Download Term Sheet THIS TERM SHEET (“Term Sheet”) is entered into at

Term Sheet
THIS TERM SHEET (“Term Sheet”) is entered into at Mumbai as on this 3rd day of
September , 2013, BY AND BETWEEN:
Network18 Media & Investments Limited, a company incorporated under the Companies
Act, 1956, having its registered office at 503, 504 & 507, 5th Floor, Mercantile House, 15
Kasturba Gandhi Marg, New Delhi – 110001 (hereinafter referred to as “N18”); and
Multi Screen Media Private Limited, a company incorporated under the Companies Act,
1956, having its registered office at Interface, Building 7, 4th Floor, Malad Link Road, Malad
West, Mumbai – 400 064 (“MSM”).
(N18 and MSM are hereinafter individually referred to as a “Party” and collectively as the
“Parties”.)
I. The Parties are evaluating setting up a joint venture company to own and operate an over
the top online video (“OTT”) platform (“Proposed Transaction”) and have prepared a
preliminary business plan for the same, which is annexed to this Term Sheet.
II. The Parties hereby agree that this Term Sheet is intended as a summary for discussion
purposes only prior to entering into a long form definitive and binding agreement and does
not reference all of the terms, conditions, representations, warranties, covenants, and other
provisions that would be contained in the definitive documentation in respect of the Proposed
Transaction. For the avoidance of doubt, except as expressly provided in this Term Sheet, this
Term Sheet does not constitute and will not give rise to any legally binding obligation on the
part of any Party to these discussions or any of such Party’s affiliates unless and until such
Parties have executed and delivered to each other definitive, binding written agreements in
respect of the Proposed Transaction.
III.
The indicative terms on the basis of which the Parties would undertake further
discussion and seek to consummate the Proposed Transaction in the form of a binding,
definitive and long for agreement are as follows:
1.
Formation of Joint The Parties are proposing to form a joint venture
Venture, Business, and company (“JVCo”) to undertake the business of setting
up and operating an OTT platform (“Platform”). The
Shareholding :
Parties propose to have an initial term of 5 years for the
JVCo (“Initial Term”), which term may be renewed
upon the expiry of the Initial Term or a subsequent
term, as the case may be.
N18 will (either through itself or through an affiliate)
own 74% and MSM will own 26% of the equity share
capital in the JVCo. The definition of “affiliate” will be
agreed in the long form agreement.
It is envisaged that A&E Television Networks LLC, an
entity incorporated in the USA (“A&E”) will
effectively own 15-20% of the equity share capital in
the JVCo. The proposal of A&E investing in the JVCo
is currently being discussed between N18 and A & E.
In case A&E opts to become a party to the Proposed
Transaction, this Term Sheet will be superseded by a
fresh term sheet executed along the same lines. In case
the terms offered to A&E are more favourable than
MSM then such terms have to be mutually agreed upon
between N18 and MSM before N18 agrees such terms
with A&E.
Further, N18 will have an option to disinvest its equity
in the JVCo up to (and not exceeding) 15% in favor of
a potential partner (“Stake Sale”) with MSM’s express
written consent.
(N18, MSM and the potential partner (if any) are
hereinafter collectively referred to as the
“Shareholders” and individually as a “Shareholder”).
2.
Investment:
Total investment in the JVCo by the Shareholders
during the Initial Term will be as per the mutually
agreed business plan, which is INR 214 crores (the
“Total Capital Investment”). Each Shareholder will
have an obligation to invest in proportion to its
shareholding in the JVCo up to Total Capital
Investment during the Initial Term and on a schedule to
be set forth in the mutually agreed business plan.
