This form is a sample that has been prepared for general informational purposes only.
Nothing
contained in the form is legal advice, nor does it create an attorney-client relationship with either
the drafting attorney or Priori Legal. You are encouraged to consult with legal counsel to
customize and revise the form for your business and obtain advice on its general applicability
and use.
Business Acquisition Term Sheet
1. Transaction Structure; Purchase Price.
1.1 Seller Business. The Seller businesses to be included in the Transaction would
consist of all [] and other businesses conducted by Seller and its affiliates.
1.2 Structure. Buyer will acquire in the transaction a 100% interest in the Seller
business. We will explore with you mutually beneficial tax-efficient structures
for the Transaction in connection with our due diligence investigation.
1.3 Target Purchase Price. The Target Purchase Price for substantially all of the
assets of Seller is approximately $[DOLLAR AMOUNT], plus the value of a
[TIME PERIOD] earn-out described below with a potential value (based on the
Seller financial projections) of up to $[DOLLAR AMOUNT]. The Target
Purchase Price reflects a valuation for the Seller business based on a projected
baseline Adjusted EBITDA of $[DOLLAR AMOUNT] and is subject to due
diligence and adjustments discussed below. This proposed purchase price is
subject to completion of our due diligence review and assumes that at closing
Seller: (i) would be debt-free; (ii) would not have any liabilities outside the
ordinary course; and (iii) would have a level of working capital and cash to be
agreed in the definitive documentation, but that would be sufficient to support
operations of Seller for at least [NUMBER] days after closing.
1.4 Payments to the Seller Stockholder. Subject to the escrow arrangements
described below, the purchase price would be paid in cash [80]% at closing,
[10]% on the one-year anniversary of closing and the balance on the 24-month
anniversary of closing. Earn out payments would be paid as described below.
1.5 Earn-Out Payment. The Seller will be eligible to receive earn-out payments based
on the performance of the Seller business for calendar year [YEAR] and calendar
year [YEAR]. The aggregate earn-out payments would not exceed $[DOLLAR
AMOUNT]. Earn-out payments will be based on calendar year [YEAR] and
calendar year [YEAR] pro-forma EBITDA of the Seller business as a standalone
entity. The calendar year [YEAR] and calendar year [YEAR] Pro-forma EBITDA
(annualized) will be multiplied by a valuation multiple of [NUMBER]x to obtain
the calendar year [YEAR] and calendar year [YEAR] Pro-forma Enterprise Value
of the Seller business. The earn-out payment paid with respect to calendar year
[YEAR] will be equal to [PERCENTAGE]% of the amount by which the calendar
year [YEAR] Pro-forma Enterprise Value of the Seller business exceeds
$[NUMBER].
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Comment [1]: A lawyer can help you draft the
business description to ensure both parties
understand the scope of the contemplated
transaction.
Comment [2]: Buyers sometimes prefer to
structure business acquisitions as asset purchase
transactions, rather than stock purchase transactions.
In an asset purchase, a buyer has the option to select
the assets and liabilities that it wishes to purchase
from the selling entity.
In addition, tax matters are a key consideration in
structuring business purchase transactions. Business
purchases structured by the asset purchase method
often provide for lower taxes for the buyer going
forward, primarily because an asset purchase allows
for a step-up in the tax basis of the purchased assets
and, in turn, generates depreciation and amortization
deductions. Business sellers, on the other hand,
usually have to pay higher taxes on asset sale
transactions, so tax issues often become points of
negotiation between buyer and seller.
A lawyer can talk through beneficial transaction
structures given your specific circumstances.
Comment [3]: Often, sellers resist any earn-out
or other structure that shifts purchase price to post-
closing. In addition to creating uncertainty, post-
closing payments can present logistical difficulties
for sellers. A lawyer can discuss options for the
timing and structure of purchase price payments
given your specific circumstances.
Comment [4]: Generally, the buyer conducts due
diligence to ensure that the actual earnings of the
seller are consistent with the earnings estimate used
for purposes of determining the purchase price.
Comment [5]: Many transactions, particularly
concerning businesses with significant inventory,
provide for adjustments in the closing purchase price
to account for any changes in the seller's working
capital.
Comment [6]: Some buyers seek to negotiate to
hold back a portion of the purchase price so they
have funds to offset against in the event of an
indemnifiable loss.
Comment [7]: The formulas for calculating earn-
out payments vary from deal to deal. Parties often
adjust EBITDA to account for senior management
compensation (as the earnings of closely-held
entities are often paid out to owners who are actively
involved in managing the business). In order to
ensure a correct payout, sellers often require an audit
right with respect to earn-out calculations.
Comment [8]: The range of EBITDA multiples
varies by industry.
2. Definitive Agreements.

