A term sheet is a document exchanged by the parties to the deal that contains the important terms and conditions of the deal. The document is a summary of the main points of the deal and resolves any differences before executing the legal agreements. The document is prepared and arranged before the commencement of the due diligence process.
The term sheet is considered “Non-Binding” even though it is signed by the target and the prospective buyer although binding provisions such as non-solicitation, exclusivity and confidentiality may still be contained within. The document reflects only the major terms and broad points between parties under which the investment or proposed acquisition will be made. That is, there are no (or very few) legal specifics contained in the document. Subsequently, the document will act a as guide or template for both the in-house and external legal teams when they are ready to draft the definitive agreements.
Reasons for a Term Sheet
The parties will expend significant financial resources and effort in negotiating the definitive agreement and other related documents. By signing a term sheet, rather than proceeding directly to definitive merger agreement the companies can avoid future potential problems by agreeing certain broader terms at an early stage. Having an outline of the key terms ensures that the parties have an agreement on the principal terms before proceeding further. Although term sheets may contain more or less data depending on the specific deal, there are broad sections of data which are commonly found.
Term Sheet Example
The February 24, 2020 SC TO-T filing made by Instructure (INST) contains the following example of a Term Sheet. Due to the subsequent Q&A session, this section of the overall document last for 8 pages.
Purchaser, a direct wholly-owned subsidiary of Parent, is offering to purchase all of the outstanding common stock of Instructure at a price of $49.00 per Share, net to the seller in cash, without interest and less any applicable withholding taxes, as further described herein, upon the terms and subject to the conditions set forth in this Offer to Purchase and the Letter of Transmittal and the other exhibits to the Schedule TO. The following are some questions you, as a stockholder of Instructure, may have and answers to those questions. This summary term sheet highlights selected information from this Offer to Purchase and may not contain all of the information that is important to you and is qualified in its entirety by the more detailed descriptions and explanations contained in this Offer to Purchase and the Letter of Transmittal and the other exhibits to the Schedule TO. To better understand the Offer and for a complete description of the legal terms of the Offer, you should read this Offer to Purchase and the Letter of Transmittal carefully and in their entirety. Questions or requests for assistance may be directed to the Information Agent at the address and telephone numbers set forth for the Information Agent on the back cover of this Offer to Purchase. Unless otherwise indicated in this Offer to Purchase or the context otherwise requires, all references in this Offer to Purchase to “we,” “our” or “us” refer to Purchaser.
- Securities Sought – All outstanding shares of common stock, par value $0.0001 per share, of Instructure, Inc., a Delaware corporation.
- Price Offered Per Share – $49.00 per share, net to the seller in cash, without interest and less any applicable withholding taxes.
- Scheduled Expiration of Offer – One minute after 11:59 p.m., Eastern Time, on March 20, 2020, unless the Offer is extended or terminated. See Section 1—“Terms of the Offer.”
- Purchaser – PIV Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Instructure Holdings, LLC, a Delaware limited liability company. Instructure Holdings, LLC is indirectly controlled by Thoma Bravo Fund XIII, L.P., a Delaware limited partnership.
- The Instructure Board’s Recommendation – The Instructure Board has recommended that the stockholders of the Company tender their Shares in the Offer.
In this document, the terms are clearly explained for all to read. There then follows a series of typical questions and answers giving as much detail about the deal as is known at that stage such as
- Who is offering to buy my Shares?
- How many Shares are you offering to purchase in the Offer?
- Why are you making the Offer?
- How much are you offering to pay and what is the form of payment? Will I have to pay any fees or commissions?
