Module_6

MODULE 6

CONTRACT DRAFTING – AGREEMENTS AND CHECKLISTS

“Thoroughly read all your contracts. I really mean thoroughly”

- Bret Michaels

6.1 MEMORANDUM OF UNDERSTANDING

6.1.1 CHECKLIST

 DESCRIPTION OF AGREEMENT/DOCUMENT: Parties to a commercial transaction may
often commence negotiations on a plain sheet of paper prior to agreeing terms. The
final agreement, as with non-binding heads of agreement, is based on the parties’
memorandum setting out their understanding of the proposed transaction. The
memorandum of understanding (MOU) sets out their expectations, understanding and
specific requirements without being legally bound but as a plain language aide-
memoire. The parties usually acknowledge that neither party will be bound until the
final agreement is settled and executed on the given date.

 PRACTICAL GUIDANCE/ISSUES LIST: Parties may wish to consider the following:
❖ MOU provisions are best when short and to the point.
❖ The terms should be expressed in simple but clear and plain English to avoid
any dispute or misunderstanding.
❖ No extensive drafting should be attempted but the MOU should be prepared
in a manner that the document adequately sets out the proposed deal.
❖ A plain and clearly drafted document enables the transaction to be ‘sold’ to
third parties, where relevant, as it should provide a concise and useful
explanation or statement of the main or material terms of the proposed deal.
❖ Even if the MOU will not be binding in its entirety or specifically in relation to
the proposed arrangements, the document should contain some certainty.
❖ The relationship of the parties other than the basic outline of the proposed
arrangements can be made certain and legally binding.
❖ The practical guidance and issues list relating to Heads of Agreement and
letters of intent may contain useful information.
❖ The document should ideally set out in outline the agreed proposed
transaction subject to contract.
❖ The parties should avoid spending time negotiating a detailed document.
Negotiations should be reserved for the main legal agreements incorporating
the terms set out in the MOU.
❖ It should be noted that the MOU is regarded as creating a moral commercial

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commitment between the parties even if not legally binding.
❖ Once a matter is set out as provisionally agreed in the MOU, it can be difficult

to change during negotiations or in the final documents.

 LAW/COMPLIANCE REQUIREMENT: The document is intended to be non-binding and
non-contractual. To avoid any dispute, the document should clearly state its legal
status and be marked ‘subject to contract’. Even where not legally binding, a
memorandum of understanding can evidence the existence of an ‘arrangement’
affecting tax matters.

 SOME KEY DEFINITIONS: ‘Final Agreements’ means the formal final legal agreements
to be negotiated [in good faith], approved by the parties and entered into between
the parties to this Memorandum of Understanding in respect of the proposed
transaction as set out in the Memorandum of Understanding.
‘Main Agreement’ means the agreement for [specify the relevant transaction
agreement (i.e. Share Sale Agreements, Business Asset Sale Agreement)] in relation to
which [Party X] shall [insert details of aim of main transaction agreement] in
connection with the Proposed Transaction.

 SPECIFIC PROVISIONS: This Memorandum sets out in basic outline the main principles
that the parties have provisionally agreed, subject to contract, for Party A and Party B
to enter the proposed arrangements as further set out in detail in the Schedule.
The Final Agreements following approval and execution by the parties shall supersede
this Memorandum.
Either party may withdraw from time to time from the negotiations at any time prior
to signature and entry into the Final Agreement without incurring any liability to the
other party.

In preparing a memorandum of understanding agreement or letter, individuals or businesses
should consider the following non-exhaustive matters.

ACTIONS/ISSUES: COMMENTS:

Consider: []
1 []
[]
keeping it simple;
1.1

setting out the proposed arrangements in outline
1.2 and full description in a schedule;

2

proposed legal status of the provisions of the []
1.3 memorandum of understanding; []
[]
Consider setting out: []
2 []
[]
the list of the proposed final agreements; []
2.1 []
[]
the agreed timetable (and making time of the []
2.2 essence); []
[]
What is the position in respect of:
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Period of exclusivity for negotiations?
3.1

Change of control during the agreed exclusive
3.2 negotiations period?

Non-disclosure and confidentiality undertakings?
3.3

Can the memorandum be terminated on:
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Insolvency of either party?
4.1

Unremedied material breach by the other?
4.2

Excessive delay following a force majeure event?
4.3

3

Inability to agree final legally binding documents []
4.4 (within an agreed period)? []
[]
Consider: []
5 []
[]
relevant post termination obligations;
5.1

boilerplate provisions, as appropriate;
5.2

governing law and jurisdiction;
5.3

Review the guidance and checklist provided in relation
6 to Heads of Terms Agreement.

6.1.2 TEMPLATE:

SUBJECT TO CONTRACT

Memorandum of understanding in relation to the arrangements for and negotiation of a
formal [...] agreement

DATED: [...]

PARTIES:

(1) Party A: [Name] of [address]

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(2) Party B: [Name] of [address]

INTRODUCTION

(A) Party A is [ ] and Party B is [ ].

(B) The parties with the intention of working together for the purpose of [ ]
with to set out in outline the basis of their proposed arrangements.

OPERATIVE PROVISIONS

BASIC OUTLINE

1. This Memorandum sets out in basic outline the principles that the parties have
provisionally agreed, subject to contract, for Party A and Party B. The proposed
arrangements are described in greater detail in the Schedule.

2. During the term of this Memorandum the parties will negotiate [in good faith] formal legal
agreements with each other and with third parties (‘the Final Agreements’) in time for
signature by [specify parties/signatories].

3. The parties anticipate that the main agreement in respect of the proposed arrangements
will be a [insert details of agreement] agreement. The main agreement will set out in
detail the [agreed terms of the arrangement].

