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 First, a quick summary of the events leading up to the . 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. The rise of private equity secondaries nancings Samantha Hutchinson, . Introduction. A side letter is an agreement between the fund and one particular investor to vary the terms of the limited partnership agreement with respect to that particular investor (almost always to the benefit of the 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). provisions, side letters can never override the provisions of an offshore fund's memorandum and articles of association. A side letter is a document that is ancillary to another contract. as of such date equal to the Permitted Transfer Share Amount. (g) Notices. 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 Sometimes these side letters are borne of necessity for the investor to enter into the fund, either due to regulatory . 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. 1 0 obj However, these documents are actually the most important as they can make or break your company. Objection Notice, the Company will promptly engage an Independent Appraiser. 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. IN WITNESS WHEREOF, However, side letters generally raise various fiduciary and other concerns that must be addressed. This Agreement and the other agreements referred to herein set forth the entire understanding Transferee will be treated as a Shareholder for purposes of Sections 2, 3 and 4 of this Agreement, as applicable, with the same rights, benefits and obligations hereunder as Shareholder; provided that, prior to the effectiveness of such (b) 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 Each Put Notice shall set forth the Put Securities applicable to such Put. Our new programme spotlights women whose achievements, innovation and leadership are reshaping private markets across a broad range of asset classes. endobj (e) Closing. Transferee is already a party to this Agreement) by executing and delivering such documents as may be necessary, in the determination of the Company, to make such Person a party hereto, whereupon, except as otherwise expressly provided herein, such 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. 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 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. RECITALS . (a) Entire Agreement; Third Parties. (a) Transfer Restrictions. The ability to request further information from the manager is also commonly included in the private placement memorandum, with summaries of side letter rights typically made available. 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. 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. For example, a fund of . 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 . Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. 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 Side Letters. ( Check out our private equity due diligence playbook) Institutional and accredited investors dedicate large sums of money for private equity investments. 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." Firm Insights. 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. (ii) If, at any time prior to the Put/Call Use of Side Letters. e4 Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ 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. 15 February 2023. as applicable, at the closing of the purchase of the Call Securities or Put Securities, as applicable, pursuant to Section3(e)). Side letters are frequently used to enter into legal agreements between private funds and investors. A side letter is an agreement between an investor and a fund that alters the terms of the investor's investment in the fund (i) by superseding some of the applicable terms in the partnership agreement or subscription agreement or (ii) by adding additional terms to the agreements and commitments between the fund and the investor.. Side letters set out terms that supplement or, in some cases, modify the . agreement. 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 . 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'). Each Shareholder acknowledges and 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. Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. Securities or Put Securities to be transferred free and clear of all liens, claims and other encumbrances. One of the simplest (and cheapest) ways to invest in an early-stage company is often through a Simple Agreement for Future Equity (SAFE). 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 blanket consent is therefore not advisable. (3)days after deposit in the U.S. mail, to the respective addresses, facsimile numbers or electronic email addresses of the parties set forth below: (i) If to the Company, to it at the following address: (ii) If to any Shareholder or any of his or its Permitted Transferees, to Slaine at the following address: (h) Injunctive Relief. 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 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. Slaine without Good Reason, the Purchased Securities. Teasers are documents that contains a brief description of the business, its product and service offerings, and financial . 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 Boards Determination of Put/Call Price. LPAs are multilateral agreements among the General Partner, the Fund and the limited partners. The Company or any Shareholder may file an original counterpart or a copy of this Section4(i) with any court as written evidence of the consent of the Companys or such (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) 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 key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. Purchased Securities, the date that is ninety (90)days following the date of Slaines termination of employment and (II) in the case of the exercise of a Put or Call with respect to any Option Shares, the later of (x)the date that (c) Legal Counsel and Interpretation. 3 Vol. 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 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. Download the Safe. agreement (or related side letters), such as limiting outstanding debt to a . (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material Once an investment enters a side pocket account, only the . TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH PARTY HERETO WAIVES, AND COVENANTS THAT SUCH PARTY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN 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 . Financial Services and Investment Management, California Notice at Collection & Privacy Notice, Private fund side letters: common terms, themes and practical considerations. 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. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. 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. 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, This document is not legal advice and should not be relied on as such. 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 . 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). But as one notable decision from the Delaware Court of Chancery illustrates, the enforceability of these agreements cannot be take for granted. All the Purchase Agreement. Agreement. or arrangement for the benefit of one or more employees, directors and/or consultants of the Company or any of its Subsidiaries (other than this Agreement). Capital Call Facilities - LPA and side letter review. 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). not to exercise its Call right for all or any portion of its pro rata share of the Call Securities subject to such Call (the Non-Exercised Call Securities), the Company shall promptly notify the other Sponsor of such determination Investors are increasingly looking to funds to make ESG commitments with respect to their investments. WHEREAS, the Shareholders, on the one hand, and Warburg Pincus . 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 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. (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 Their use in the open-ended funds context is increasing, particularly to tie in certain key persons financially, including required investment levels and notification rights where a key person submits a significant redemption request (which could potentially be linked to favourable liquidity rights). 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. 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. You should . The rights and remedies provided herein Similarly, the staff observed private fund advisers that set up undisclosed side-by-side When you invest in a mutual fund . Company. 3) In some circumstances an MFN is included in the funds constituting documentation rather than being agreed separately by side letter. 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 EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. laws govern the subscription agreement and side letter. Slaine, an individual (Slaine), and (collectively, theand together with Slaine, theShareholders). Put). Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. Control. 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. <>>> A number of private equity funds and hedge funds are structured as limited partnerships that are governed by the terms of a limited partnership agreement (an 'LPA').