2.1 Transaction Agreement. Subject to satisfactory due diligence review of the Seller
business, Buyer expects the definitive agreements for the Transaction to contain
customary covenants, representations and warranties of the Seller stockholders for
transactions of this type; including, but not limited to representations and
warranties regarding capital structure, title to and condition of capital stock (if
any) included in the Transaction, authorization, corporate organization, ownership
of assets, no conflict, consents, financial statements, undisclosed liabilities,
compliance with laws, litigation, material contracts, employees, employee
benefits and labor relations, environmental matters, intellectual property,
customers, insurance, brokers, liens and taxes. The applicable survival period for
all representations and warranties would survive until [NUMBER] days after the
end of the applicable statute of limitations. The Transaction agreement will also Comment [9]: Sellers often seek to negotiate a
reduced survival period for most representations.
contain provisions to appropriately adjust the purchase price to the extent (a) of Buyers generally insist on a statute of limitations
debt/or cash (if different from agreed amounts) in Seller at closing, and survival for tax representations. A lawyer can help
customize the term sheet to reflect your specific
(b) working capital is less than or greater than an agreed target. The initial draft circumstances.
of all Transaction documents will be prepared by Buyer counsel.
Comment [10]: Such adjustment requirements
2.2 Indemnification. After closing Buyer expects the Seller stockholder to indemnify help to ensure that the Seller will continue to run the
business in the ordinary course through the date of
Buyer and its affiliates from breaches of representations, warranties and closing.
covenants contained in the definitive transaction documents on reasonably
customary terms, and that the maximum amount of such indemnification for
breaches of operational representations and warranties would be
[PERCENTAGE]% of the aggregate purchase price. Comment [11]: Buyers often negotiate to carve-
out a percentage limitation for losses arising from
braches of ‘core’ representations such as due
2.3 Escrow. In order to ensure that funds are readily available to Buyer to satisfy any authorization, capitalization, tax matters and
ownership of stock and assets.
indemnification claims following the closing of the Transaction, Buyer will
require that [20]% of the aggregate purchase price be held in escrow until the
second anniversary of the closing. Comment [12]: Sellers will want the escrow to
be held with a third party, often the seller’s attorney.

2.4 Non-Competition and Non-Solicitation. Buyer will require from the Seller Comment [13]: It is critical to the Buyer that the
stockholders non-competition and customer and employee non-solicitation Seller’s owners and executive officers not compete
covenants in the definitive agreements with such covenants to be limited to the with the business after closing.

business of Seller as conducted, previously conducted or contemplated to be

conducted at the date of the definitive agreements, or contemplated to be
conducted by Buyer and disclosed to the Seller stockholders through such date.
The non-compete and non-solicitation covenants will extend for [1-5] years post
closing.

3. Employees.

3.1 Employees. After closing Buyer anticipates that substantially all employees and
management presently employed by Seller will continue such employment on
terms and conditions generally in line with industry standards, including without
limitation, non-compete and non-solicitation undertakings.
Comment [14]: The Seller will often wish to
secure continued employment for many of its
employees after closing and will seek to secure a
firm commitment from the Buyer in that regard.

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 3.2 Employment Agreements. As a condition to consummation of the Transaction,
Buyer will require certain employees and management of Seller (including the
Chief Executive Officer) to execute employment agreements (containing non-
compete and employee and customer non-solicitation provisions), as Buyer may
deem appropriate. The employment agreement with the Chief Executive Officer
would be for an initial term of [NUMBER RANGE] months. The terms of these Comment [15]: If a business is substantially
dependent on certain key employees, buyer often
employment agreements will otherwise be subject to discussions with the seek to secure the employment of those individuals
individuals involved. post-closing. A lawyer can discuss options for
structuring a transaction to maximize key employee
retention.
4. Financing.

Buyer expects to finance the Transaction through equity provided by [_________] and
his equity partners and debt financing from its lender relationships. We have conducted
initial discussions with our equity partners and bankers concerning the Transaction and
are highly confident of our ability to finance the Transaction.
5. Due Diligence.
Prior to proceeding with the Transaction, Buyer and its partners must conduct and be
satisfied with the results of a complete business, legal and financial (including tax) due
diligence review of Seller’s business and operations. The due diligence review will
include a confirmatory due diligence investigation of Seller EBITDA for calendar year
Comment [16]: Seller generally seek to have as
much assurance as possible that the buyer has the
funds to purchase the business. Financing
contingencies for the benefit of the buyer are rarely
agreed to in business acquisition transactions. When
they are included, seller generally negotiates a break-
up fee equal to a certain percentage of the purchase
price in the event that the transaction fails to close
due to the buyer’s inability to finance the purchase
price. A lawyer can discuss financing contingencies
and break-up fees in greater detail.

