The Term Sheet | Wattys 2016 Winner

Chapter 1

Stupid technology. It must be passing through my decryption process right now.

David Alexander pressed refresh for the fiftieth time.

"We've spent a lot of time thinking about this deal and it's a fair offer," said Doug Kensington. "I know the top line number is not what you might have expected, but that's what we're prepared to offer. Have you received the email attachment for review yet?"

"I just got it, hold on a minute." David tapped his foot on the floor and scanned the typical legal prose at the top, desperately looking for the number.

"Can I start going over the terms now? As I said, the top line number is probably disappointing, but let me break down the offer and explain all the sections so that you understand it in detail."

David's palms were sweaty, his heart raced, and he had a tight knot in his throat. He felt like he was suffocating in his plain white T-shirt and jeans. This was the first acquisition term sheet he had ever seen. Doug was right, David had no idea what he was looking at, and he didn't care about all the legalese. He simply wanted to know what was in it for him.

"Remember, this is a non-binding letter that lays out the terms for the closing documents. The only thing that's legally binding is exclusivity and non-disclosure. The first thing I want to review with you is in section three. We, System Corp, will pay off all outstanding debts with interest. Since you haven't raised any money yet, you probably don't have any convertible notes. But if you have any friends' or family money in the company, we'll want to deal with that first."

David thought of Megan for a moment and then saw something in the document that confused him: What's a vesting cliff?

"The next thing I want to point out is section four, the vesting period. Five hundred thousand dollars will be granted to you in System stock the day the transaction closes. If you decide to quit within the first year of the transaction, the stock reverts to the company and you don't get to keep any of it. The nice thing about this structure is that you will make our stock more valuable during your vesting period. You could reap the benefits of this growth as your stock vests."

What if you fire me 364 days into the acquisition? Do I need a lawyer?

"Should I get a lawyer?" asked David.

"Of course. Review all of this with your lawyer before you make any decisions. But rest assured, I'm not trying to screw you. We have given this offer considerable thought and care. We wanted to make sure we were giving you a strong market offer for your hard work. Let's talk about section five."

David gently tugged on his three-inch semi-groomed beard as Doug continued walking through the term sheet. For a document that was supposed to lay out only the high-level aspects of the agreement, it certainly seemed comprehensive. David thought the term sheet would basically be a sheet of paper with an outrageous sum of money written on it. Like in the movies. He never realized how complicated it was to get rich.

This was a six-page document with twelve sections that each had subsections. But System was a big company focused primarily on security solutions, so it made sense they would want to be specific and careful with their words up front. Still, it seemed odd to David that System hadn't gone public yet. They had ten thousand employees in six countries, and a little over a billion dollars in annual revenue. Most companies that size had gone public much earlier.

"I think I get it, can I mull over the offer and get back to you later today?"

"Of course, let me know when you are ready."