Prompt Pack Letter Of Intent

Letter of Intent

When to use this

Use this skill when parties to a significant transaction want to record their preliminary agreement on key terms before investing in full due diligence and definitive documentation. The LOI signals mutual commitment, provides a negotiating framework, and typically triggers exclusivity.

Triggers:

• "Draft an LOI for the acquisition of [Target]."
• "We've agreed in principle on a JV — write up the heads of terms."
• "Draft a non-binding letter of intent with an exclusivity period of 60 days."

LOI vs MOU: An LOI is typically more transaction-specific and shorter; an MOU is more common for collaborations and government/institutional relationships. Both serve to capture preliminary agreement. Use [[prompt-pack-memorandum-of-understanding]] if the context is a collaboration or institutional arrangement rather than a commercial transaction.

Required inputs

Optional inputs

• Break fee / termination fee if exclusivity is breached
• Financing condition (if buyer requires debt/equity financing to close)
• Conditions to signing definitive agreement
• Management continuity or retention requirements
• Employee consultation obligations (if regulated merger)
• Board approval conditions

Document structure

1. Introduction

• Date and parties (full legal names)
• Brief description of the proposed transaction
• Statement that this LOI is intended to summarize the key terms and does not constitute a binding agreement except as expressly stated

2. Transaction Structure

• Type: acquisition of shares / assets / merger / JV
• Target: description of the business or asset being acquired / invested in
• Buyer / Investor / JV Parties: identity
• Consideration: purchase price or JV equity split; payment structure (cash, shares, deferred, earnout)
• Financing assumption: whether the transaction is subject to financing

3. Key Commercial Terms

Summarize the agreed economic terms:

• Valuation / headline price
• Payment mechanics: upfront vs staged; escrow / holdback arrangements
• Earnout conditions (if any): metric, period, calculation methodology
• Working capital adjustment mechanism
• Representations and warranties: scope expected in the definitive agreement
• Indemnification: general framework (time limits, caps, baskets)

4. Conditions to Signing Definitive Agreements

List conditions that must be satisfied before a definitive agreement can be signed:

• Satisfactory completion of due diligence by Buyer
• Approval by boards of directors of both parties
• Receipt of required regulatory approvals (competition/merger control, foreign investment approvals)
• Resolution of material issues identified in due diligence

5. Exclusivity (BINDING)

This clause is typically binding:

• Duration: [45 / 60 / 90] days from date of LOI
• Scope: Target and its shareholders / agents will not solicit, negotiate, or conclude an agreement with any other party regarding a competing transaction
• Extension: may be extended by mutual written agreement
• Effect of breach: Buyer may seek injunctive relief and/or a break fee

6. Confidentiality (BINDING)

• Cross-reference any existing NDA or state that a separate NDA is in effect
• If no NDA exists, include a standalone confidentiality clause binding on both parties
• This clause is typically binding even if the rest of the LOI is non-binding

7. Due Diligence Process

• Scope of DD: legal, financial, technical, commercial, tax, environmental, HR
• Access: Target agrees to provide reasonable access to management, documents, and data room
• Timing: DD to be completed within [X] days of LOI signing
• DD reports: Buyer to share summary findings that would require price adjustment

8. Path to Definitive Agreement

• Timeline: parties aim to sign a definitive agreement by [date]
• Documentation: identify the key documents to be negotiated (SPA / MFA / JV Agreement / SHA)
• Counsel: identify lead counsel for each party

9. Non-Binding Nature (IMPORTANT)

State clearly and prominently: "This Letter of Intent is not a binding agreement and creates no legal obligation to consummate the proposed transaction, except for the Exclusivity, Confidentiality, [Governing Law / Dispute Resolution], and [No-Solicitation] provisions, which are binding on the parties."

List each binding provision explicitly.

10. Governing Law and Dispute Resolution (BINDING)

• Governing law clause — critically important for cross-border LOIs
• MENA cross-border transactions: consider DIFC / ADGM law and courts for neutrality
• Dispute resolution for binding provisions: courts or expedited arbitration given time-sensitive nature of pre-closing disputes

11. Termination

• Either party may terminate if: conditions cannot be satisfied; material adverse change; due diligence reveals a fundamental problem
• Upon termination: confidentiality obligations survive; exclusivity ceases

Jurisdictional notes

Foreign investment approvals: MENA cross-border M&A may require MISA approval in KSA, or UAE regulatory approvals depending on the sector (banking, healthcare, telecoms). Include foreign investment approval as a closing condition.

Common mistakes

• Not specifying which provisions are binding: courts in some civil-law jurisdictions will construe all provisions of a signed document as binding unless expressly excluded; the non-binding statement must be precise.
• Unrealistic due diligence timeline: 60-day exclusivity with 4 weeks of DD is only achievable for small/simple transactions; align the exclusivity period to the actual DD scope.
• No break fee for exclusivity breach: if Target solicits competing offers during exclusivity, Buyer has limited remedy without a contractual break fee.
• Omitting regulatory approval conditions: in GCC transactions involving foreign investment or regulated sectors, failure to include regulatory approval as a closing condition can trap the parties.

Related skills

• [[prompt-pack-memorandum-of-understanding]]
• [[prompt-pack-merger-agreement]]
• [[prompt-pack-joint-venture-agreement]]
• [[prompt-pack-nda-strength-check]]
• [[prompt-pack-ip-due-diligence-checklist]]