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Confirm transaction structure — Determine deal type and identify which term sheet template applies (asset deal, stock deal, merger, investment). Clarify whether this is an IOI (high-level) or LOI (detailed with binding provisions).
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Set the economic terms — Draft purchase price, payment structure, and any contingent consideration. For earnouts, specify metrics, calculation methodology, measurement periods, and acceleration/forfeiture triggers. State whether price is subject to working capital adjustment and define the peg (target NWC amount or trailing average).
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Draft conditions precedent — List all closing conditions organized by category: regulatory (HSR filing, antitrust clearance [VERIFY if deal meets HSR thresholds]), financing (committed financing requirement), diligence (satisfactory completion), third-party (landlord consents, key customer/supplier consents), and corporate (board and shareholder approvals).
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Outline reps, warranties, and indemnification — Specify scope of seller/target reps (fundamental, operational, tax, IP, environmental). Define indemnification mechanics: survival periods (e.g., 18 months general, 36 months tax, indefinite for fraud/fundamental), cap, basket type and threshold, escrow terms, and whether R&W insurance is anticipated [VERIFY market norms for deal size].
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Address exclusivity and process terms — Draft no-shop/exclusivity period with start and end triggers. Include break-up fee or expense reimbursement provisions if applicable. Specify governing law and dispute resolution for binding provisions.
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Include interim operating covenants — Define restrictions on target operations between signing and closing (e.g., no material contracts, no dividends, no headcount changes above threshold, ordinary course requirement).
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Mark binding vs. non-binding sections — Clearly label which provisions are legally binding. Typically binding: exclusivity, confidentiality, governing law, expenses, public announcements. Non-binding: economic terms, conditions, reps/warranties framework.
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Format and circulate — Apply consistent section numbering, defined terms, and party references. Add signature blocks for authorized signatories with title and entity name.
Format as a clean document with numbered sections. Use defined terms consistently (e.g., "Buyer," "Seller," "Target," "Company"). Avoid footnotes; integrate qualifications inline.
