LETTER OF INTENT
A letter of intent (LOI) is a preliminary agreement between two or more parties which outlines the terms of a potential transaction. Letters of intent are also referred to sometimes as a Term Sheet, Heads of Agreement, or Memorandum of Understanding. An LOI expresses a willingness to negotiate in good faith the terms of a proposed deal.
A typical LOI states that the parties will not be bound by the terms of the LOI unless the parties enter into a formal, definitive agreement (e.g., a stock purchase agreement, asset purchase agreement, or merger agreement). However letters of intent often include specific provisions that are binding, such as non-disclosure agreements, or an exclusivity provision promising not to consider offers from any other suitor for a certain period of time. Note, however, that a letter of intent may be interpreted as binding if it resembles a formal contract.
Outline of a Letter of Intent
An LOI is written in the form of a letter agreement between the parties contemplating a transaction. Typical terms include:
- Identification of the acquirer and target companies
- Describe the nature and structure of the proposed transaction
- Identify the assets or business to be acquired
- Set out the financial terms and the form and amount of consideration to be paid
- Clarify the key points of the complex transaction
- Set out a schedule of dates for negotiating the transaction, conducting due diligence and closing the deal