Source: http://whichdraft.com/contract/term-sheet-template/
Timestamp: 2013-05-26 09:00:00
Document Index: 508658617

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Term Sheet Template, Sample Term Sheet
The purpose of a term sheet is to create guidelines for negotiating a much longer, complex agreement at a later date. The longer, complex agreement is usually referred to in the term sheet as the "Definitive Agreement" or the "Definitive Contract."Party 1:Party 2:DEFINITIVE CONTRACT TITLE - What is the name/title of the Definitive Contract?The purpose of a term sheet is to create guidelines for negotiating a much longer, complex agreement at a later date. The longer, complex agreement is usually referred to in the term sheet as the "Definitive Agreement" or the "Definitive Contract."Party 1:Party 2:DEFINITIVE CONTRACT TITLE - What is the business purpose of the Definitive Contract?Sometimes, for convenience, parties will incorporate the requirements of a separately signed confidentiality agreement into another contract. This saves the parties the time and trouble of having to negotiate new confidentiality provisions every time they want to strike a new deal. Instead, the parties can just sign one confidentiality agreement at the start, and then incorporate its requirements by referring to it in each new agreement.Party 1:Party 2:CONFIDENTIALITY AGREEMENT REFERENCE - What is the title and effective date of the Confidentiality Agreement?"Limitation of Liability" is a provision used to limit the kinds of damages a company could be liable for if sued. Parties often want to limit their liability for "Consequential Damages" - these damages can be quite large, might greatly exceed the money actually owed under the contract, and include lost profits and punitive damages. Parties may also want to impose a hard cap on their liability. For instance, a party could state that it won't be liable for more than $10,000, or for more than the fees under the contract.Party 1:Party 2:LIMITATION OF LIABILITY - CONSEQUENTIAL DAMAGES - For consequential damages, do I want to limit liability for both parties or just for Party-1? Both parties.For certain egregious acts, you may not want the parties' liability limited. Which of the below acts do you want excluded from the limitation of liability? Intentional misconduct. Breach of confidentiality, plus the above option. Indemnification, plus the above options. Gross negligence, plus the above options. Just Party-1.For certain egregious acts, you may not want this party's liability limited. Which of the below acts do you want excluded from the limitation of liability? Intentional misconduct. Breach of confidentiality, plus the above option. Indemnification, plus the above options. Gross negligence, plus the above options."Limitation of Liability" is a provision used to limit the kinds of damages a company could be liable for if sued. Parties often want to limit their liability for "Consequential Damages" - these damages can be quite large, might greatly exceed the money actually owed under the contract, and include lost profits and punitive damages. Parties may also want to impose a hard cap on their liability. For instance, a party could state that it won't be liable for more than $10,000, or for more than the fees under the contract.Party 1:Party 2:LIMITATION OF LIABILITY - HARD CAP - Do I want to impose a hard cap on liability for both parties or just Party-1? Both parties.Do I want to choose one of the options below, choose a multiple of the contract value, or specify the hard cap myself? OptionsWhich option? One year limit. Amounts paid under the contract. Total contract value. Multiple of the Contract ValueWhat should the multiple be? 3 times the contract value. 4 times the contract value. 5 times the contract value. I will specify how much.How much? Just Party-1.Do I want to choose one of these options, choose a multiple of the contract value, or specify the hard cap myself? Options One year limit. Amounts paid under the contract. Total contract value. Multiple of the contract value.What should the multiple be? 3 times the contract value. 4 times the contract value. 5 times the contract value. I will specify how much.How much? None.A "Subcontractor" is a third party who one of the signing parties wants to perform some of its responsibilities under the Agreement, such as providing a Service or Deliverable.Party 1:Party 2:SUBCONTRACTORS - Can one or both of the parties subcontract any responsibilities? Party-1 can subcontract with Party-2's consent, and Party-2 can subcontract without Party-1's consent. Party-2 can subcontract with Party-1's consent, and Party-1 can subcontract without Party-2's consent. Either party can subcontract with the other party's consent. Both parties can subcontract without the other party's consent. No subcontracting.The "Governing Law" is the particular state or country's laws that you choose to apply to this contract. Often times, the governing law is the state or country within which one or both of the parties have a main office, or where they are conducting business under the contract.Party 1:Party 2:GENERAL - GOVERNING LAW - Which state or country's laws govern this contract?"Forum", "Venue" or "Jurisdiction" refers to where disputes between the parties must be litigated. Often the parties will still be free to seek injunctions or other temporary relief outside of the forum as they see fit.Party 1:Party 2:GENERAL - FORUM - Which state or country is the forum for this contract?"Assignment" means the right to transfer the contract, or a right or obligation under the contract, to a third party. Usually, this is prohibited or limited to a third party buying the shares or assets of a party to the contract.Party 1:Party 2:GENERAL - ASSIGNMENT - Do I want both parties to be able to assign this Agreement, just Party-1, or not allow any assignments? Both parties. Broad right to assign. Limited right to assign to a third party buying a party's (to this Agreement) shares or assets. Just Party-1. Broad right to assign. Limited right to assign to a third party buying a party's (to this Agreement) shares or assets. No assignments.	• 100% legally sound.. This document was created by an attorney.
