LEGAL
BRIEFS Letters of Intent n 18 by William B. Sing and Tamarah Feigl A term sheet is a list or short summary
No one wants to waste time and money on a deal that the parties will never complete. A well-drafted, nonbinding letter of intent can be a valuable fi rst step in determining whether there is a deal to be made before too much expense has been incurred.
of a proposed agreement's key terms that briefl y outlines the general framework for the future negotiation of a defi nitive agree- ment. To avoid any ambiguity, term sheets should state that they are nonbinding, may be further negotiated, and may or may not result in a future agreement. A letter of intent is a letter from one party
to the other, countersigned by addressee. Unless it clearly states otherwise, it may constitute a binding agreement despite its informal appearance. A memorandum of understanding is an
agreement that is longer and more formal than an LOI or term sheet. An MOU may set forth all key terms of an agreement between parties and may constitute a binding agree- ment as to the terms contained in it. In such a case, the MOU may be the fi nal and defi ni- tive agreement. In other cases, the MOU may specify certain nonbinding or binding provisions and state that it is intended to be the framework for further negotiation of a defi nitive agreement. Both MOUs and LOIs may be viewed as
What Is an LOI?
Term sheets, memoranda of understanding, and letters of intent are all documents that are preliminary to a fi nal or defi nitive agree- ment. Unfortunately, these terms are oſt en, and confusingly, used interchangeably and there is no universal agreement on their defi nition or function. For purposes of this article, these terms will be defi ned as follows.
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detailed term sheets, and all three formats serve the same purpose: to outline the key terms of an existing or proposed agreement. Use of an MOU implies that the parties have reached an understanding and that the docu- ment is intended to be binding. Use of an LOI implies that, while the parties may intend to reach agreement in the future, they have not done so yet. Despite any implication of the document's
title, every MOU and LOI should expressly provide whether and to what extent the par- ties intend it to be binding. If your document doesn't do that, then you are asking for trouble.
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These documents are the fi rst step to great deals.
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