(e) Survival. 4 0 obj 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. 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 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 (xvi) Purchase Price means the per-share consideration paid by the Shareholders for the This investor fills out a form documenting his or her suitability for investing in the partnership. 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. Slaine. It also includes other provisions that are often modified depending on the investor's situation, such as regulatory representations and confidentiality. 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 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. 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 . Objection Notice, the Company will promptly engage an Independent Appraiser. (c) Legal Counsel and Interpretation. The use of side letters by venture capital and private equity funds has become commonplacesome would say too commonplace. %PDF-1.5 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. Upon the exercise of any Put or Call pursuant to this Section3, (i)the Company shall, on the Put/Call Closing Date, purchase such Call Securities or Put Securities, as +44 20 7184 7468, London 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. any of his or its rights hereunder except in connection with a Transfer of the Purchased Securities in compliance with the terms and conditions of the Shareholders Agreement and Section2 hereof. 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, 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'). 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). One of the first steps of buy-side M&A (in a private equity transaction timeline) is when the bankers send teasers to the Private Equity players. 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. 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. Download. (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 The Shareholders and the Company agree that for purposes of the Shareholders Agreement, the term Other Shareholder The sidecar investment will usually be used when one of . The rise of private equity secondaries nancings Samantha Hutchinson, . VENTURE CAPITAL & PRIVATE EQUITY FUNDS DESKBOOK SERIES . Managers negotiating side letters on behalf of a fund should ensure that a transfer right provides them with sufficient comfort with respect to the identity and nature of the transferee (this is particularly the case where the fund has a credit facility and does not want to jeopardise its borrowing base) and that appropriate customer due diligence information will be provided in connection with any transfer. Firm Insights. 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 . among the parties with respect to the subject matter hereof. 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). Annual (or more frequently if appropriate) certifications from the teams responsible for compliance with individual provisions can support this process. This Standard Document has integrated notes with important explanations and drafting and negotiating tips. PEI Staff. Trial. Purchased Securities pursuant to the Purchase Agreement. 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. 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 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. 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. (xv) Option Shares means the shares of Common Stock issued to Slaine upon the exercise of (e) Closing. 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). for any reason (other than by the Company for Cause or by Slaine without Good Reason) and a Material Breach Event has not occurred prior to the Put/Call Closing Date, a price equal to the Fair Market Value of (x)with respect to any Purchased (xii) Material Breach Price means, with respect to any Call Securities or Put Side agreements help private equity and hedge funds attract investors. paying (or the Companys Subsidiaries are prohibited or restricted from delivering funds to the Company sufficient to permit the Company to pay) the Put/Call Price with respect to the Call Securities or the Put Securities, as applicable, <> In this example, a side-letter may be executed between the general partner and the investor regarding a different date when the investor can withdraw their investment. It also considers the regulatory context and practical points for managers navigating the restrictions and obligations of multiple side letters. Side letters set out terms that supplement or, in some cases, modify the . the Other Shareholder Restricted Period. (vi) Disability shall have the meaning set forth in the Employment Agreement. . They can be used to alter the terms of a limited partnership agreement or even override certain provisions. Side Letter: Alaska's U-turn; China PE predictions; industry's next sports specialist. In ESG Capital Partners II, LP v.Passport Special Opportunities Master Fund, L.P. C.A. endobj e.g. 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 Inspire awe in others with the right use of this private equity investment proposal template. 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. 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 Employment Agreement. 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'). 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 Recently, the Delaware Chancery Court ruled on a dispute that heated up between a hedge fund manager and the fund's seed investor. GPs and LPs should take care when crafting ESG-related provisions for LPAs and side letters to ensure agreement on the legal interpretation of such provisions. <> No. x]o6}=ZF%Q{z9CI|Glc8DY dcKM5_.!wWgJn$)&YU'WwEruHd*wyrvoy&&>p\jnsLr!USZ/qg~x$ok eV/]jMYYedyp LX'('A h-$!RTY Side letters are frequently used to enter into legal agreements between private funds and investors. Exercise Date or (III) if a Material Breach Event has occurred prior to the Put/Call Closing Date, the Material Breach Price. 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 (ii) If, at any time prior to the Put/Call 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 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. Size: A4, US. 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 . 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. 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 +44 20 7184 7845. Transfer rights are particularly relevant in the closed-ended fund context where an investor cannot redeem from the fund should it wish to. The rights and remedies provided herein 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. Put). (i) This Breach Event. 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 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. A blanket consent is therefore not advisable. other remedy to which it may be entitled at law or equity. . NDA confidential information. 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. 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. 1 March 2023. If a Shareholder believes in good faith that the Put/Call Price is greater than the amount set forth in the Call Notice or the Put Pricing Notice, as applicable, then such Shareholder may deliver a A side letter is a document that is ancillary to another contract. A side letter, or side agreement, is a collective bargaining agreement that is not part of the underlying or primary collective bargaining agreement (CBA) but is used by the parties to the contract to reach agreement on issues that the CBA does not cover, to clarify issues in the CBA or to modify the CBA (permanently or temporarily). The number and prevalence of side letter requests has increased exponentially in the last decade, a trend 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
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