Term Sheet Template Sample

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Term Sheet

 

Date: ________________

 

This Terms Sheet summarizes the material terms and conditions between Company A and Company B with respect to a potential transaction between the parties (the "Transaction").

 

The parties hereto agree that this Terms Sheet shall not constitute an agreement or binding commitment of any kind and that the sole purpose of this Terms Sheet is to serve as a basis for the negotiation of a definitive agreement governing the Transaction.

 

  1. Description of Transaction. The parties hereto agree to negotiate in good faith and use their commercially reasonable efforts to enter into one or more definitive agreements providing for, among other things:

 

(a) the acquisition by Company A of ______________ percent (______%) of the issued and outstanding equity interests of Company B (the "Equity Interests"), with the balance of the Equity Interests continuing to be owned and held by the shareholders of Company B on the date hereof (the "Shareholders"), and

 

 

 

  1. Consideration. The total consideration to be paid by Company A to the Shareholders in connection with the acquisition of the Equity Interests shall be an amount equal to $____________ (the "Purchase Price"). The Purchase Price shall be paid in cash at the closing of the acquisition of the Equity Interests (the "Closing").

 

  1. The Facility. (a) The Facility shall be in an aggregate principal amount of up to $____________ and shall be senior secured debt of Company B. The Facility shall be structured as a term loan and shall mature on the date that is ____________ years from the date of initial advance thereunder (the "Maturity Date"). (b) The Facility shall bear interest at a rate per annum equal to ____________ percent (____________%), payable in cash on the last day of each calendar month, commencing ____________ months from the date of initial advance of the Facility. (c) All amounts outstanding under the Facility shall be fully and unconditionally guaranteed on a joint and several basis by Company B and each of its material subsidiaries.

 

  1. Covenants. The equity interest contract shall be subject to customary financial and non-financial covenants, as set forth in the credit agreement governing the Facility, which shall include, without limitation:

 

Indebtedness Restrictions: Restrictions on the ability of Company B and its subsidiaries to incur additional indebtedness.

 

Investment Restrictions: Restrictions on the ability of Company B and its subsidiaries to make certain investments, capital expenditures, and acquisitions.

 

Payment Restrictions: Restrictions on the ability of Company B and its subsidiaries to pay dividends or make other restricted payments.

 

Affiliate Transactions: Restrictions on the ability of Company B and its subsidiaries to enter into certain transactions with affiliates.

 

Financial Ratios: Requirements for Company B to maintain certain financial ratios.

 

Insurance Coverage: Requirements for Company B to maintain certain insurance coverage.

 

Dividend Restrictions: Restrictions on the ability of Company B and its subsidiaries to enter into certain agreements that restrict the ability of Company B's subsidiaries to pay dividends to Company B.

 

 

 

  1. Conditions Precedent. The consummation of the Transaction is subject to the satisfaction or waiver, in the sole discretion of Company A, of the following conditions precedent:

 

(a) Company B and its subsidiaries shall have executed and delivered to Company A the credit agreement governing the Facility, and such other documents and instruments as Company A may reasonably request in connection with the consummation of the Transaction and the funding of the Facility;

 

(b) all regulatory approvals and third-party consents that Company A determines to be necessary or advisable in connection with the Transaction shall have been obtained;

 

(c) Company B shall have delivered to Company A an opinion of counsel to the effect that the Transaction will not result in the termination of any material agreement to which Company B or any of its subsidiaries is a party or result in the imposition of any material adverse change to the rights or benefits enjoyed by Company B or any of its subsidiaries thereunder;

 

(d) Company B shall have delivered to Company A an opinion of counsel to the effect that the Equity Interests to be acquired by Company A pursuant to the Transaction will be duly authorized, validly issued, fully paid and non-assessable;

 

(e) each of the officers and directors of Company B shall have delivered to Company A an opinion of counsel to the effect that, immediately following the consummation of the Transaction, such person will not violate any provision of any agreement to which he or she is a party;

 

(f)Company B shall provide Company A with an opinion of counsel confirming that upon completion of the Transaction: (i) Company B will be in full compliance with all relevant federal and state securities laws, (ii) no registration statement or prospectus filed by Company B with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, shall be in effect, nor shall any stop order suspending its effectiveness have been issued, nor shall any such proceeding have been initiated or threatened by the Securities and Exchange Commission, and (iii) Company B will not be in violation of the Securities Act.