[YEAR].

6. Timing.

Buyer has retained counsel and accountants for the Transaction, and is prepared to devote
considerable resources to the next phase of the transaction process. Given the experience
and depth of our team, and assuming cooperation from Seller and its advisors, Buyer
believes that it could complete due diligence and simultaneously negotiate the definitive
agreements within 45 days of execution of the Letter of Intent to which this Term Sheet is
attached and close as soon thereafter as practicable. Comment [17]: Seller generally wants the
definitive transaction documents completed as soon
as possible and often links the buyer’s due diligence
7. Conditions to Closing. period to the exclusivity period referenced below. A
lawyer can discuss timing and certainty issues, as
well as market approaches to balancing the needs of
Without limitation to the other provisions of this Term Sheet, consummation of the seller and buyer in this respect.
Transaction is subject to: (i) satisfactory completion of due diligence; (ii) obtaining any
reasonably required third party or governmental consents or approvals to the Transaction;
(iii) the negotiation and execution of Transaction documentation on terms satisfactory to
all relevant parties; (iv) Seller continuing to conduct its business in the ordinary course;
and (v) the absence of any material adverse change in Seller’s business. Comment [18]: This is an illustrative list of
conditions. A lawyer can help draft conditions to
closing customized for your specific transaction.
8. Exclusivity.

In consideration of the substantial commitment of resources that the Transaction will

entail, the Seller stockholders hereby grant Buyer a 45-day exclusivity period in which to
finalize the Transaction terms and execute the definitive agreements, with such period
commencing on the date of execution of this Term Sheet. Such period shall be extended

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 by a further 30 days following the initial 45-day term if at that time the Transaction is
progressing well and is reasonably likely to close. During the exclusivity period, the
Seller stockholders will not (and will not cause or permit Seller or any of their or Seller’s
employees, officers, directors, stockholders, representatives or advisors to): (i) solicit,
initiate, or encourage the submission of any proposal or offer from any person or entity
(other than Buyer) relating to an Acquisition Transaction (as hereafter defined); or (ii)
participate in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any effort or attempt
by any person or entity to engage in or seek an Acquisition Transaction. “Acquisition
Transaction” means any of the following involving Seller (or any other entity holding any
asset used in the Seller business) or any of its businesses: (a) any merger, consolidation,
share exchange, acquisition, business combination or other similar transaction; or (b) any
sale, lease, exchange, transfer or other disposition of any of the assets of Seller or any of
its businesses (other than in the normal course of business consistent with past practice)
or any shares of the capital stock or ownership interest in any entity holding any assets
used in Seller or any of its businesses in a single transaction or series of transactions.

9. Expenses.

Each party is to bear its own legal fees and expenses in connection with this transaction.

10. Confidentiality.

The parties each acknowledge and agree that the terms and conditions contained herein,
all non-public due diligence and financial materials provided to the other party in
connection herewith, and the ensuing negotiations (including any discussions or
negotiations that have occurred or are ongoing), will remain confidential between the
parties, and no non-public information regarding the foregoing will be distributed to any
entity or person, except any employees, contractors, potential sources of equity or
financing, agents or advisors of a party who have a need to know the same in order for
such party to proceed with or evaluate the Transaction, or as otherwise required by
applicable law.

11. Governing Law.

This Term Sheet and any definitive agreements which may be executed in connection
herewith shall be construed and governed in accordance with the laws of the State of
[STATE], without regard to its laws regarding conflicts of law.

Except for Sections 8, 10 and 11 of this Term Sheet regarding exclusivity, confidentiality and
governing law, respectively, this Term Sheet is non-binding and is intended solely as a summary
of the principal terms currently proposed by the parties. The parties acknowledge that their
execution and delivery of this Term Sheet does not create any obligation on the part of any party Comment [19]: Note that in some instances a
“non-binding” term sheet can be binding in terms of
to negotiate (in good faith or otherwise) any definitive agreement with respect to the transactions a duty to negotiate in good faith. A lawyer can
described herein. At any time prior to the execution of a binding definitive agreement, either discuss relevant case law as well as any obligations
the term sheet imposes.
party may, at any time, propose terms that are different than those discussed in this Term Sheet

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or unilaterally terminate all further discussions and negotiations regarding the transactions
contemplated herein without any liability whatsoever.