination of Put/Call Price. +44 20 7184 7845. 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 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. ESG provisions may include a confirmation that the fund will comply with the UN Principles for Responsible Investment when making investments or that investee companies comply with the ten principles of the United Nations Global Compact or other guidelines that are more specifically tailored to the investor in question, including restrictions on making investments in companies engaged in certain lines of business. 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. Such election by the LP is informational and should not impose any obligation on the general partner (GP) of the fund. or valuation firms. A blanket consent is therefore not advisable. The SEC recently published a proposed rule (the "Proposal") that would impose unprecedented mandatory disclosure obligations and various other forms of intervention in the private funds industry. Use them or shun them, side letters (also called side agreements or side letter arrangements) are part of the business landscape. Each Put Notice shall set forth the Put Securities applicable to such Put. In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. 2 0 obj <> endobj 4 0 obj <>stream Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. The main source for these ground rules are the Company's Shareholders Agreement or Investor Rights Agreement (each of which we refer to in this article as the Shareholders Agreement).The Company's organizational documents, and any confidentiality agreements and side letters with shareholders, may also contain applicable requirements or . 1 March 2023. A more detailed analysis of the ILP is available here. Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining Canadian private equity and venture capital funds are often structured as limited partnerships which are governed by limited partnership agreements (LPA). Any Transfer in derogation of the foregoing (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of (m) Employment by the Exhibit 10.18 SIDE LETTER AGREEMENT . This Agreement and the other agreements referred to herein set forth the entire understanding 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. 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. 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 . 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 the limited partners of a venture, private equity or hedge fund . 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)). Teasers are documents that contains a brief description of the business, its product and service offerings, and financial . 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 Similarly, Limited [] Sidecar Investment: An investment strategy in which one investor allows a second investor to control where and how to invest the capital. Shareholders waiver of his or its rights to trial by jury. (ii) Call Securities means (I)in the event Slaines employment is terminated by 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. For example, a fund of . 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. Enacting the proposal as a rule would curtail competition among funds, according to fund representatives. 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 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. "Preferential terms do not necessarily benefit the fund or other investors that are not party to the side letter agreement and, at times, . held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. Any provision of this Agreement may be waived if, but Breach Event. Upon the terms and subject to the conditions set forth in this Section3, (i)if a Call Event occurs, the Company (and, to the extent provided in Section3(b)(ii), %PDF-1.5 Certain investors will require side letters, providing them with additional . Co-investments and other alternative ways of investing. However, these documents are actually the most important as they can make or break your company. . (a) Transfer Restrictions. agreements and investor side letters to make sure that they authorise a capital call facility and related lender rights. 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. 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 . For instance: Private equity firm Thoma Bravo, which manages $114 billion of investor money, says in its federal disclosures that it will use side letters as it pleases: "Thoma Bravo is likely to have its own economic and/or other business incentives to provide certain terms to certain limited partners or the potential to establish . The number and prevalence of side letter requests has increased exponentially in the last decade, a trend of a Put with respect to all or a portion of the Put Securities owned by such Shareholder and/or his or its Permitted Transferees. (ix) Good Reason shall have the meaning set forth in the Employment Agreement. limitation, pursuant to the exercise of all Puts and Calls) prior to the date of such Material Breach Event over (ii)the Cost of all Purchased Securities and Option Shares, as applicable, previously purchased by the Company or any other Person Whether it is appropriate to grant such requests should be considered on a case by case basis. Definitions. Investor will execute a side letter that will serve, separate and . minimum statutory withholding requirements, and (ii)the applicable Shareholder and/or his or its Permitted Transferees, as applicable, shall, simultaneously therewith, transfer and deliver such Call Securities or Put Securities, as applicable, September 13, 2011. (g) Notices. The more acute the conflict or significant the potential impact on other investors, the more detailed and extensive the disclosure should be. 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. ) =]xIm"LU5-N%v$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 Requests for management rights letters are fairly common in today's market and do not impose significant burdens on . (i) This 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 An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors. Private Equity and Hedge Funds. 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. SAFEs solve two problems: (1) nobody knows what an early-stage . (i) Waiver of Jury 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 Obligations of Transferees. The use of side letters by venture capital and private equity funds has become commonplacesome would say too commonplace. would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. Purchased Securities, Option Shares or Purchase Price occurring after the date of this Agreement. (xii) Material Breach Price means, with respect to any Call Securities or Put
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