If the Board (defined hereinafter) determines that the
JVCo requires additional funding beyond the Total
Capital Investment, such additional funding shall be
met in the manner set forth below:
A. If within the first three (3) years of Initial Term, the
JVCo requires additional capital commitment of an
amount which is not more than 30% of the Total
Capital Investment, that is INR 64.2 crores (30% of
INR 214 crores) which is over and above the Total
Capital Investment, then such additional capital
requirement shall be met in the following order of
priority:
a. first by way of non convertible loans from
banks, financial institutions etc. and if such
funding is not available,
b. by way of issuance at fair market value of
equity shares or securities convertible into
equity shares of any type or class
(“Securities”) by the JVCo, by offering
such Securities to each Shareholder on a
pro-rata basis and all the shareholders have
to subscribe to the Securities so offered by
the JVCo;
B. If within the first five (5) years of Initial Term (and
provided the additional capital requirements in the
first three years have not exceeded 30% of the
Total Capital Investment, that is an additional INR
64.2 crores over and above the Total Capital
Investment), the JVCo requires additional capital
commitment of an amount which is more than 30%
of the Total Capital Investment, that is an
additional amount greater than INR 64.2 crores,
then such additional capital requirement shall be
met in the following order of priority:
a. First by way of non convertible loans from
banks, financial institutions etc. and if such
funding is not available;
b. by way of issuance of Securities by the
JVCo, by offering such Securities to each
Shareholder on a pro-rata basis; provided
that MSM shall not be obliged to
participate in such issuance and provided
further that MSM’s equity stake including
any commensurate voting rights shall not
be diluted below MSM”s shareholding at
that time and neither shall MSM’s right to
return of capital proportionate to the value
of its shareholding prior to such issuance
be reduced in any manner or form. The
Parties will mutually agree to various
funding options and mechanisms in the
long form definitive and binding agreement
which will set out how additional funding
can be made by Shareholders other than
MSM
without
diluting
MSM’s
shareholding if it does not participate in
funding.
C. If after the first five (5) years of Initial Term, the
JVCo requires further capital then such additional
capital requirement shall be met in the following
order of priority:
(i) by way of non convertible loans from banks,
financial institutions, etc.,
(ii) by way of issuance of Securities by the JVCo,
by first offering such Securities to each
Shareholder on a pro-rata basis. In case a
Shareholder does not subscribe to the
Securities then such Shareholder’s equity stake
in the JVCo will accordingly get diluted.
3.
Consummation of the The following terms shall be conditions
consummating the Proposed Transaction:
Proposed Transaction:
to
1. The Parties shall have executed the definitive (i)
share subscription and shareholders’ agreement
(“Share Subscription and Shareholders’
Agreement”); (ii) content license agreement, (iii)
domain name acquisition agreement, and (iv) such
other agreements as agreed to by the Parties to
consummate the Proposed Transaction, set up the
JVCo and give the JVCo the necessary rights to
own, operate, exploit and manage the Platform;
2. All regulatory and corporate approvals shall have
been obtained by the Parties and the JVCo (to the
extent applicable);
3. Finalisation of the business plan for JVCo for the
Initial Term; and
4. Such other conditions as agreed to by the Parties.
4.
Name of the JVCo; The name of the JVCo will be unanimously agreed to
Board of Directors and by the Parties.
Officers:
The nominees of the Shareholders on the board of
JVCo (“Board”) shall be in proportion to their
shareholding in the JVCo. The Board shall at all times
consist of seven (7) directors. Initially MSM shall have
two nominee Directors on the Board of JVCo. A
Shareholder will have a right to nominate its director on
the Board of JVCo proportionate to its shareholding as
long as it holds not less than 7% Securities of the
JVCo.
The management and operations of JVCo will be
conducted under the supervision and guidance of the
Board. The Board will delegate day-to-day operations
of JVCo to certain key officers of the JVCo.
Subject to MSM’s approval, N18 will nominate the
Chief Executive Officer (CEO) and the Chief Financial
Officer (CFO) of the JVCo who will be appointed by
the Board. The CEO will report to the Board and the
CFO will report to the CEO.
4A.
Restriction on Transfer During the Initial Term, the Parties will have an
of Shares of JVCo by obligation to invest up to each of their proportionate
share of the Total Capital Investment as per the agreed
the Parties
business plan of the JVCo and their shares will be
locked-in, i.e. they cannot transfer their shares to
another party (other than to an affiliate) for the entire
duration of the Initial Term.
After the expiry of the Initial Term, a Party can transfer
its shares in the JVCo subject to the right of first refusal
of the non transferring Shareholder(s) and after taking
prior consent of the other Party, which consent will not
be unreasonably held. Detailed provisions pertaining to
the right of first refusal and the reasons on which a
Party can withhold consent for transfer of shares by the
other Party will be provided in the Share Subscription
and Shareholders’ Agreement.
5.
