Yearly Archives: 2025

Deal parties may be surprised to learn that a term sheet signed as part of early negotiations can, in some circumstances, continue to be binding after the execution of a definitive transaction agreement contemplated by the term sheet. This is true even when the definitive agreement includes an integration clause, and Delaware case law offers several examples where a party successfully asserted rights found only in a previously executed term sheet. This Legal Update reviews recent Delaware opinions and offers guidance on how parties can avoid surprises from old term sheets through clear and unambiguous drafting at both the term sheet stage and in definitive documentation that is intended to fully supersede a previously executed term sheet.

Background

Term Sheets: Parties to a proposed transaction often use a term sheet in the early stages of negotiation to agree to key deal terms at a high level before committing additional time and resources to due diligence and the negotiation of definitive documents. The terms outlined in a term sheet are typically intended to be non-binding and for discussion purposes, without committing the parties to enter into a transaction. However, in some cases, parties may agree that specific provisions in the term sheet are binding. These are often ancillary terms relating to confidentiality, exclusivity, choice of law, and treatment of expenses. In some cases, parties might agree to binding provisions that have a more substantive effect on the transaction; we discuss examples of these below.

Superseding Definitive Agreements: In most cases, a term sheet serves a limited purpose and is replaced by a definitive agreement (or set of agreements) that incorporates the full set of deal terms. With a definitive agreement in place, parties may believe that the binding provisions of the term sheet are no longer in force. However, under Delaware Law, a definitive agreement does not supersede the binding provisions of a term sheet unless one of the following is true:

• The provisions of the definitive agreement contradict the binding provisions of the term sheet, in which case the term sheet will be superseded only to the extent of those contradictions.

• The parties expressly agree that the term sheet is no longer binding. Often, a definitive agreement will accomplish this by including an integration clause (sometimes referred to as a “merger” or “entire agreement” clause). A standard integration clause states that the definitive agreement supersedes all other agreements between the parties with respect to its subject matter. An integration clause creates a presumption that there are no additional terms outside of the agreement (including a term sheet) that will change the terms of the agreement. However, like any other contractual provision, integration clauses are interpreted according to their plain meaning, and the presumption of integration may be rebutted with evidence (including contractual terms and the parties’ course of dealing) that show an intention for the term sheet to remain in force alongside the definitive agreement.

READ MORE »