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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 OI 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:
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Identification of the
acquirer
and
target companies |
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Describe the nature and
structure of the proposed
transaction |
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Identify the assets or business
to be acquired |
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Set out the financial terms and
the form and amount of
consideration to be paid |
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Clarify the key points of the
complex transaction |
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Set out a schedule of dates for
negotiating the transaction,
conducting
due diligence and
closing the deal |
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