4. The Final Agreements once duly approved and executed shall supersede this
Memorandum.

5. Either party may at any time prior to the execution and entry into the final legal
documents withdraw from negotiations without incurring any liability to the other party.

6. The parties acknowledge that the commercial principles of the proposed transaction set
out in this Memorandum remain subject to negotiation and approval from their respective
boards of directors.

7. The parties will instruct their respective legal advisers to prepare the relevant Final
Agreements. The parties agree to make themselves available on reasonable notice for
meetings when negotiations concerning the Final Agreements shall take place.

PROPOSED ARRANGEMENTS

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1. The basic outline principles to be included in the Final Agreements include the provisions
specified in this clause [2] and the Schedule along with such other matters as may be
agreed between the parties in order to conclude the Final Agreements.

2. The parties envisage that the [specify agreement] will contain the provisions set out in
[specify document] and transaction will complete on or before [insert date].

LEGAL STATUS OF MEMORANDUM

1. Unless and until the Final Agreements are approved and executed between the parties
then [clauses 1 and 2 and the Schedule] of this Memorandum are not intended to and
shall not create any legal obligations between the parties. For the avoidance of doubt,
there is no legal obligation on either party to enter into the proposed transactions
anticipated in the Final Agreements.

2. The parties agree and acknowledge that all negotiations and correspondence regarding
[clauses 1 and 2] and the Schedule shall be subject to contract.

3. Clauses [3 to 12] inclusive are intended to be legally binding and to create contractual
obligations between the parties with immediate effect.

EXCLUSIVE NEGOTIATIONS

1. Each party undertakes that for the period of [insert period] and until [insert details] it shall
not (without the prior written consent of the other parties) enter or seek to enter into
negotiations or discussions with another person or entity for participation in the proposed
arrangements or an agreement similar to the proposed arrangements or an agreement
covering broadly the same subject matter as that described in this Memorandum in
relation to the proposed arrangements.

2. [Each corporate entity which is a party undertakes that until [details] it shall not (without
the prior written permission of the other parties) enter or seek to enter into negotiations
or discussions with any person, third party or entity for [details] or for the disposal of
shares in that party.]

CONFIDENTIALITY

1. The undertaking set out in this clause [5] does not extend to information which was

already known to one party prior to disclosure by the other, which is or becomes public

knowledge, or which is disclosed by one party to a third party without any obligations of

confidentiality.

2. Each party undertakes that for a period of [ ( )] years from the date of disclosure

that it will treat the other party’s information marked “confidential” or which from its very

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nature is obviously confidential (including all material relating to or constituting the
intellectual property of [the other party]) with the same degree of care as it employs with
regard to its own confidential information of a similar type or nature.

3. Neither party will intentionally disclose the other’s confidential information to third
parties other than those of its employees, consultants and sub-contractors who need to
have such information for the purposes of this Agreement, and shall ensure that such
recipients shall be bound by the same confidentiality obligations as are set out in this
clause.

TERM AND TERMINATION

1. This Memorandum shall continue in full force and effect until [date or detail] or until
signature of the Final Agreements (if sooner) or such other date as the parties may
otherwise agree.

2. Either party may terminate this Memorandum by notice in writing with immediate effect:
a. if the other party is in material breach of any of the terms of this Memorandum
and such breach remains unremedied [ ] days after receipt of notice from the
terminating party that the other party is in breach;
b. if liquidation or similar proceedings are filed by or against the other party or if any
action is taken by or against the other party under any law the purpose or effect
of which is or may be to relieve such party in any manner from its debts or to
extend the time of payment thereof or the other party makes an assignment for
the benefit of creditors or makes any conveyance of any of its property which in
the opinion of the terminating party may be to the detriment of that party’s
creditors; or
c. if a receiver or trustee or similar official is appointed with authority to take
possession of the other party’s property or any part thereof.

FORCE MAJEURE

1. Notwithstanding any provision to the contrary in this Agreement, neither party shall be
liable for any delay in performing its obligations under this Agreement if such delay is
caused by circumstances beyond its reasonable control (including without limitation any
delay caused by any act or omission of the other party) provided however that any delay
by a sub-contractor or supplier of the party so delaying shall not relieve the party from
liability for delay except where such delay is beyond the reasonable control of the sub-
contractor or supplier concerned.

2. Subject to the party so delaying promptly notifying the other party in writing of the
reasons for the delay (and the likely duration of the delay), the performance of such
party’s obligations shall be suspended during the period that the said circumstances

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persist and such shall be granted an extension of time for performance equal to the period
of the delay.

3. The parties agree that unless such delay is caused by the act or omission of the other
party:
a. any costs arising from such delay shall be borne by the party incurring the same;
b. either party may, if such delay continues for more than [ ] weeks, terminate this
Agreement forthwith giving notice in writing to the other by reason of such
termination.

MISCELLANEOUS

1. Announcements and Publicity: Neither party shall make any public disclosures or
announcements regarding this Memorandum or its subject matter without the prior
written consent of the other party.

2. Costs and Expenses: [Each party shall be responsible for its own costs in relation to all
matters arising out of this Memorandum.]

3. General Assignment: This Agreement is personal to the parties and neither this
Agreement nor any rights, licences or obligations under it may be assigned by either party
without the prior written approval of the other party.

4. Acquirer Assignment: Notwithstanding the foregoing, either party may assign this
Agreement to any acquirer of all or of substantially all of such party’s equity securities,
assets or business relating to the subject matter of this Agreement or to any entity
controlled by, that controls, or is under common control with a party to this Agreement.
Any attempted assignment in breach of this clause will be void and without effect.

5. Headings: The headings in the Memorandum are for reference purposes only and are not
intended to be taken into account in the interpretation of the provisions of this
Memorandum.