 

(g) Company B shall have delivered to Company A an opinion of counsel to the effect that, immediately following the consummation of the Transaction, the consummation of the Transaction will not require the registration of any equity interests of Company B under the Securities Act;

 

(h) Company B shall have delivered to Company A an opinion of counsel to the effect that, immediately following the consummation of the Transaction, the consummation of the Transaction will not result in the imposition of any material adverse change in, or material limitation on the rights of, any shareholder of Company B;

 

(i) Company B shall have delivered to Company A audited consolidated balance sheets of Company B and its subsidiaries as of the end of the most recent fiscal year of Company B and unaudited consolidated balance sheets of Company B and its subsidiaries as of a date within ____________ months of the date of this Terms Sheet, each in form and substance reasonably satisfactory to Company A;

 

(j) Company B shall have delivered to Company A audited consolidated statements of operations, stockholders' equity and cash flows of Company B and its subsidiaries for the two most recently completed fiscal years of Company B, and unaudited consolidated statements of operations, stockholders' equity and cash flows of Company B and its subsidiaries for the fiscal year to date, in each case in form and substance reasonably satisfactory to Company A;

 

(k) Company B shall have delivered to Company A such other financial and operational information and documents regarding Company B and its subsidiaries as Company A may reasonably request;

 

(l) Company B shall have delivered to Company A a certificate of its chief executive officer and its chief financial officer certifying that, to the best of their knowledge, based on a review of Company B's books and records and discussions with Company B's management, the financial statements and other financial information delivered by Company B to Company A pursuant to this Terms Sheet present fairly, in all material respects, the financial position of Company B and its subsidiaries as of the dates thereof and the results of operations and cash flows of Company B and its subsidiaries for the periods indicated therein;

 

(m) Company B shall have delivered to Company A an opinion of counsel to the effect that, immediately following the consummation of the Transaction, Company B will be in compliance with all applicable environmental laws;

 

(n) Company B shall have delivered to Company A an opinion of counsel to the effect that, immediately following the consummation of the Transaction, no material pending or, to the knowledge of counsel after due inquiry, threatened litigation or claim will adversely affect Company B or any of its subsidiaries;

 

(o) Company B shall have delivered to Company A an opinion of counsel to the effect that, immediately following the consummation of the Transaction, no material order, writ, injunction or judgment of any court or governmental authority will be in effect that will adversely affect Company B or any of its subsidiaries;

 

(p) Company B shall have delivered to Company A an opinion of counsel to the effect that, immediately following the consummation of the Transaction, no material violation of any laws or regulations to which Company B or any of its subsidiaries is subject will have occurred;

 

(q) Company B shall have delivered to Company A an opinion of counsel to the effect that, immediately following the consummation of the Transaction, no material change in the business, affairs, properties, condition (financial or otherwise), operations or prospects of Company B or any of its subsidiaries shall have occurred;

 

(rIn order to ensure the accuracy and completeness of the financial information provided by Company B to Company A, the following conditions must be satisfied prior to the Closing:

 

(a) Company B shall provide to Company A all financial statements required by law, regulation or generally accepted accounting principles, prepared in accordance with such principles consistently applied throughout the periods covered and fairly presenting the financial condition, results of operations, and cash flows of Company B and its subsidiaries as of the dates thereof and for the periods indicated therein;

 

(b) An independent public accounting firm designated by Company A shall conduct a review of the financial statements provided by Company B and deliver a comfort letter to Company A, dated the date of the Closing, in form and substance reasonably satisfactory to Company A. The comfort letter shall state that the financial statements fairly present, in all material respects, the financial position of Company B and its subsidiaries as of the dates thereof and the results of operations and cash flows of Company B and its subsidiaries for the periods indicated therein;

 

(c) Company B shall provide a certificate signed by its chief executive officer and chief financial officer certifying that, to the best of their knowledge, based on a review of Company B's books and records and discussions with Company B's management, there has been no material adverse change in the business, affairs, properties, condition (financial or otherwise), operations or prospects of Company B and its subsidiaries since the date of the most recent financial statements provided to Company A.

 

These conditions are intended to ensure that Company A has access to accurate and complete financial information about Company B and its subsidiaries prior to the Closing.

 

 

 

(t) all other conditions precedent that Company A may reasonably require in connection with the consummation of the Transaction shall have been satisfied.

 

  1. Termination.

 

This Terms Sheet shall terminate on the earlier of (i) ____________, and (ii) the date on which a definitive agreement providing for the consummation of the Transaction has been executed by the parties.

 

  1. Expenses. Notwithstanding anything to the contrary in this Terms Sheet, all expenses incurred in connection with the negotiation, preparation, execution and delivery of this Terms Sheet and the definitive agreement or agreements providing for the consummation of the Transaction and the funding of the Facility (together with all amendments, modifications and supplements thereto, the "Definitive Agreement") shall be borne by the party incurring such expense.

 

  1. Confidentiality. Company B and its shareholders, officers and directors agree that they will keep strictly confidential all information that is disclosed to them by Company A pursuant to this Terms Sheet and will not, without the prior written consent of Company A, disclose any such information to any person, except as may be required by law. 9. Governing Law.

 

This Terms Sheet and the Definitive Agreement shall be governed by, and construed in accordance with, the laws of the State of ____________. ____________________________

 

Company A ____________________________

 

Company B