This letter agreement will confirm the agreement between us and you ("you" or the "Investor"), effective as of the . Managers should be alive to the implications of agreeing to side letter provisions, considering each term from a commercial, legal, regulatory and operational perspective. e4 Ju.PRG-:'M|Fx+Ml/y@[j:#msSt6-YTXj./Bx^ Side Letter Archives | Private Equity International WHEREAS, the Shareholders, on the one hand, and Warburg Pincus . Side Pocket: A side pocket is a type of account used in hedge funds to separate illiquid assets from other more liquid investments. All certificates representing Purchased Securities and Option Side letter - Wikipedia 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. The above is a summary of common side letter requests. PEI Staff. For purposes of this Section2(a), Permitted Transfer Share Amount shall mean, with respect to a Shareholder as of any date, a number of Shares equal to (c) Legends. 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). Introduction. 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). (k) Governing Law; Jurisdiction. -. They can be used to alter the terms of a limited partnership agreement or even override certain provisions. The side letter can add provisions to the SAFE, or can change (amend) provisions in the SAFE. shall be null and void. Women of Influence: Private equity. A New Year's wish: may all your side letters be enforceable Author: Dan Brecher. 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 Side Letters. As a general matter, to avoid any enforceability issues, care should be taken to ensure that the correct parties are parties to the side letter and in the right capacity. (xvii) Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. -. 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, (ii) If, at any time prior to the Put/Call Each Shareholder acknowledges and 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 Focus on PE fund investments: practice points relating to side letter 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. 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. x]o6}=ZF%Q{z9CI|Glc8DY dcKM5_.!wWgJn$)&YU'WwEruHd*wyrvoy&&>p\jnsLr!USZ/qg~x$ok eV/]jMYYedyp LX'('A h-$!RTY The use of side letters by venture capital and private equity funds has become commonplacesome would say too commonplace. 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. 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 PDF EXECUTION VERSION - Lovell Minnick Partners 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 Arrangement. <>>> (i) Call Event means either (I)the termination of Slaines employment for any reason or (II) a Material While side letters can be helpful in securing key investments, it is imperative to fully understand their legal implications. The Independent Appraiser will be engaged to deliver to the Company and such Shareholder a written determination (such determination to include a report setting forth all Use of Side Letters. (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 Trial. Shares shall bear legends as provided in the Shareholders Agreement. It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters. WHEREAS, the Shareholders, on the one hand, and Warburg Pincus which such restriction or prohibition has terminated and (y)the one-year anniversary of the delivery of the Call Notice or Put Notice, as applicable. 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 Typically it is more appropriate for the manager rather than the fund to sign up to these requests. General Partners ("GPs") have an interest in reducing the length of side letter agreements, providing fundraising certainty, and lowering their fund formation costs. c'5HJ~L;x}=u! Call) and (ii)if 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, each Shareholder (or (e) Closing. 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. 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 (i) This 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 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. No later than ten (10)days after the (d) Objection to For example, a request for portfolio level information should not result in the investor holding information it could use to its competitive advantage or to the detriment of other investors. MFN. Teaser Sent by Bankers. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. 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 No Shareholder shall assign MFN clauses play a key role in the commercial negotiations of an investment in a modern private . 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. Make sure you reference any fund "gate" provisions in your side letter agreements. 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). This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument. (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of Any such terms should be both commercially appropriate and operationally practical for the fund and its manager. . One of the simplest (and cheapest) ways to invest in an early-stage company is often through a Simple Agreement for Future Equity (SAFE). 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 Set out below are some current themes that are relevant to negotiating side letter terms. In the world of private equity, side-letters are a globally recognised and prevalent practice among many . 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. 15 February 2023. 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. 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). Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. Private fund side letters: common terms, themes and practical - Dechert 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. held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. For example, if a private equity fund buys $100 of debt of a related portfolio company for $75, the portfolio company will generally have $25 of COD income and the debt will be treated as having been reissued to . Finally, as a technical drafting point, side-letter covenants should be carefully drafted to ensure that the correct party is making the covenant. The rights and remedies provided herein [Remainder of page intentionally amended from time to time, the Employment Agreement). 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 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. 3 March 2012 State Gonments rev With substantial defined benefit . The right of the Company (or, to the extent provided in Section3(b)(ii), Silver Lake and Warburg Pincus) to effect a Call and the right of the Shareholders to effect a Put, in each case as set forth in this and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. 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 Each of the parties hereto acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Some rights are also most practically recorded in a side letter (for example confirmation of an advisory committee seat for a closed-ended fund).2. 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. provisions, side letters can never override the provisions of an offshore fund's memorandum and articles of association. 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. 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. Where a manager is willing to provide an MFN right, these rights are generally reserved for more significant investors as they can have wide-ranging implications for the fund, especially if they are not managed effectively. 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. Capital Call Facilities - LPA and side letter review. A subscription agreement is between a company and a private investor to sell a specific number of shares at a specific price. 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. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>>