Licensing of Content to
JVCo by the Parties
and other content on
the Platform:
Subject to the rights available to it, each Party shall
license to JVCo for its Platform long-form and shortform non-linear content. The content would include but
not be limited to programmes broadcast on television
channels currently owned and/or operated by the
Parties (subject to rights limitations) after an agreed
period of time from initial broadcast of such
programmes on said television channels.
The Parties will discuss the following terms in relation
to the licensing of the content of channels owned and
operated by it and its affiliates:
1. the term of licensing the content to the JVCo will
be held till a Shareholder holds equity in the JVCo;
2. certain minimum number of hours of content to be
made available to the JVCo for exploitation on the
Platform shall be agreed by the Parties;
3. rights in certain number of defined marquee
properties shall be made available to the JVCo for
exploitation on the Platform;
4. save and except for each Party’s owned apps and
websites, certain exclusive viewing window would
be granted to the Platform during which the content
is not made available to other similar OTT
platforms. The Parties will have a right to grant the
exclusive viewing windows to such Affiliates
which will be listed in the long form definitive and
binding agreement; and
5.
6. the license fee payable under each content license
agreement shall be in accordance with the agreed
business plan of the JVCo; provided however that
license fee payable shall not under any
circumstances be less than the percentage of
revenue share that a Party receives from YouTube
under content hosting agreements.
The principal purpose of the JVCo will be to make nonlinear VOD content from the television channels
available on the Platform.
MSM and N18 hereby confirm that they (either directly
or through their affiliates) own the digital rights in the
content of the respective channels of the networks to
which they represent and as broadly envisaged to be
made available to the Platform to constitute the JVCo.
For purposes of clarity, MSM represents the Sony
Entertainment Network channels and N18 represents its
affiliates’ channels.
6
Domain name of the
Platform:
For launching the Platform, the JVCo shall use the
domain name ‘in.com’ at a net present value of INR
30,00,00,000.
The Parties have agreed to the valuation of the domain
name ‘in.com’ for it to be acquired by JVCo from N18
and/or its affiliates.
NW18 will give a suitable representations and
warranties in the long form definitive and binding
agreement that it owns the domain name ‘in.com’ and
that it will transfer the same to the JVCo. upon
consummation of the long form definitive and binding
agreement.
7.
Sole Partner for the
Business:
The Parties represent that save and except for their own
channel websites and apps, they (or any of their Indian
affiliates) have not invested in any other OTT platform.
The Parties agree that after the Proposed Transaction is
consummated and while the Share Subscription and
Shareholders’ Agreement is binding on the Parties, they
will not invest in another OTT platform and for
purposes of clarity, each Party’s owned and operated
websites and apps shall always be excluded from the
provisions of this Clause 7.
8.
Veto Matters
So long as each Shareholder effectively holds at least
20% of the paid up share capital of the JVCo, the veto
matters set forth in Annexure A, hereto shall require
the affirmative vote of:
1. in the case of board meetings, at least one (1)
director nominated by each Shareholder; and
2. in the case of Shareholders’ meetings, by at least
one (1) representative of each Shareholder.
8A
Appointment of
Statutory Auditors
The statutory auditors of the JVCo will be one of the
Big 4 accounting firms (or their Indian affiliates).
In the event it is proposed that an accounting firm other
than one of the Big 4 accounting firms be appointed as
the statutory auditors of the JVCo, the unanimous
consent of all Shareholders would be required.
For the purpose of this Clause 8A, “Big 4 accounting
firms” means any of the following:
Ernst & Young;
KPMG;
Deloitte; and
PricewaterhouseCoopers.
9.
Confidentiality:
The Parties will keep this Term Sheet and its contents
entirely and strictly confidential and shall not make any
announcements in connection with the same. The
Parties will ensure that their respective advisors, agents
and representatives shall have access to the Term Sheet
on a need to know basis and such person shall keep
confidential this Term Sheet and its contents.
10.
Exclusivity of
Negotiation:
10A.
Anti-bribery laws
and Compliance with
Foreign Corrupt
For a period of 180 days from the date of execution of
this Term Sheet or such other period as may be agreed
to by the Parties in writing and by way of an
amendment to this Term Sheet, the Parties will not
directly or indirectly engage in discussion and
negotiation with any third Party in connection with
setting up an OTT platform.
