letters of potential interest

1) heads of terms Also known as letters of intent, memoranda of understanding, heads of agreement, letters of potential interest, term sheets or protocols. A document which sets out the terms of a commercial transaction agreed in principle between parties in the course of negotiations. Heads of terms evidence serious intent and have moral force, but do not legally compel the parties to conclude the deal on those terms or even at all.

Heads of terms are used in a variety of other transactions, including public mergers and acquisitions, joint ventures, project financing and private equity investments.

They are used for a number of purposes:

• As written confirmation of the main terms agreed in principle.

• To outline the timetable and obligations of the parties during the negotiations.

• As a framework for certain preliminary legally binding clauses such as an exclusivity agreement.

Heads of terms are commonly entered into at the beginning of a transaction, once preliminary terms have been agreed and before commencement of detailed due diligence and the drafting of definitive agreements (which is where the parties will begin to incur significant costs). The parties may enter into a series of heads of terms throughout the negotiations, particularly when negotiations are prolonged.

2) Short document that sets out the main commercial terms of the acquisition before the detailed agreements are written. Heads of terms are also called a memorandum of understanding, letter of intent, term sheet or heads of agreement. They are normally expressed to be not legally binding. However certain terms may be binding and in any event strong moral obligations can be created.

3) This is a short document that sets out the main commercial terms of a deal before a detailed contract is written. Heads of terms are also called a memorandum of understanding, MOU, term sheet or heads of agreement. They are not normally expressed to be legally binding. However certain terms may be binding and in any event strong moral obligations can be created.