Letter of Intent / Investor Term Sheet

What is this document?

A Letter of Intent (often referred to as an LOI) or an Investor Term Sheet is a document that is often used between a potential investor and a company to settle the material terms and conditions of an investment. It is used before the parties begin drafting the detailed documents required for the transaction.

When would I use this document?

This agreement would be used to document the material terms of an investment before proceeding to drafting the agreements necessary.

Who Signs this Agreement?

LOI’s and Investor Term Sheets are signed by the corporation and the potential investor.

More details about this document

LOI’s and Investor Term Sheets can range in length from one to several pages, depending on how many terms the parties wish to address. These type of agreements will include a clause stipulating which clauses in the agreement are binding (eg. confidentiality) and which are not. Most LOI’s are non-binding.

What are the core elements of this document? The core elements include: parties, definition of the investment (eg. class and attributes of shares; percentage of interest on debt securities, conversion rights etc.), valuation of corporation, cost of investment, shareholder rights (e.g right of first refusal, anti-dilution, shotgun), use of proceeds, compliance with securities laws, expiry date of LOI.

Some examples of additional clauses include non-solicitation, non-competition, confidentiality, reporting, due diligence requirements, exclusivity period and indemnification, representations and warranties, break fee, “no shop” clause.

Related Documents

  • Nondisclosure/Confidentiality Agreement - an agreement that protects confidential information
  • Asset Purchase Agreement - an agreement for the sale of the assets of a business
  • Share Purchase Agreement - an agreement for the sale of shares

Written by Alva.