TERM SHEET Flashcards
(2 cards)
PREAMBLE TO A TERM SHEET
The intent of this non-binding indicative term sheet (“Term Sheet”) is to describe, for negotiation purposes
only, some of the key terms of the proposed agreement between herein-named Investor, Company and Promoters in connection with a proposed equity investment by the Investor (or at its sole discretion, any one of its
nominees or affiliates) in the Company.
This Term Sheet is not intended to create a binding agreement, except that the obligations of the Parties set forth in Clauses [45] (Confidentiality), [46] (Exclusivity), [47] (Costs and Expenses) and [48] (Governing Law and Dispute Resolution) shall be binding on the Parties and shall survive the termination or expiration of this
Term Sheet. Except as provided in the preceding sentence, neither Party has any obligation with respect to the transactions contemplated by this Term Sheet unless and until the Parties execute appropriate mutually ac-
ceptable binding and definitive agreements (“Definitive Agreements”).
ZOSTEL V OYO
he term sheet explicitly stated in its preamble that it will not be binding. The term sheet also stated that parties were to mutually agree that certain documentation for the purposes of the acquisition, such as, the share subscription/ merger framework agreement, the shareholder’s agreement and assest/ business transfer agreement, collectively known as, Definitive Agreements, would be executed along with the due diligence that Oyo was supposed to conduct on Zostel.
Zostel alleged that despite meeting all its obligation as per the term sheet, Oyo failed to formally conclude the proposed acquisition. Oyo, having conducted its due diligence, claimed that momentous liabilities and unpaid dues came to light. Oyo also alleged that no definitive agreements were executed to consummate the transaction and that the said term sheet was not binding. The issue in front of the Arbitral Tribunal was that, whether or not, Oyo has deprived Zostel of the benefits envisioned under the Term Sheet and if Zostel is entitled to claim specific performance of the Term Sheet.
A Term Sheet, also known as ‘letter of intent’ or ‘side letter’, contains declarations made by parties, which are to be accomplished eventually once a business exchange has taken place.
The Arbitral Tribunal observed that the obligations mentioned in the term sheet were in the nature of closing obligations enabling the acquisition by OYO. The same was separated from additional closing actions that were enlisted as part of the Definitive Agreements. Thus, the contents of the Term Sheet negated the contention that the Term Sheet was a non-binding and merely exploratory document. Given that Oyo conducted a Due Diligence on Zostel and had access to sensitive commercial information, created a binding obligation for Zostel to give necessary material information to Oyo. Thus, the entirety of the term sheet could not be termed as non-binding. The parties had already agreed upon the form of the Definitive Agreements and met most obligations for the transaction. The conduct of the parties pursuant to the execution of the Term Sheet suggests that the parties had agreed to complete the proposed acquisition. Lastly, the Term Sheet contained a framework for the acquisition, subject to which the parties were required to execute the Definitive Agreements. Additionally, certain key closing obligations were also enlisted, which suggests that the parties by their conduct and by fulfilling their conditions had waived the non-binding preamble of the Term Sheet. Hence, in conclusion, the Tribunal held that the Term Sheet was a binding contract between the parties.
