When the language of an agreement is unclear one may use the preceding term sheet for interpretation

Three entrepreneurs founded a startup company and in a term sheet agreed that their shares will be subject to a reverse-vesting mechanism so that the company may buy back shares not yet vested at termination of employment and that two may decide to dismiss the third. They later signed an agreement that replaced the term sheet but was unclear on the issue of the vesting. One of the three was dismissed three months later.
The Court held that the company is entitled to buy back the entrepreneur’s shares. A contract is construed pursuant to the intent of the parties, as may be understood from the contract and the external circumstances. When the language of the contract is unclear, the parties’ intent can be construed from the provisions of the contract as a whole (relating to the essence of the contract and its internal logic) and external circumstances (such as the parties’ conduct during negotiations, conduct after signing the contract and their “contractual history”). In this case, the agreement is unclear on whether the shares vest in full in case of dismissal in the first six months that is not “for cause”, but the term sheet reflects the parties’ intent whereby if one of the entrepreneurs, for any reason, ceases to work at the company, his shares will be lost.