6. Waiver: No delay, neglect or forbearance on the part of either party in enforcing against
the other party any term or condition of this Agreement shall either be or be deemed to
be a waiver or in any way prejudice any right of that party under this Agreement. No right,
power or remedy in this Agreement conferred upon or reserved for either party is
exclusive of any other right, power or remedy available to that party.

7. Entire Agreement: This Memorandum embodies the entire understanding and agreement
between the parties in connection with the subject matter of this Memorandum and
neither party is relying on any representations, promises, terms, conditions or obligations
oral or written express or implied other than those contained in this Agreement. Neither
party seeks to exclude liability for fraudulent misrepresentation.

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8. Variation: This Agreement may not be released, discharged, supplemented, interpreted,
amended, varied or modified in any manner except by an instrument in writing signed by
a duly authorised officer or representative of each of the parties.

9. Notices: All notices under this Agreement shall be in writing and all such notices shall be
deemed to have been duly given when delivered, if delivered by courier or other
messenger (including registered mail) during normal business hours of the recipient; or if
transmitted by fax or e-mail and a successful transmission report or return receipt is
generated; or on the fifth business day following mailing, if mailed by national ordinary
mail, postage prepaid; or on the tenth business day following mailing, if mailed by airmail,
postage prepaid in each case addressed to the most recent address, e-mail address, or
facsimile number notified to the other party.

GOVERNING LAW
This Agreement and all matters arising from it and any dispute resolutions referred to below
shall be governed by and construed in accordance with English law

JURISDICTION
The parties submit to the exclusive jurisdiction of the Indian courts.

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SCHEDULE
SIGNED by the parties [as a deed] on the date at the top of this document.

SIGNED [as a deed] by …………………………….
[ ]
]
for and on behalf of [

SIGNED [as a deed] by …………………………….
[ ]
]
for and on behalf of [

THE SCHEDULE
[Insert details]

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6.2 TERM SHEET

6.2.1 TEMPLATE

Issue [Venture Capital Firm] ("VC") and/or any member of its corporate
group (the VC group) will purchase up to [AMOUNT] Series A
Convertible Preferred Stock ("Series A") newly issued by [YOUR
COMPANY NAME] (the "Company") at a price per share of [PRICE]
(the "Purchase Price"). In addition other investors shall purchase at
least [AMOUNT] but not more than [AMOUNT] of newly issued Series
A at the Purchase Price.

The shares of Series A will be convertible at any time at the option of
the holder into common shares of the Company ("Common Stock")
on a one-for-one basis, adjusted for future share splits.

The Purchase Price equates to a pre-money valuation of
[VALUATION]. The calculation is based on [NUMBER] fully diluted
shares of Common Stock. If the number of shares issued or stock
awards/options authorised increases before the closing, the price per
share for Series A Convertible Preferred Stock shall be reduced so that
the pre-money valuation is unchanged.

The Series A Convertible Preferred Stock shall be referred to herein as
the "Preferred Stock".

Dividend The Preferred Stock is entitled to an annual [AMOUNT] per share
dividend, payable when and if declared by the Board of Directors, but
prior to any payment on Common Stock, dividends are not
cumulative.

Liquidation The Series A will have a liquidation preference so that proceeds on a
Preference merger, sale or liquidation (including non-cumulative dividends) will
first be paid to the Series A and will include a [%] per annum
compounding guaranteed return calculated on the total amount
invested. Upon completion of an additional round of funding of at
least [AMOUNT] the compounding guaranteed return feature will

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expire. The liquidation preference will cease to operate if the
processes due to Series A, on a merger, sale or liquidation on an as-
converted basis, exceed the proceeds that would be due under the
liquidation preference.

Use of Proceeds The funds raised by Series A will be used principally for general
working capital purposes.

Voting Rights The holders of the Series A shall have the right to vote with the
Common Stock on an as-if-converted basis.

Redemption If not previously converted, the Series A is to be redeemed in three
equal successive annual installments beginning [DATE]. Redemption
will be at the purchase price plus a [%] per annum cumulative
guaranteed return.

Pre-Emptive Rights Holders of the Preferred Stock will be granted rights to participate in
future equity financings of the Company based upon their pro-rata,
as-if-converted, ownership of the Company.

Automatic The Preferred Stock shall be automatically converted into Common
Conversion Stock at the then applicable conversion rate (1:1 assuming no share
splits) in the event of an underwritten public offering of shares of the
Company at a total offering of not less than [AMOUNT] and at a per
share public offering of not less than [AMOUNT] and at a per share
public offering price of not less than three times the Series A purchase
price per share, adjusted for splits.

Anti-Dilution Series A shall have weighted average anti-dilution, based on a
weighted average formula to be agreed, for all securities purchased
as part of this transaction (excluding shares, options and warrants
issued for management incentive and small issues for strategic
purposes of under [NUMBER] shares).

Management Simultaneously with this transaction, one million new shares shall

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Options expand the Company's management incentive stock option pool -
bringing the total numbers of shares issued and stock incentives
(awards and options) authorised to [NUMBER OF SHARES].

Rights of First The Company and the investors will have a right of first refusal with
Offer; Tag Along respect to any employee's shares proposed to be resold.
Alternatively, the investors will have the right to participate in the sale
of any such shares to a third party (co-sale rights), which rights will
terminate upon a public offering.

Information Rights Monthly actual vs. plan and prior year. Annual budget [NUMBER] days
before beginning of fiscal year. Annual audit by national firm. All
recipients of financial statements to execute non-disclosure
agreement acceptable to Company counsel. The aforementioned
information rights shall be available to each holder of Preferred Stock
for as long as such folder owns [NUMBER] shares of Preferred Stock
or shares of Common Stock issued upon conversion of shares of
Preferred Stock.

