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exercise such Call right pursuant to the terms and conditions of this Section3 in the same manner as the Company; provided that in the event that any Sponsor (and/or its assignees) (the Non-Exercising Sponsor) elects 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 . 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. 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 (k) Governing Law; Jurisdiction. Board, then the costs and expenses of such Independent Appraiser shall be borne by such Shareholder (which costs and expenses may, in whole or in part, be deducted from the cash delivered to such Shareholder and/or his or its Permitted Transferees, (xvii) 11053-VCL (Del. 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 held by the Sponsors and their respective Permitted Transferees immediately prior to the consummation of the IPO. April 15, 2021. 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 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 . (i)the aggregate number of Shares held by such Shareholder and his or its Permitted Transferees immediately following the consummation of the IPO multiplied by (ii)a fraction, the numerator of which is the aggregate number of A little over a year ago, the Delaware Court of Chancery issued a forceful reminder that not all side letter agreements are enforceable. the date of Slaines termination of employment and (B)with respect to any Option Shares, such Call Securities as of the Put/Call Exercise Date and (y)the Cost of such Call Securities, (II) if Slaines employment is terminated Nothing contained in this Agreement shall be deemed to obligate the Company or any Subsidiary of the Company to employ Slaine in any capacity whatsoever or to prohibit or restrict the Company (or any such Subsidiary) from terminating The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. If This 7-page template has everything you could ever want: business-standard fonts, the right color space, and it is available in many file formats. Accordingly, any rule of law, or any legal decision that 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 Set out below are some current themes that are relevant to negotiating side letter terms. (v) Cost means (I)with respect to any Purchased Securities, the Purchase Price and (II) 7. delivery of such Put Notice to the Company, the Company shall notify such Shareholder in writing of the Put/Call Price with respect to such Put Securities as determined in good faith by the Board (a Put Pricing Notice). 15 February 2023. Any provision of this Agreement may be waived if, but Each Shareholder acknowledges and from such Shareholder or his or its Permitted Transferees. 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. Pooling of UK local government pension schemes. 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 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. %PDF-1.5 (l) Stock Splits and Similar Transactions. A side letter is a side agreement between the company and the investor made at the time the investor invests in the 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). Given the popularity of side letters in fund finance . . 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. Side letters are frequently used to enter into legal agreements between private funds and investors. Such election by the LP is informational and should not impose any obligation on the general partner (GP) of the fund. Side Letters. 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 . 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. The typical management rights letter provides the fund with the minimum . This Limited Partner Advisory Committee (LPAC) clause for private equity fund (PEF) side letter is to be used when the PEF grants an investor the right to appoint a representative to the PEF's LPAC. amended from time to time, the Employment Agreement). The above is a summary of common side letter requests. Slaines estate, as applicable) shall have the right, but not the obligation, by one or more written notices to the Company (each, a Put Notice) delivered on or prior to the Put/Call Termination Date, to Put all or any Author: Dan Brecher. agreement (or related side letters), such as limiting outstanding debt to a . Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. Purchased Securities, Option Shares or Purchase Price occurring after the date of this Agreement. A blanket consent is therefore not advisable. 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 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. Put/Call Price by the Independent Appraiser; provided, however, that if, as of the date that otherwise would be the Put/Call Closing Date pursuant to the foregoing clauses (I)and (II), the Company is restricted or prohibited from The private equity fund will generally be required to include the OID in income as "phantom income" as it accrues. PEI Staff. 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. Control. 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. 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 Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder 2 0 obj 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. (f) This article provides an overview of common side letter terms and current themes in the private fund market. General Partners ("GPs") have an interest in reducing the length of side letter agreements, providing fundraising certainty, and lowering their fund formation costs. . Firm Insights. Side letters are frequently used to enter into legal agreements between private funds and investors. Founders tend to lose interest when it comes to the negotiation of capital raising documentation or investment agreement with investors. EEA managers should bear this requirement in mind when deciding whether to agree to a particular side letter provision. . 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. 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. Parties to a side letter negotiation should seek advice on the particular transaction in light of their circumstances. The top 10 terms in private equity NDAs. Ch. 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. 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. If the scope of the prohibited investments is stated in the side letter itself, it is generally helpful to state why they are prohibited in order to increase the chance that the provision is taken outside the scope of any relevant MFN right. Legally, a side letter is nothing more than a contract between the fund or the GP and the investor, which sits alongside the other contractual relationships they have in the form of the LPA and . All certificates representing Purchased Securities and Option Download this easily editable template through formats like MS Word and Mac Pages. (m) Employment by the Background ESG Capital Partners was formed to purchase [] Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. (g) Notices. 2) Conversely, certain rights generally should not be included in a side letter, notably those that would create a new class of interests from a local law perspective or restrict the fund as a whole (such as tighter investment restrictions than those described in the funds constituting documentation). An MFN right allows an investor to elect to receive the side letter provisions negotiated by other investors.3However, MFN provisions can be drafted in a number of ways, meaning that what the investor may actually be entitled to elect to receive can vary widely. A side letter is an agreement apart from the main agreement (e.g. 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. Except as expressly provided in this Agreement (including Section3, which shall be for the benefit of the Company, Silver Lake, Warburg Pincus and their respective Affiliates), The sidecar investment will usually be used when one of . references to numbers of Purchased Securities, Option Shares and Purchase Price in this Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization or similar transaction affecting the Each Put Notice shall set forth the Put Securities applicable to such Put. 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. ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE 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. SAFEs solve two problems: (1) nobody knows what an early-stage . (j) Severability. 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. 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.