Complete Description: This Term Sheet Template lets you create guidelines to eventually negotiate a longer, more complex and definitive contract, and explains the definitive contract, negotiations, the definitive contract is not required and the parties can choose not to do business with each other, costs and expenses, confidentiality, limitation of liability, and general boilerplate for a term sheet template.
TERM SHEET TEMPLATES DEMYSTIFIED
From time to time in your business you may find that you or your client feels the need to negotiate a term sheet template. Usually, this comes up because the other party who you want to do business with puts you in one of the following situations:
Not Your Choice: The other side insists on a term sheet and sends you a draft.
It’s a Complex World: Both sides realize that there are a slew of issues on the table, so it makes sense to buyild a rough framework that will focus everyone on the deal at hand and serve as an outline for the final, comprehensive contract. This is very common in mergers and acquisitions transactions.
Can’t Nail Things Down: Despite numerous phone conversations you feel like the other side does not firmly grasp what they want out of the deal. As a result, you send them a term sheet template to crystallize the situation at hand.
Now that you’ve forced the negotiations forward with a term sheet, what are the key issues that the sheet facilitates for you?
THE DEFINITIVE CONTRACT – MIGHT NOT HAPPEN: First and foremost, you want to make clear that you or the other side might reach a deal, but you might now. You do this with language along the following lines (place it up front in the recitals or a “Background” section):
“The parties intend to negotiate in good faith regarding a contract (the “Definitive Contract”) under which the following might (or might not) occur.”
KEY ISSUES TO NEGOTIATE: Second, specify the exact issues you plan to negotiate. Generally, for goods and services transactions, you care about five issues for a sample term sheet:
Buy/Sell Description. What is the exact description of what is being bought and sold? Too often people gloss over this issue and insert language like “To Be Decided” or a short sentence (e.g., “server customization services”) that gives you no idea what the locus of the deal might be. Ultimately, you want to prevent later arguments by setting everyone’s expectations properly up front through the contracting process. You can’t do this without a crystal clear description as to what you are providing. So be sure to do so here with an elaborate description of the goods or services so there is no room for argument later that any obligations were not fulfilled. One way to do this is to reference an Exhibit A to the Term Sheet Template containing sample provisions for the ultimate, definitive contract, and then insert a caption (e.g., “GOODS AND SERVICES DESCRIPTION.”) and leave the rest blank. This tactic sets the stage nicely for the parties to negotiate and conclude a complete description up front.
Pay. Clarity as to the exact amount a party pays under the arrangement is essential. You want to spell out the currency, frequency, discounts, credits, minimums, refunds and anything else that affects the ultimate payment amount here.
When. Be sure to negotiate the delivery timeline to ensure that no one feels like the goods or services are delayed.
Assume. Sometimes the vendor needs the customer to fulfill certain duties so that the vendor can provide a good or service on time and on budget. To maximize the likelihood of a good relationship, be sure to spell those assumptions out right here.
Trust. Always remember the whole purpose of the contracting exercise: to create a basis for trust so that both parties feel like each other embraces commitment to serving key needs, whether receiving what you paid for or obtaining payment successfully.
NONDISCLOSURE: Third, sometimes people insert confidentiality provisions into an agreement term sheet. Personally, I don’t like to do that. Too often that causes elaborate negotiations regarding confidentiality issues that you probably already settled. Chances are you already signed a confidentiality contract in the past with whoever you are negotiating with now. Even if you haven’t, negotiate the confidentiality agreement separately, because it serves your ends for a variety of future deals. Why? Because you can always use a drafting trick to pull in the key confidentiality provisions by reference. For example:
CONFIDENTIALITY. There is a separate signed confidentiality agreement between the parties, with the following title and effective date: [__________] (the “Confidentiality Agreement”). The provisions of the Confidentiality Agreement are incorporated by reference into this Agreement and apply to all disclosures of Confidential Information (as defined in the Confidentiality Agreement) under this Agreement. If there is any conflict or ambiguity between the Confidentiality Agreement and this Agreement, this Agreement governs and controls. This Agreement constitutes Confidential Information of both parties under the Confidentiality Agreement.
Hopefully that will cover all your needs going forward, and greatly expedite the negotiating process. The less you have to argue about, the better.
LIMITATION OF LIABILITY: Fourth and lastly, it’s a very good idea to include a limitation of liability clause to protect yourself from the other party. The main concern here is that for some reason, the negotiations break down, and your angered counterpart decides to sue you, taking the stance that you actually did agree to a deal when you did not. Usually, these cases involve the other party insisting that it relied on your representations that the deal closed, and then spent money as a result (either by buying raw materials or signing up clients that might rely on your service). A lawsuit for these damages then heads your way. To fend this off, you can include a provision that envisions potential damages and prohibits the other party from suing you for them. You can also include a hard cap limiting your exposure to a set amount. To learn about these issues in detail, read our limitation of liability posts here, here and here.
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