Letter of Intent (LOI)
In an acquisition, a letter of intent is an agreement between the potential buyer and the potential seller participating in the acquisition. The letter of intent sets forth the basic terms of the proposed acquisition. A letter of intent is sometimes called a term sheet, although that phrase is more common in capital financings. The purpose of the letter of intent is to get the buyer and the seller to agree to the fundamental terms so that the buyer can complete his or her due diligence of the selling company during an agreed-upon time period in order to make the final determination whether to complete the acquisition. Letters of intent often contain terms prohibiting the seller from entertaining any other offers during a lock-up period, and penalties imposed upon the seller for violating such terms. Other common terms include confidentiality and nondisclosure provisions, purchase price and payment term provisions, and agreements to enter into further asset purchase agreement upon the conclusion of the buyer’s due diligence of the seller. The asset purchase agreement is typically the document that’s signed at the closing of the transaction – assuming the transaction is an asset purchase, as opposed to a stock sale – and other common document include goodwill purchase agreements
, bills of sale, and consulting agreements.