The Parties acknowledge that in entering into the long
form, definitive and binding agreement for the
Proposed Transaction and any other related agreements
Practices Act
(“FCPA”):
including the Share Subscription And Shareholders’
Agreements; content license agreement; and domain
name acquisition agreement (collectively referred to as
the “Contemplated Agreements”), the JVCo shall at
all times be in compliance with the FCPA, including
any amendments thereto.
The detailed provisions pertaining to FCPA shall be
detailed in the Contemplated Agreements.
11.
Binding Provisions:
Clause 9 (Confidentiality), Clause 10 (Exclusivity of
Negotiation), Clause 12 (Expenses) and Clause 13
(Governing Law) of this Term Sheet are binding legal
obligations of the respective Parties for a period of 180
days from the date of execution of this Term Sheet.
In case the long form binding and definitive agreements
are not executed within such period of 180 days or such
other extended period as may be mutually agreed by the
Parties in writing, then either Party has a right to
terminate this Term Sheet forthwith by providing a
written notice to the other Party. .
12.
Expenses:
Each Party will bear its own costs and expenses in
connection with the preparation, negotiation and
execution of the definitive agreements.
13.
Governing Law:
This Term Sheet shall be governed by and construed in
accordance with the laws of India. Any disputes arising
hereof shall be submitted to the exclusive jurisdiction
of the Mumbai courts.
[Signature Page Follows]
For Multi Screen Media Private Limited
For Network18
Limited
Media
&
Investments
________________________
Name:
Designation:
________________________________
Name:
Designation:
Annexure A
Veto Matters
1. Any change to the capital structure of the JVCo, other than as set forth: in the business
plan; or Clause 2, above.
2. Alteration of the provisions of the charter documents of the JVCo;
3. Reduction, redemption, buy-back or cancellation of equity shares or securities convertible
into equity shares; amendment or variation to the rights of the shareholders;
4. Binding the JVCo by a scheme of arrangement or compromise under the Companies Act,
1956 or applying to a Court to wind-up the JVCo or to wind-up the JVCo voluntarily;
5. Declaration and distribution of dividends by the JVCo;
6. Changing the nature of the Company’s business activities;
7. Acquisition, sale or disposition of any material assets of the JVCo whose book or
transaction value exceeds INR 10 crores otherwise than in the ordinary course of
business;
8. Any decision in relation to, including the making of, an initial public offering and/or
listing of the equity shares including the size of the issue, price of the equity shares;
9. Entering into any related party transaction and/or arrangement except for any transactions
contemplated under this Term Sheet; or as per the business plan;
10. Creating any subsidiary of the JVCo or permitting any company to become a subsidiary
of the JVCo;
11. Making loans, advances, investments or providing guarantees or security to the
Shareholders or their respective affiliates, save and except any trade advances made
proportionately under the Content License Agreement to the content licensors by the
JVCo;
12. Borrowings and the grant of any security or guarantee with respect to such borrowing,
excluding any short term financing or working capital facilities not exceeding INR 10
crores at any given time as required in the ordinary course of business;
13. Any initiation of material litigation by the company, settlement proceedings arising out of
any litigation or arbitration, by the JVCo that could be reasonably expected to have a
negative impact of more than 10% on the billed revenues of the JVCo;
14. Approval of the business plan and the annual budget or any part thereof or any
amendments/changes thereto;
15. Any single leasing arrangements having an annual liability of greater than INR. 10 crores
other than in the ordinary course of business;
16. Approvals for capital expenditure involving single annual spend beyond INR 10 crores
save and except if such expenditure is included in the business plan;
17. Contracts or arrangements not in the ordinary course of business exceeding INR 10
crores;
18. Acquisition or disposal of any asset or contract or arrangement for purchase or disposal of
goods or services (not in accordance with the business plan) for value exceeding INR 10
crores ;
19. Adoption of accounting policies and change therein including write offs/amortization;
20. Any repurchase or early repayment of any indebtedness in excess of INR 10 crores;
21. The assignment, novation or transfer of material business agreements;
22. Change in the registered office and decision to keep the registers and statutory documents
at a place other than the registered office;
23. Approval of annual accounts, retentions or provisions not in the ordinary course of
business; and
24. Any other items which may be discussed and agreed in the Share Subscription and
Shareholder’s Agreement.