Legal Definitions - term sheet

A term sheet is a preliminary, non-binding document that outlines the key business and legal terms of a proposed transaction. It serves as a blueprint or a summary of the fundamental points that the parties have agreed upon in principle, before drafting a more detailed and legally binding agreement. Its purpose is to ensure that all parties are aligned on the core aspects of the deal, facilitating further negotiation and due diligence.

• Example 1: Venture Capital Investment
  Imagine a tech startup, "InnovateCo," is seeking investment from a venture capital firm, "GrowthFund." After several meetings and pitches, GrowthFund decides to invest. Before drafting a lengthy, legally binding investment agreement, GrowthFund provides InnovateCo with a term sheet. This document would outline critical points like the amount of investment ($5 million), the valuation of InnovateCo, the percentage of ownership GrowthFund will receive, the composition of the board of directors, and any special rights GrowthFund will have as an investor.
  This example illustrates a term sheet as a foundational document in a securities transaction, summarizing the essential financial and governance terms of a proposed investment before the full legal documents are prepared.

• Example 2: Company Acquisition
  Consider "MegaCorp" planning to acquire "SmallBiz," a smaller competitor. Before committing to a complex merger agreement, MegaCorp sends SmallBiz a term sheet. This document would specify the proposed purchase price, how the payment would be structured (e.g., cash, stock, or a combination), key conditions for the acquisition (like regulatory approvals or successful due diligence), and the timeline for closing the deal.
  Here, the term sheet acts as a preliminary framework for a corporate acquisition, ensuring both parties agree on the fundamental financial and structural elements of the deal before investing significant resources in drafting the final, comprehensive acquisition agreement.

• Example 3: Real Estate Financing
  A property developer, "UrbanBuild," wants to secure a loan from "CityBank" to finance a new apartment complex. CityBank, after reviewing UrbanBuild's proposal, issues a term sheet. This document would detail the loan amount, the interest rate, the repayment schedule, the collateral required (e.g., the property itself), any specific covenants UrbanBuild must adhere to during construction, and the fees associated with the loan.
  In this scenario, the term sheet serves as an initial agreement on the core financial terms of a complex loan, allowing both the developer and the bank to confirm their understanding of the lending arrangement before proceeding with the detailed legal loan documents.