Negative Approval by holders of Preferred Stock of organic changes outside
Covenants normal course of business and sale, liquidation or merger, increase in
board seats or change election procedures, new shares senior to or
on par with and all distributions (dividends, repurchases).

Board of Directors The Board will consist of [NUMBER] members. The holders of the
Preferred Stock will have the right to designate [NUMBER] directors,
the holders of the Common (exclusive of the investors) will have the
right to designate [NUMBER] directors, and the remaining [NUMBER]
directors will be unaffiliated persons elected by the Common Stock
and the Preferred Stock voting as a single class.

Stock Restriction All present Holders of Common Stock of the Company who are
Agreement employees of or consultants to the Company will execute a Stock
Resolution Agreement with the Company pursuant to which the
Company will have an option to buy back at cost a portion of the
shares of Common stock held by such person in the event that such
stockholder's employment with the Company is terminated prior to
the date if employment. [%] of the shares will be released each year
from the repurchase option based upon continued employment by

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the Company.

Non-competition, Each officer and key employee of the Company designated by the
Proprietary investors will enter into a non-competition, proprietary information
Information & and inventions agreement in a form reasonably acceptable to the
Inventions investors.

Expenses The Company shall pay the reasonable expenses of legal counsel to
represent the investors in the completion of the Preferred Stock
Agreement and the completion of all due diligence, up to a maximum
of [AMOUNT].

Definitive The purchase of the Series A will be made pursuant to negotiation of

Purchase & Due a definitive Series A purchase agreement. Additionally, the closing of

Diligence this investment will be contingent on the satisfactory completion of

VC's due diligence reviews and final investment committee.

Closing The Company and VC agree to use their best efforts to close the
transaction on or about [DATE]. It is agreeable to have a first closing
of the transaction for [AMOUNT] of Series A and leave the transaction
open for an additional [NUMBER] days post first closing to close up to
[NUMBER] of total Series A.

Other than that the Company hereby agrees to pay investors' reasonable legal fees of up to
[AMOUNT] in case a definitive agreement is not ultimately reached with VC (which agreement
is legally binding) the undersigned acknowledge that this term sheet does not constitute a
binding agreement, but expresses an agreement in principle covering the principal terms of
an equity financing and an undertaking to proceed in good faith to negotiate a definitive
agreement.

This Term Sheet merely constitutes a statement of the present material intentions of the
parties, but that except as set forth under the heading "Confidentiality", "Expense", and
"Exclusivity" above as to which the parties intend to be legally bound, no legally binding
agreement or obligation of any party are covered by this Term Sheet. No oral modifications to
this principle shall be valid.

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The proposal remains open until [DATE], at which point it will be deemed to have been
withdrawn.

[YOUR COMPANY NAME] [VENTURE CAPITAL FIRM]

_________________________________ ________________________________

[REPRESENTED BY NAME & TITLE] [REPRESENTED BY NAME & TITLE]

6.2.2 CHECKLIST

 PRE-MONEY VALUATION: Equals the value the new investors are placing on the
enterprise prior to their investment. Usually, all of the outstanding stock of the
company, together with any outstanding options and warrants or other rights to buy
stock of the company any additional shares which may be reserved under the option
pool, will be included in this pre-money valuation.

 STOCK OPTION POOL: The size of the option pool that venture capital investors will
look for tends to range between 15% and 30% of the capital structure of the company.
This percentage is calculated including the shares of Series A Preferred Stock being
sold in the financing. The actual size of the pool can depend on a number of things,
including the industry that the company is in, but is primarily related to the number
and types of hires that the company will need to make in the foreseeable future. Thus,
a company that has a complete management team at the time of the Series A round
will likely need a smaller pool than a company that has one or more top management
hires to make (each of whom may cost the company a significant amount of options
or stock from the pool).

 CONVERSION: Preferred stock should convert into common stock automatically at the
company's IPO. The special rights generally accorded to preferred stock sold to early-
stage investors could create problems for a public company.

 ANTI-DILUTION: These provisions are designed to protect an investor against "equity"
dilution (later sales of stock at a price lower than what the investor paid). Although the
"weighted average" version is the most common, an alternative is "full-rachet" anti-
dilution protection. Full rachet anti-dilution protection is far more advantageous to the
investor (but punitive to the company) than weighted average, but it is usually
reserved for very early-stage deals or other situations where there is significant
concern as to whether the valuation will hold up over the long term. Put simply,
weighted-average anti-dilution protection accounts more accurately for the actual
dilutive effect which a particular issuance has on the investor's equity position in the

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company. Full-rachet anti-dilution protection, on the other hand, treats all later stock
issuances below the investor's purchase price as if they were the same, regardless of
the number of shares issued.

 VOTING RIGHTS: Although there are venture capital investors that ask for other veto
rights, this list covers of the most frequently requested veto rights. You may not have
to provide veto rights with respect to each of these matters. The key here is to try to
limit veto rights to major corporate events and to try to avoid turning day-to-day
operational matters into matters for a preferred stockholder vote. Often, a
compromise may be reached with respect to a request for a veto right on an
operational matter by agreeing that such would be subject to the veto of the Series A
Preferred Stock's director but not at the stockholder level. This keeps the issue of
shares at the board level - where it belongs.

 LIQUIDATION: This is a so called "straight" liquidation preference. An alternative is the
"double dip" or "participating" liquidation preference, which provides that the
preferred stock gets an amount equal to its money back (plus any accrued dividends if
there is an accruing dividend) and then participates with common stock on an "as
converted basis." A double dip liquidation preference is a pricing term most often seen
in early stage deals or in "down rounds".

 BOARD OF DIRECTORS: Working out what the Board will look like following the Series
A round will be one of the most important matters to deal with. Generally, the Series
A investors will ask for and receive representation on the board. The questions will be
how many seats they get and what effect will that have on the founders and
management's board representation. In the end, everybody involved will need to
participate in and be satisfied with the decision regarding board structure.

