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What to Put in a Term Sheet By Chris Johnsen

One of the first questions I ask clients looking to do a deal is whether they have a term sheet. Sometimes they ask what a term sheet is and what should go into it. While it isn’t always necessary to have a term sheet before starting on the transaction documents, it’s oftentimes a good idea because it streamlines the process, ensures the parties are serious before incurring substantial legal expenses, and decreases the likelihood of unnecessary disputes. A term sheet is very similar to a letter of intent or memorandum of understanding, the only substantive difference being the style of the document.

A term sheet is typically a preliminary, mostly non-binding document that summarizes the key terms of the deal. My practice is to have the parties try to sketch out in simple language as many terms as they can agree on, and then I will assist them in finalizing the term sheet. The parties should begin preparing their draft only after they have had enough discussions to flesh out and articulate the key terms. After the term sheet is finalized and executed, it guides legal counsel in preparing the transaction documents.  

Generally the business terms of the deal are non-binding, whereas provisions necessary during the negotiation period are binding. Examples of such binding provisions might include: 

  • a confidentiality agreement protecting documents and information exchanged during due diligence; and

  • an exclusivity clause wherein the parties may negotiate only with each other until a certain date when the deal is opened to others. 

Common provisions in most term sheets include:


  • the parties and their contact information;

  • a basic description of the transaction;

  • price and payment information;

  • key dates, such as the closing date and the due-diligence period;

  • how fees and expenses, such as fees for attorneys and brokers, should be allocated;

  • a confidentially agreement; and

  • an exclusivity clause.

Other provisions are tailored to the type of proposed transaction. Common transactions include mergers and acquisitions, joint ventures, and private placements.

Term sheets for mergers and acquisitions generally include:

  • a basic description of the assets or stock being acquired;

  • representations and warranties to be included in the transactions documents; and

  • the identification of ancillary agreements, such as employment agreements, transition services agreements, and non-compete agreements, and their key terms. 

Term sheets for joint ventures generally include:

  • each party’s contribution to the joint venture;

  • the rights and responsibilities of the parties;

  • how profits and losses will be shared and distributed;

  • how the joint venture will be managed;

  • how employees will be handled;

  • indemnification obligations;

  • financing requirements;

  • the identification of ancillary agreements, such as service agreements, management agreements, license agreements, and non-compete agreements, and their key terms; and

  • the termination and exit strategy.

Term sheets for private placements generally include:

  • the type, amount, and price of offered securities;

  • the use of proceeds;

  • the rights and preferences, such as voting rights, liquidation preferences, distribution rights, and conversion rights, attached to the offered securities;

  • any anti-dilution protection;

  • any transfer restrictions; 

  • any board representation rights;

  • the identification of ancillary agreements, such as stockholders’ agreements and registration rights agreements, and their key terms;

  • and the exit strategy.

These are just some of the commonly included terms in these different kinds of term sheets. The provisions of a term sheet should be specifically tailored to the deal between the parties. If you are considering doing a deal, it is advisable to contact a business lawyer before you spend much time on the term sheet. Johnsen Law advises clients on terms sheets and the resulting transaction documents. Contact Johnsen Law to learn more.

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