Term sheet

The thing to remember is read the fine print in the term sheet. Do not be dazzled by a high premoney valuation if one of these hand grenades is built into the deal. If you permit them in, you can be sure that every subsequent round of investors will insist on equal terms, and the risk to common shareholders will escalate. 

Another way of approaching this is to read a counterparty s licensing term sheet as if you had written it, looking not just for what it says but for what is omitted, either deliberately or by mistake, and so work out your counterproposals to match their desires with your own. The term sheet is just a sketch of the final agreement and so there is much room for manoeuvre as the negotiation is planned. 

The general structure of a term sheet is shown in Figure 1.3. Abare minimum of detail is given, around which further terms will be added to suit the needs of the parties to the transaction. These additions form the texture and colour of the transaction and can reveal the intentions and motives of the parties when viewed in the context of the market. 

Yet with mention of the provision of materials we should revisit the issue of confidential disclosure agreements (CD As) discussed in Chapter 5. Here when, at last, truly substantial issues are to be discussed, confidentiality must be assured and suitable undertakings should be exchanged if this has not already been completed. The proposal of terms and conditions for a commercial agreement are not trivial hence it is necessary here to step through the normal requirements of the term sheet and identify when and how these should be presented and discussed. 

The first term sheet is typically proposed by one of the parties as their preferred outcome to which the other side responds by either accepting or rejecting the proposal in whole or in part. So Company A might request of Company B ... 

To ensure that each new version captures the points which have been agreed in the last negotiation session all participants should receive a marked-up copy of the last term sheet showing the changes that have been made and a draft of the fully revised version. These are frequently referred to as the black-line and clean copies respectively. Feedback on the clean copy from anyone... 

Some of the terms in a term sheet may not, however, actually be known at the time the document is drawn up, particularly with compounds in development which in time might even be found not to work. These terms may therefore be conditional and describe the consequences for the contract for each of the cases envisioned as the possible outcomes. So although the terms of the contract will be binding, they do not have to be factually complete at the signing of the contract. 

To get to this point the purpose of the contract (or contracts) must be declared. This will have been agreed in the term sheet discussions where the terms and conditions to be entered in the contract have been defined. This might be as simple as in this example reproduced in part here which is drawn from a real contract but modified to hide the actual companies and products. 

Prior to the drafting of such a contract the parties will have agreed the substance of the term sheet and may choose to execute a letter of intent which will bind the parties to the execution of a contract during the period while the contract is being drafted. As may be seen from the complexity of the... 

In this chapter we present a discussion on convertible bonds, which have become popular hybrid financial instruments. Convertible bonds are financial instmments that give the bondholders the right, without imposing an obligation, to convert the bond into underlying security, usually common stocks, under conditions illustrate in the indenture at the time of issue. The hybrid characteristic defines the traditional valuation approach as the sum of two components the option-free bond and an embedded option (call option). The option element makes the valuation not easy, above all in pricing term sheets with specific contract clauses as the inclusion of soft calls, put options and reset features. The chapter shows practical examples of valuation in which financial advisors and investment banks adopts in different contexts. 

An example term sheet for a swaption might have the following specifications ... 

The term sheet and membrane tend to be interchangeable. By definition, a membrane refers to the finished built-up waterproofing layer comprising one or more prefabricated sheets. As such, a sheet becomes a membrane in a single-ply application and a modified bituminous membrane may have two sheets, base and cap. 

For any bond issues, investors consider the term sheet, essentially a shortened version of the prospectus or offering circular, which details the conditions under which the bond is issued. Investors would look for some or indeed all of the following terms in the offer prospectus, which are considered to be favorable from an investor viewpoint. A lack of these features—or their opposite— would be less favorable to investors ... 

---