This is PPT is containing contents relating to drafting of pre-contractual instruments.

1. Drafting of Pre-Contractual Instruments
i.e.
A. Term Sheet;
B. Letter of Intent;
C. MOU
Prepared by: Anuj Pandey, Adv.
CS, LLM, LLB, B Com (Hons)
Corporate Lawyer & Company Secretary
Email Id: info.anujpandey@gmail.com
Contact No.: 9555613873

2. Pre-Contractual Instruments:
Meaning of Pre-Contractual Instruments:
Pre-contractual instruments are those documents, which is executed
between contracting parties before execution of a contract.
Example of Pre-Contractual Instruments:
1. A Term Sheet
2. A Non-Disclosure Agreement (NDA);
3. Memorandum of Understanding (MOU)……;

3. A. Term Sheet:
•A term sheet is a legal document that outlines the proposed terms and
conditions to be adhered to by parties in a business agreement;
•A Term Sheet is a potential document as it acts as a guideline for
lawyers to prepare the transactional document smoothly. Once a Term-
Sheet is prepared, it could be used as a basis for many future transactions
also;
•Term Sheets are pre-financial documents and they are not time-specific.
They are the previous stage of investment agreements like Shareholder
Agreement, Share Purchase Agreement and so on.

4. Transactions where term sheets are used
Private equity( PE) and Venture capital (VC) transactions:
PE and VC are significant financial documents where Term Sheets are used. When capital is
invested in a company that is not listed is Private equity. And Venture Capital is when
investment is done in start-ups or young entrepreneurs who have the potential for growth in the
long term.
Merger & Acquisitions(M&A) transaction:
In these merger and acquisitions transactions or financial transactions, Term Sheet is used. Here
the assets and the companies are consolidated through various financial transactions. These
include mergers, acquisitions, consolidations, and tender offers.

5. Signing of term sheet
Term Sheet is more like a gentleman’s handshake rather than a legally binding
agreement.
As the terms of the Term Sheet are non-binding as the parties have the option of
going back into the document and altering the clauses mutually which was agreed
upon previously.
Generally, some clauses in a Term Sheet are binding which include
Confidentiality, Exclusivity, Dispute Resolution, Condition Precedent, Fees and
Expenses and so on.

6. Amendment in term sheet:
As a Term Sheet is considered a significant pre-contractual instrument and
like any other legal document, a Term Sheet also has an option for
amendment.
Term Sheet includes an amendment clause using which a Term Sheet can be
amended.
The limitation in amending a Term Sheet is that the terms in the Term Sheet
could be amended mutually before signing the final agreement.

7. Purpose of a term sheet:
A term sheet is a detailed document prepared as a pre-contractual instrument
for financial transactions.
The parties to the Term Sheet (investors and company founders) can discuss
and negotiate the terms mutually without the restriction of the document
being rigid and binding.
And it must be assured that the terms in a Term Sheet must be spelt out in
detail so as to avoid any future confusion and dispute between the parties.

8. Points to be included in term sheets
•Details of the parties
•Proposed transaction
•Valuation
•Anti-dilution protection
•Promoters’ lock-in or investor’s lock-in
•Promoters’ rights
•Right of first refusal
•Tag-along right and drag along right

9. Drafting of Term Sheet:
Drafting of Term Sheet is a very crucial task in commercial contract drafting.
The contents of the term sheet depends on the basis of the nature or purpose
of the contract.
However, we are presetting an example of Drafting of terms sheet of : Terms
to be included while drafting: “Term Sheet for Investment( insert the
name of the company)”

10. The proposed investment
Details of contracting Company
Promoters
Investor
The aggregate amount of investor’s investment
Shares to be issued and pre-money valuation
Price per share
Closing/Disbursement(s)
Use of proceeds
Company Capitalization

11. Terms of investor shares
•Dividends
•Liquidation Preference
•Voting rights
•Optional conversion
•Automatic conversion
•Anti-dilution adjustment
•Transfer restrictions on Investor Shares
•IPO
•Exit rights
•Tag-Along
•Issuance of new securities
•Right of First Refusal
•Management Lock-in, ESOP and Promoter Vesting
•Board of Directors
•Board observer rights
•Information and inspection rights

12. Other terms
Share Subscription Agreement and Shareholders’Agreement
Conditions Precedent to Closing
Fees and expenses
Non-Competition, Non-Solicitation and Employment Agreements
Employee Share Option Plan
Key Person Insurance
Auditor
Governing Law
Arbitration

13. B. Letter of Intent (LOI)
A letter of intent (LOI) is a document declaring the preliminary
commitment of one party to do business with another. The letter
outlines the chief terms of a prospective deal. Commonly used in
major business transactions, LOIs are similar in content to term
sheets.
One major difference between the two, though, is that LOIs are
presented in letter formats, while term sheets are listicle in nature.

