April 03, 2015
a. Binding Letters of Credit and SIGA
i. Facts: SIGA develops a smallpox antiviral with enormous potential, but was running low on money. SIGA approaches PharmAthene for money. Pharmathene wants to frame it first as a licensing agreement and then as a merger. Parties exchange several term sheets on the license agreement. SIGA tells Pharmathene the “have got a deal on the term sheet” subject to Pharmathene’s acceptance of two minor changes. The term sheet has a “Non-Binding Terms” provision as the footer. Pharmathene decided to pursue the merger with the term sheet for the licensing agreement a backstop if the Merger is terminated. Parties enter into a Bridge Loan and a term sheet for the Merger, each of which explains that upon termination of the Merger, “SIGA and PharmAthene will negotiate in good faith with the intention of executing a definitive License Agreement in accordance with the terms set forth in the License Agreement Term Sheet.” Terms survive termination of respective documents. SIGA begins experiencing “seller’s remorse” coincidentally when they receive several grants from the National Institute of Health and get approved for human trials. The due diligence period on the Merger is ending, and SIGA terminates the Merger. PharmAthene sends the license agreement saying that it contains “all essential terms of a license agreement and is completely consistent with the [term sheet]. Meanwhile, SIGA is already internally discussing alternative structures of the license agreement. [*pulled probably during discovery from interoffice e-mails]. SIGA emphasized the need to change some of the terms, highlights include: upfront payment from $6MM to $100M, milestone payments from $10MM to $235MM, royalties from a base of 8% to one of 18%, control provisions, blocking distribution provisions, and exclusive rights to terminate the license agreement upon certain events. PharmAthene says they’d consider some revisions, but not to that extent. SIGA hides behind non-binding footer. SIGA gives ultimatum: Proceed w/o preconditions regarding term sheets binding nature or we have “nothing more to talk about.” Pharmathene brings suit and wins in court of chancery. SIGA appeals.
ii. Issue: Did SIGA violate its Good Faith Duty to Negotiate by attempting to change an expressly non-binding LOI?
iii. Holding: Trying to renegotiate terms already agreed to in the LOI is a breach of a party’s duty to negotiate in good faith. Parties aren't obligated to reach a deal on terms not in LOI, and if they can't reach a deal based on open items, it is ok for parties to walk away. However, courts will make a factual determination as to what caused deal to fall through.
b. Thrifty
i. Facts: Parties executed a LOI that said certain taxes, insurance and common area maintenance payments were to be divided (between commercial and retail) and estimated that amount at $267,399.60. Landlord provided express language that the amount was an estimate and should not be relied upon. Parties then entered into an agreement with an integration clause, which stated that the tenant would have to pay their portion of such expenses. Payments ended up being around three times the estimated amount. Tenant sued and asked the court to look to the LOI.
ii. Issues: Could Thrifty Rely on estimates in LOI despite express language that they were unreliable estimates and on an integration clause? Was it bad faith to allot apportionment of payments.
iii. Holdings: The court overturned the trial court’s granting of a demurrer in favor of the Landlord on several issues. Specifically, relying on Riversisland, the court found that the LOI could be used to prove fraud, further finding that caveats aren’t sufficient where two key elements of fraud are present (i.e. negligent or intentional misrepresentation & justifiable reliance). The court further found that Landlord’s apportionment of the expenses could prove both a breach of contract and breach of Landlord’s implied covenant of good faith and fair dealing.