 OPTIONS AND VESTING: Venture capital investors will likely impose a vesting schedule
on stock and options held by founders, management and employees as a condition to
investment. if shares or options are not yet vested, they are subject to being lost if the
person ceases to work for the company for any reason. Venture capital investors
impose such vesting requirements in order to provide the company's people with a
reason to stay with the company. Also, if a person ceases to work for the company for
any reason, the non-vested shares are available for grant to his or her replacement.
The theory here is, of course, that the best business plan is worth nothing without the
people to execute it.

 REDEMPTION: This is simply a right to achieve liquidity in the event that the company
does not otherwise reach a sale or IPO by the end of the selected time period. Since
the company cannot redeem stock if to do so would render the company insolvent,
this right becomes useful only in situations in which the company has become some
sort of a sideways play. Usually, the redemption price is the price paid for the stock
plus the accruing dividend, if there is one. Occasionally, venture capital firms will
request that the redemption price be at the greater of such price and the then fair
market value of the stock. The only thing to watch out for here is to make sure that the
company can pay the redemption out over time. Usually three payments over two

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years are common.

 RIGHT OF FIRST REFUSAL: While this is generally asked for and received by venture
capital investors (who can give you a yes or no quickly without the need for elaborate
disclosure documents to comply with the securities laws), a company should, think
about resisting this request if it comes from individual investors.

 OTHER PROVISIONS: The Term Sheet should be non-binding (with the exception only
of the exclusivity provision, if there is one, and any provisions regarding
confidentiality).

 EXPENSES: The amount of expenses included in this provision depends on where the
lawyers are form. Make sure that there is a cap. You may also want to resist any request
to pay ongoing fees for the cost of complying with requests for waivers, etc., after the
closing (except to the extent to which the investors incur fees as a result of the
company breaching its obligations to them).

 CONDITION TO CLOSING: Be on the lookout for any exclusivity provisions in this clause.
Usually such exclusivity provisions require the company to refrain from taking an
investment from anyone else for a set period of time after the Term Sheet is signed.
While an exclusivity provision may be acceptable (and is often imposed), be sure to
pay attention to the time period. It should not be more than is necessary to complete
the transaction, with a little added time to account for delays. The usual industry
practice ranges from 30 days to 90 days at the utmost. Also, make sure that the
exclusivity period automatically ends in the event that the deal is called off before the
period expires.

6.3 CONFIDENTIALITY/NON DISCLOSURE AGREEMENT

6.3.1 TEMPLATE
AGREEMENT dated [...]200[...]

PARTIES
(1) The ‘Discloser’: [Name of individual or company] of [address];
(2) The ‘Recipient’: [Name of individual or company] of [address];

[An introduction can be provided to set the background and basis of agreement.]

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IT IS AGREED as follows:

1 DEFINITIONS
In this Agreement unless the context otherwise requires:

‘Authorised Person’ means [specify as relevant or general as follows] any employee,
director, consultant or agent of the Recipient and any other named firm, individual or
company engaged in providing services directly to the Recipient [and/or] who has been
previously approved in writing by the Discloser.

‘Confidential Information’ means [specifically defined information or general as
follows] such information as the Discloser may from time to time provide to the
Recipient (in whatever form including without limitation orally, written, in electronic,
tape, disk, physical or visual form) relating to the Project, and all know-how, trade
secrets, tactical, scientific, statistical, financial, commercial or technical information of
any kind [directly or indirectly] disclosed [before or after the date of this Agreement] by
the Discloser to the Recipient or any Authorised Person whether in existence at the date
of this Agreement or which subsequently comes into existence including any copies,
reproductions, duplicates or notes in any form whatsoever.

‘Project’ [details of Project, engagement or otherwise].

2 PROVISION OF CONFIDENTIAL INFORMATION
2.1 The Recipient acknowledges that the Confidential Information has been supplied by the

Discloser in confidence, may have considerable value and is of significant importance to
the Discloser.
2.2 The Recipient further acknowledges that the Discloser makes no representation with
respect to the accuracy or completeness of the Confidential Information except to the
extent agreed by the Discloser in writing.

3 INFORMATION USE AND PURPOSE
3.1 The Recipient agrees to keep the Confidential Information in complete confidence and,

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save as expressly permitted under this Agreement, not to disclose, use, copy in whole
or in part or modify or adapt the Confidential Information in any way without the
Discloser’s prior written consent which may be given or withheld in its absolute
discretion, and the Recipient agrees that it will not use any of the Confidential
Information so as to procure any commercial advantage over the Discloser.

3.2 The Recipient undertakes to the Discloser that it shall not use any of the Confidential
Information in any way whatsoever without the prior written consent of the Discloser
except to the extent reasonably necessary in connection with the Recipient’s evaluation
of the Confidential Information and for this purpose the Discloser agrees that the
Recipient may analyse the Confidential Information and disclose the Confidential
Information to Authorised Persons in accordance with clause 4.

3.3 Except as provided in clause 5, the obligation to keep the Confidential Information
confidential shall survive and subsist for a period of [specify] years from the date of each
disclosure of Confidential Information by the Discloser pursuant to this Agreement
notwithstanding any service of notice by the Discloser under this Agreement.

4 AUTHORISED DISCLOSURES

4.1 The Recipient may disclose some or all of the Confidential Information to any Authorised
Person provided that either:

4.1.1 such Authorised Person is subject to a general obligation of confidentiality to the
Recipient which extends to such information; or

4.1.2 Such Authorised Person has executed and delivered to the Recipient a written
undertaking to comply with the terms of this Agreement so far as they relate to
information provided to such Authorised Person.

4.2 The Recipient will procure that all Authorised Persons to whom it discloses the
Confidential Information comply with this Agreement as if they were parties.

