Term Sheet

A term sheet summarises the key terms of an investment or acquisition in a few pages. With it, the parties record that they have agreed on the main points before preparing the final agreements and starting costly due diligence.

Typical Content

• Economic terms: Investment amount, pre-money valuation, type of shares, option pool,
• Investor rights: Liquidation preference, anti-dilution protection, veto rights, board seat, information rights,
• Share transfer provisions: Right of first refusal, tag-along and drag-along,
• Founder provisions: Vesting, leaver provisions, non-compete,
• Process provisions: Conditions precedent, exclusivity, confidentiality, costs and governing law.

Binding Effect

Term sheets generally state expressly that they are not binding as to the commercial terms. Confidentiality, exclusivity (not negotiating with other investors while talks continue), costs and dispute resolution are drafted as binding.

Two risks should be kept in mind under Turkish law. First, if the document contains the essential elements of the main contract and shows the parties’ intention to be bound, it may be characterised as a preliminary contract. A preliminary contract is subject to the form of the main contract (Turkish Code of Obligations Art. 29). Second, even under a non-binding document, a party that conducts or breaks off negotiations contrary to good faith may have to compensate the other party’s loss under liability for fault in contract negotiations. Binding and non-binding provisions should therefore be clearly separated.

The terms accepted in the term sheet are carried over into the investment agreement and the shareholders’ agreement. A term accepted at this stage is often hard to withdraw in the final agreement.