14. Key Takeaways of LOI:
A letter of intent is a document declaring the preliminary commitment of
one party to do business with another.
The letter outlines the chief terms of a prospective deal and is commonly
used in business transactions.
LOIs are useful when two parties are initially brought together to hammer
out the broad strokes of a deal before resolving the finer points of a
transaction.
Terms included in an LOI are certain stipulations, requirements, timelines,
and the parties involved.
Many LOIs include non-disclosure agreements (NDAs) and no-solicitation
provisions.
Letters of intent are also used outside of the business world in any
circumstance where two parties intend to work together or form a deal.

15. Understanding a Letter of Intent (LOI)
LOIs are useful when two parties are initially brought together to hammer
out the broad strokes of a deal before the finer points of a transaction are
resolved.
LOIs often include provisions stating that a deal may only go through if
financing has been secured by one or both parties, or that a deal may be
squashed if papers are not signed by a certain date.
LOIs can be iterative in nature. One party may present an LOI, to which the
other party may either counter with a tweaked version of that LOI or draft a
new document altogether. Ideally, by the time both parties come together to
formalize a deal, there will be no surprises on either side of the table.

16. Purpose of a Letter of Intent (LOI)
Letters of intent may be used by different parties for many purposes. Parties
can use an LOI to outline some of the basic, fundamental terms of an
agreement before they negotiate and finalize all the fine points and details.
Furthermore, the LOI may be used to signal that two parties are negotiating a
deal such as a merger or joint venture (JV).

17. Overall, LOIs aim to achieve the following
•Clarify which key points of a deal must be negotiated.
•Protect all parties involved in the deal.
•Announce the nature of the deal, such as a joint venture or a merger between
two companies.

18. Drafting of a Letter of Intent (LOI)
LOIs are typically drafted by a company's legal team, which outlines the details of
the intended action. For example, in the merger and acquisitions (M&A) process,
LOIs detail whether a firm plans to take over another company with cash or
through a stock deal.
Letters of intent also have applications beyond the business world. For example,
parents may use them to express the expectations they have for their children in the
event both parents die. Although they aren't legal documents like wills, LOIs may
be considered by family court judges responsible for legislating what happens to
the children under such circumstances.
LOIs are also used by those seeking government grants, and by highly sought-after
high school varsity athletes. These individuals frequently draft LOIs to declare their
commitments to attend particular colleges or universities.

19. C . Memorandum of Understanding (MOU):
•Meaning of MOU:
•A MOU is an agreement between two or more parties outlined in a formal
document. It is not necessarily legally binding, which depends on the signatories'
intent and the language in the agreement, but signals the willingness of the parties
to move forward with a contract.
•The MOU can be seen as the starting point for negotiations as it defines the scope
and purpose of the talks. Such memoranda are most often seen in international
treaty negotiations but also may be used in high-stakes business dealings such
as merger, JV talks.

20. Key Takeaways of MOU
•A memorandum of understanding (MOU) is a document that describes the
broad outlines of an agreement that two or more parties have reached.
•MOUs communicate the mutually accepted expectations of all of the
parties involved in a negotiation.
•While not necessarily legally binding, the MOU signals that a binding
contract is imminent.
•The MOU is most often found in international relations.

21. How an MOU Works
An MOU is an expression of agreement to proceed. It indicates that the
parties have reached an understanding and are moving forward. Although it
is not always legally binding, it is a serious declaration that a contract is
imminent.
In fact, arguably a memorandum of understanding, a memorandum of
agreement, and a letter of intent are all similar documents. All communicate
an agreement on a mutually beneficial goal and a desire to see it through to
completion.

22. Contents of an MOU
An MOU clearly outlines specific points of understanding. It names the
parties, describes the project on which they are agreeing, defines its scope,
and details each party's roles and responsibilities.
While not always legally enforceable, an MOU is a significant step because
of the time and effort involved in negotiating and drafting an effective
document. To produce an MOU, the participating parties need to reach a
mutual understanding. In the process, each side learns what is most
important to the others before moving forward

23. Is an MOU Legally Binding?
A memorandum of understanding (MOU) is a legal document but it is not
necessarily legally binding, although it usually signals a contract is
imminent.
The specific intent and language of the agreement will determine whether it
is actually binding or not.

24. Any queries! contact on
Email id: info.anujpandey@gmail.com
Contact No: 9555613873