5 AVAILABLE INFORMATION

The Recipient’s obligations under clause 3 do not apply to, and the term ‘Confidential
Information’ shall be deemed to exclude any information which the Recipient can prove:

5.1 was known to the Recipient prior to any such disclosure to the Recipient by the
Discloser;

5.2 was at the time of disclosure by the Discloser, or subsequently becomes, published,
accessible to the public or otherwise in the public domain other than through any
breach of this Agreement by the Recipient or any Authorised Person;

5.3 may be required by law, regulation or order of a court of competent jurisdiction to be

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disclosed and the Recipient will immediately notify the Discloser in writing of the
requirement for disclosure and of all relevant surrounding circumstances. If the
Recipient is unable so to notify the Discloser before such disclosure is required it will
notify the Discloser immediately after the disclosure has been made. The Recipient will
use its best endeavours to resist disclosure (and to assist the Discloser in resisting the
requirement for disclosure) and to maintain the confidentiality of any Confidential
Information.

6 ACKNOWLEDGMENTS AND BREACH

6.1 The Recipient acknowledges that the rights which are sought to be protected by this
Agreement are unique and that any breach by it or by an Authorised Person of these
terms would cause the Discloser irreparable and unquantifiable damage and that the
Discloser shall be entitled to apply for and obtain (but without prejudice to any such
rights as the Discloser may have to obtain damages in any such respect) interlocutory
and/or final injunctive or other equitable relief against or in respect of any actual or
threatened breach hereof by the Recipient or any Authorised Person.

6.2 The Recipient agrees that it shall be responsible for any breach of any of the terms of
this Agreement by it (including its directors, officers, agents and employees) or by any
Authorised Person and the Recipient will indemnify the Discloser from and against all
loss or damage (including but not limited to legal costs) which may arise from the
unauthorised disclosure or use of any of the Confidential Information by the Recipient
or its directors, officers, agents or employees, or by any Authorised Person.

6.3 All the terms and conditions set out in this Agreement shall extend to any further
negotiations or discussions of any kind between the Discloser and the Recipient and
shall continue for the period specified in clause 3.3.

6.4 Neither the Recipient nor the Discloser will solicit or discourage from being employed
by the other party any person who was at any time during [specify relevant period] an
employee of the other party (except that this restriction shall only apply to employees
whose details were received as part of the Confidential Information or in the course of
negotiations between the Discloser and the Recipient). The obligations contained in this
clause will expire [specify] months from the last date of any discussions or negotiations
between the Discloser and the Recipient concerning the Confidential Information or
[specify] months from the last date of any disclosure of Confidential Information by the
Discloser to the Recipient pursuant to this Agreement (whichever shall be the later).

7 ANNOUNCEMENTS AND RETURN OF INFORMATION

7.1 The Recipient may not make any public announcement in relation to the Confidential
Information and neither the Recipient nor the Discloser may make any public
announcement of the fact that discussions between the Discloser and the Recipient are
taking place without the prior written consent of the other party which consent shall

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not be unreasonably withheld or delayed if such announcement is required by law or
regulation; provided that the party which is subject to such legal or regulatory
requirement to make an announcement will use its best endeavours to resist disclosure
and to assist the other party in resisting the requirement for disclosure.

7.2 The Recipient and every Authorised Person shall each return to the Discloser on written
demand to the Recipient any and all written documents or materials containing the
Confidential Information together with all copies and if the Discloser should so require
the Recipient shall, when returning documents or materials, provide to the Discloser a
statutory declaration duly executed by an officer of the Recipient confirming that, to the
best of the declarant’s knowledge, information and belief, the Recipient has complied
with all of its obligations under this Agreement.

8 GENERAL

8.1 None of the rights or obligations of the Recipient under this Agreement may be assigned
or transferred.

8.2 This Agreement is binding on and shall apply for the benefit of the parties’ personal
representatives, successors in title and permitted assignees.

8.3 This Agreement constitutes the entire agreement between the parties relating to its
subject matter, and supersedes all previous agreements between the parties relating to
that subject matter.

8.4 Any variation or waiver of any of the terms of this Agreement shall not be binding unless
set out in writing, expressed to amend this Agreement and signed by or on behalf of
each of the parties.

8.5 If any provision of this Agreement, or any part of a provision of this Agreement, is found
to be illegal, invalid or unenforceable the remaining provisions, or the remainder of the
provision concerned, shall continue in effect.

8.6 A failure or delay in enforcing compliance with any term of this Agreement shall not be
a waiver of that or any other term of this Agreement.

8.7 The Recipient shall execute such further documents and perform and do such further
acts and things as the Discloser may reasonably request in writing in order to carry the
provisions of this Agreement into full effect.

8.8 The parties to this Agreement acknowledge that this Agreement was negotiated and
executed and that such negotiations and execution of this Agreement were not affected
by fraud, undue influence, coercion or duress or an unequal bargaining power.

8.9 All notices which are given in connection with this Agreement shall be in writing and
shall be sent to the address set out on the first page of this Agreement or to such other
address as the addressee may designate by notice given in accordance with the

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provisions of this clause. Any such notice may be delivered personally or by first class
posted letter or facsimile transmission and shall be deemed to have been served if by
personal delivery when delivered if by posted [5] days after posting and if by facsimile
transmission when despatched subject to the production by the sender’s facsimile
machine of a successful transmission report.
8.10 A person who is not a party to this Agreement has no rights under the Contracts (Rights
of Third Parties) Act 1999 to enforce any term of this Agreement but this does not affect
any right or remedy of a third party which exists or is available apart from that Act.
8.11 The rights and remedies provided for in this Agreement are cumulative with and not
exclusive of any rights or remedies otherwise provided by law or in equity.
8.12 Neither this Agreement nor any future negotiations shall commit either party to
proceed with any further transaction which is subject to a formal written agreement
being agreed and signed by the parties.
8.13 This Agreement shall be governed by the laws of England and the parties submit to the
exclusive jurisdiction of its courts.

