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Letter of Intent or Term Sheet Samples

 

What Is the Letter of Intent (LOI)?  

It is a confidential document, usually prepared by the buyer or investor, which outlines in general terms the purchase or investment agreement between the parties.  All of the following are the same thing: term sheet, memorandum of understanding (MOU), letter of intent (LOI), heads of agreement, deal points, etc.

 

Most of the time it is not a legally binding commitment to buy, sell, or invest. However, certain provisions such as confidentiality stand still and payment of consultants during the diligence period should be and usually are binding. I refer to the LOI as a “handshake in writing.  

 

The main purpose is to assure that the parties agree on the general terms of the deal before starting due diligence. Without the terms written, the parties will expose themselves to crucial ambiguities and omissions.  

What Is Covered?

It should identify and confirm agreement on all significant issues of the potential transaction. The following is my basic checklist:  

• What’s being sold? Is it a stock sale, an asset sale, or equity interest? What specific items are included are included or excluded?
• The price including security instruments and other money issues. This defines all consideration that will potentially change hands as a result of the transaction. This includes, purchase price, investment capital, consulting agreements, non-compete agreements, employment agreements, royalty agreements earn-outs and any other such agreement.It is usually a good idea to make the latest published Balance Sheet as the base price document and adjust the purchase price at closing to reflect any gains or losses to that Balance Sheet. This is fair; the Seller gets credit for profits or losses all the way to the actual closing.
• Terms. Will it be all cash at closing or will there be financing. The LOI also describes what security agreements are to be created for any future payments. If there is third party financing ahead of seller financing, The LOI should include the seller’s right to approve such financing and establish a date for a financing commitment to be in place from the third party.
• The payment provisions. These define how and when the payments take place.
• The allocation of the price to the various layers of the deal.  (For example, what is the value of the Non-Compete Agreement and how much of the purchase price is allocated to it.) This is often postponed until later with the proviso that the parties will agree to allocations such as to minimize taxes on the deal. Putting off is bad. Since tax issues that benefit one party many hurt the other, later negotiation is not a good deal. I insist with my clients that allocations are agreed on up front and included in the LOI. Allocation is key to minimizing taxes and should be reviewed with your accountant and financial planner prior to signing the LOI.
• A definition of what is being sold and what is not. List the categories of items. A good place to start is the current balance sheet and list exceptions or add-ons as appropriate.
• Work to be done by consultants and advisors before a Definitive Agreement is signed and who pays for that work. Many times the buyer and sell will spend significant sums during the due diligence period on outside advisors.
• Definition of which party is responsible for drafting the Definitive Agreement. In my experience, the buyer or investor’s lawyer usually does this. The LOI should have a target date for the completion of the definitive. 

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Term Sheet/Letter of Intent Template	Click Box For Free View of Each Document
Asset Purchase - M&A01
Asset Purchase - M&A02
Stock For Cash & Stock Purchase - M&A03
Stock For Cash Purchase - M&A04
Stock for Stock Purchase - M&A05
Earnout Purchase - M&A06
Joint Venture - M&A07
Product Distribution - M&A08
Product License - M&A09
Technology Development - M&A10
Series A Preferred - M&A11
Series B Preferred - M&A12

 

 

 

Click Add to Cart to Buy Each Document - Annual Membership Not Required. Download files immediately after purchase.

 

Merger Agreement & Joint Venture Agreement Templates	Click Box For Free View of Each Document
Asset Purchase & Sale Agreement- DEF01
Stock Purchase & Sale Agreement: Common Stock, Shorter Version- DEF02
Stock Purchase & Sale Agreement: Common Stock, Longer Version- DEF11
Stock Purchase & Sale Agreement: Preferred Stock, Longer Version- DEF12
Distribution Agreement - DEF03
Exclusive License Agreement - DEF04
Joint Venture Agreement - DEF05
Marketing & Sales Only Joint Venture Agreement - DEF06
License Technology In Exchange For Stock Agreement - DEF13
Partnership Agreement - DEF07
Promissory Note - DEF08
Non-Disclosure Agreement : DEF09
Shareholder Agreement - DEF10