In Finger Lakes Capital Partners v. Honeoye Lake Acquisition, the Delaware Supreme Court affirmed the Court of Chancery’s holding that a term sheet setting forth the general parameters of the parties’ ongoing relationship was not superseded by an operating agreement later entered into by the parties, despite the inclusion of an integration clause in the operating agreement. Thus, Finger Lakes highlights the importance of ensuring that an integration clause is properly drafted to reflect the intent of the parties in governing the terms of their arrangement.

In Finger Lakes, Finger Lakes Capital Partners, a small asset management fund that sponsored investments in five portfolio companies, sought to compel a distribution of the proceeds of a successful liquidation event of one of its portfolio companies in accordance with that company’s operating agreement. Lyrical Opportunity Partners, the entity that provided a majority of the capital invested in such portfolio companies, filed counterclaims to enforce the terms of other agreements entered into by the parties, including a binding term sheet that was entered into at the outset of the parties’ business relationship, that it believed affected the allocation of the proceeds. In response to Lyrical’s counterclaims, Finger Lakes argued, among other things, that the operating agreement entered into in connection with the investment in such portfolio company superseded the term sheet and the other agreements due to the inclusion of an integration clause in the operating agreement. In a post-trial decision, the Court of Chancery held that, despite its integration clause, the operating agreement did not supersede the other agreements, including the term sheet. The court accordingly directed that the proceeds of the liquidation event be distributed in accordance with the operating agreement and then reallocated in accordance with the term sheet and other agreements.

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