EXECUTED in two originals on the date stated above.

SIGNED by [...]
[a duly authorised officer for and on behalf of [...]

[in the presence of:] [...]

SIGNED by [...]
[a duly authorised officer for and on behalf of [...]]

[in the presence of:] [...]

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6.3.2 CHECKLIST

 DESCRIPTION OF AGREEMENT/DOCUMENT: A confidentiality agreement, or non-
disclosure agreement, is a standard document in many commercial transactions. The
agreement relates to the disclosure and protection of confidential information and
confirms the relationship of confidence between the parties. It sets out in detail the
expectations of the discloser of information and the obligations undertaken by the
recipient of such information. The principal obligations relate to the use of information
for a specific purpose and prohibition of unauthorised disclosures.

 PRACTICAL GUIDANCE/ISSUES LIST: It is essential that owners of confidential business
information seek appropriate practical methods of protecting such information. The
following practical steps may be of assistance to any business or person seeking to
protect their information and/or provide evidence of ownership:

• Record the manner in which they obtained or hold information.

• Mark or stamp such documents containing relevant information with the usual
“secret and confidential”.

• Set up a confidentiality procedure or process (involving storage, monitoring of
disclosure and destruction of confidential documents).

• Disclose confidential documents on the basis of a sealed envelope marked
“secret and confidential” attached to a confidentiality letter indicating that it
is not to be opened until the accompanying confidentiality letter is read,
accepted and signed.

• Produce a record indicating dates or periods when the information was
produced and the manner of creation of the confidential information.

• Restrict access to persons under obligations or confidentiality.

• Ensure that any recipient of information understands and acknowledges that
the information is regarded as confidential.

• Make sure that prior to any disclosure, the recipient enters into a written
confidentiality letter or agreement expressly dealing with the relevant rights
and obligations.

• Produce and maintain records of costs and expenses involved in the creation
and maintenance of the information together with the time spent in such
creation so as to provide, if required, an indication of value, loss or damages.

• Deposit a copy of a confidential report setting out the information to a solicitor
or other professional for safekeeping and to assert copyright with all rights
reserved.

• Maintain a list of recipients of the confidential information or reports

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containing the business intelligence together with a record of when, how and
to whom it is disclosed. Provide a sealed copy duly stamped and post a copy
to oneself by recorded or registered delivery to be kept unopened with the
date stamp as evidence of the confidentiality and possession at the relevant
time by the owner.

• Seek legal advice and guidance from an experienced lawyer as to the best form
of protection and relevant or additional steps.

 LAW/COMPLIANCE REQUIREMENT: The law of confidence can be found in case law
and breach of confidence is recognised as an equitable wrong. The cases establish the
relevant elements of confidential information, identify relationships or situations
importing obligations of confidence and set out the position in respect of liability and
available remedies. The remedies for breach of a confidentiality agreement vary and
may in relevant circumstances include damages, accounting for profits, injunction,
specific performance, disposal or delivery up of the discloser’s property.
Confidentiality and non-disclosure agreements are used as a standard in business to
protect information which a party considers particularly sensitive and which that party
wishes to limit the use of following disclosure to a third party. This is usually pursuant
to a transaction or other arrangement.
It is always worthwhile to review and consider practical measures as to how best to
protect such information. Advice should be taken in specific or relevant situations as
the position may differ in relation to employees, investors, business partners,
consultants or inventors.

 SOME KEY DEFINITIONS: ‘Authorised Person’ means [specify as relevant or general as
follows] any employee, director, consultant or agent of the [Recipient] and any other
named firm, individual or company engaged in providing services directly to the
[Recipient] [and/or] who has been previously approved in writing by the [Discloser].
‘Confidential Information’ means [specifically defined information or general as
follows] such information as the [Discloser] may from time to time provide to the
[Recipient] (in whatever form including without limitation orally, written, electronic,
tape, disk, physical or visual form), relating to the [Project], and all know-how, trade
secrets, tactical, scientific, statistical, financial, commercial or technical information of
any kind [directly or indirectly] disclosed [before or after the date of this Agreement]
by the [Discloser] to the [Recipient or any Authorised Person] whether in existence at
the date of this Agreement or which subsequently comes into existence including any
copies, reproductions, duplicates or notes in any form whatsoever.
‘Project’ means [details of project, engagement or otherwise].
‘Purpose’ means the permitted purpose of review and evaluation of the Confidential
Information in connection with [the proposed transaction].

 SPECIFIC PROVISIONS
• Acknowledgement: The Recipient acknowledges that the rights which are
sought to be protected by this Agreement are unique and that any breach by it
or by an Authorised Person of these terms would cause the Discloser
irreparable and unquantifiable damage and that the Discloser shall be entitled

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to apply for and obtain (but without prejudice to any such rights as the
Discloser may have to obtain damages in any such respect) interlocutory
and/or final injunctive or other equitable relief against or in respect of any
actual or threatened breach hereof by the Recipient or any Authorised Person.
• Indemnity: The Recipient agrees that it shall be responsible for any breach of
any of the terms of this Agreement by it (including its directors, officers, agents
and employees) or by any Authorised Person and the Recipient will indemnify
the Discloser from and against all loss or damage (including but not limited to
legal costs) which may arise from the unauthorised disclosure or use of any of
the Confidential Information by the Recipient or its directors, officers, agents
or employees, or by any Authorized Person.

In preparing a confidentiality/non-disclosure agreement or letter, individuals or businesses
should consider the following non-exhaustive matters.

