How a Computer Hardware Business Hired a Lawyer to Draft a Term Sheet in Delaware

There are a couple of strategies for drafting term sheets. They can be extremely comprehensive leaving little material to the definitive documents or they can be very high level leaving most of the material terms to the definitive agreement. My preference and I think it often saves on legal costs is to have a very detailed term sheet. The reasons high-level ones are often used is because there is a need to get to a signed term sheet, the parties know each other or there is some other urgency that leads to having a less-than-detailed term sheet. The basic sections in a term sheet are: PART ONE (non-binding provisions) 1. BASIC TRANSACTION. Summarizes structure of transaction. 2. PRICE/ECONOMICS 3. OTHER TERMS. Both parties agree to be honest and straightforward in their warranties and representations. PART TWO. The following are the legally binding and enforceable agreements of the Parties. 1. ACCESS. Both parties shall provide access to any information the other entity may require throughout the transaction. 2. EXCLUSIVE DEALING. Both parties agree to stop looking for a similar entity to partner with. 3. BREAK-UP FEE (only in the M&A context but could be for a business deal to compensate party for other parties breach) 4. CONDUCT OF BUSINESS. Regular business should occur at both entities throughout the transaction. 5. CONFIDENTIALITY. Both entities will keep all materials, conversations and knowledge gained confidential. 6. DISCLOSURE. Both entities will not discuss the proposed transaction with anyone until completed then they will issue a press release together. 7. COSTS. Both entities pay their own professional service fees. 8. CONSENTS. Both entities will follow appropriate internal legal process/approval. 9. ENTIRE AGREEMENT. This document supersedes all previous documents and/or other forms of communication relating to this transaction. 10. GOVERNING LAW. The Binding Provisions will be governed by and construed under the laws of the State of [Washington] without regard to conflicts of laws principles. 11. JURISDICTION: SERVICE OF PROCESS. Defines how legal proceedings will work regarding this document. 12. TERMINATION. States when this document will expire. 13. COUNTERPARTS. Covers how the contract is signed. 14. NO LIABILITY. The past is wiped clean by this document, with respect to historical dealings between the two entities.

Every term in a term sheet, by definition is important. A term sheet is a summary of the most important parts of a "deal" - a way of getting to and negotiating the hear of the deal before filling in the gaps with boilerplate. Therefore, you should make sure that you understand all of what has been proposed and negotiated in the term sheet - even the provision that don't seem that important - because they wouldn't be in the term sheet if they weren't a key term to one side or the other.