ACTIONS/ISSUES: COMMENTS:

1. Consider relevant parties, details and information to []
be covered, the permitted purpose together with

relevant exclusions to the non-disclosure obligations.
In particular:

1.1 consider the purpose of the agreement; []

1.2 consider whether the agreement should be []
unilateral or reciprocal;

1.3 consider the correct parties to the agreement; []

1.4 consider whether to specify a sole contact for []
each party to be responsible for handling the []
information and disclosures;

1.5 consider whether the agreement should be
unilateral or reciprocal;

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1.6 verify the correct contracting party’s name, []
correspondence, service or business address []
together with other contact details (email and []
fax); []
[]
1.7 state the extent of confidential information and []
provide details of the product or business []
process to which it relates (if applicable); []

1.8 state how and in what form the information will
be disclosed (orally, written, tape, disk or other
form).

2 Consider specific undertakings from the recipient
including:

2.1 an obligation to use of the confidential
information for the permitted purpose only;

2.2 a non-competition restriction on the recipient
for a specified time from disclosure of the

information, termination of agreement or return
of the information;

2.3 a non-solicitation restriction on the recipient in
respect of the discloser’s business, customers
and employees;

2.4 a lock-out period during which the discloser will
not be able to contract with another party

following supply and disclosure of information
to the recipient (or otherwise allow third parties

access to the confidential information in

26

connection with the proposed transaction); []

2.5 an exclusivity period during which the recipient []
has exclusive access to the information for []
evaluation purposes in connection with a []
negotiation, product review and analysis or []
proposed transaction; []
[]
2.6 restrictions on the recipient copying the []
information in whole or in part or otherwise

adapting the information without prior written
consent of the discloser;

2.7 indemnifying the discloser for any costs in
implementing or enforcing the agreement;

2.8 an express obligation by the recipient not to
directly or indirectly seek or procure a

commercial advantage over the discloser
through use or disclosure of the information;

2.9 an obligation to inform the discloser of any
unauthorised or inadvertent disclosures by the
recipient;

2.1 use of the confidential information and
0 disclosure on any other transaction specific

terms as agreed between the parties.

3 What is the term of the agreement and for how long
will the obligations subsist? Consider:

3.1 exactly how long the specific obligations are
required to last;

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3.2 commencement date of the agreement; []
[]
3.3 the appropriate period of the agreement; []
[]
3.4 any general or specific termination rights;
[]
3.5 any required procedure for dealing with []
destruction or return of information at the end of
the term; []
[]
3.6 whether the agreement and its obligations will []
be ongoing or subject to an end date; []

3.7 any provisions which will or are intended to
survive termination of the agreement or
expiration of the term.

4 Consider whether there will be:

4.1 a payment to the discloser;

4.2 reference to other form of value or consideration
(including exchange of information);

4.3 execution of the agreement by deed as is
necessary if there is no consideration.

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5 Consider the permitted use(s) of the confidential []
information. Will the information be used for: []
[]
5.1 evaluation in connection with an acquisition or []
other commercial transaction? []
[]
5.2 intellectual property research and development? []
[]
5.3 review and evaluation in connection with the []
manufacture or distribution of a product? []
[]
5.4 ascertaining the viability of a process, product or []
transaction?

5.5 any other specific purpose?

6 Are there any authorised disclosures? Can the
information be disclosed to:

6.1 any employee?

6.2 selected employees only (on a need to know
basis or those forming part of the project team)?

6.3 directors or officers of the recipient?

6.4 agents and representatives of the recipient?
6.5 bankers, financiers and investors?

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6.6 professional advisors of the recipient? []
[]
6.7 any other person? []
[]
7 Should there be an obligation:
[]
7.1 that information disclosed by the recipient be
disclosed only to those bound by confidentiality []
obligations to the recipient?
[]
7.2 on the recipient to procure compliance with the []
agreement by those to whom it discloses the []
information?

7.3 for subsequent recipients of the information
from the recipient to sign an acknowledgement
or express agreement? (Will this be practicable?)

7.4 to maintain a list of recipients of the confidential
information together with relevant records?

8 Exclude the right or ability of the recipient to acquire
any rights in the disclosed information.

9 What is the status of the information supplied to the
recipient by the discloser? Can the document or

information be copied? Are there any notification or
further record keeping requirements?

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10 Consider the specific purpose of disclosing the []
information and whether sufficient restrictions have
been imposed on the recipient as to use and to whose []
benefit? Are there any transaction specific restrictions
required? []
[]
11 Consider what the consequences of unauthorised []
disclosure will be for the business and review available []
legal remedies including: []
[]
11. damages; []
1 []
[]
11. injunction;
2

11. account for profits;
3

11. destruction or return of property;
4

11. specific performance;
5

11. any indemnities for loss or enforcement of the
6 agreement by the discloser.

12 Specify or consider agreed terms as to:

12. storage and security of the information;
1

12. delivery of information;
2

31

12. contribution to or payment of legal costs for the []
3 preparation, negotiation and implementation of []
[]
the agreement; []
[]
12. confirmation that the recipient does not already []
4 have the confidential information or similar []
[]
information.

13 Review and consider the circumstances in which the
discloser can be forced to disclose the information to
third parties?

14 Consider disclosure of information by the recipient to
relevant bodies including regulatory authorities or
agencies such as the Inland Revenue and Customs &
Excise in connection with the payment of tax.

15 Consider the effect and consequences of breach of the
agreement or publication of the information by the
recipient or its representatives.

16 Review relevant arrangements as to termination,
return or destruction of the information and the basis
upon which such a request can be made.

17 How will the confidential information be delivered?
Consider use of a sealed envelope attached to the non-
disclosure letter.

18 Consider the authority of the signatory proposed on
behalf of the recipient.

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19 Are there any other specific requirements in relation to []
maintaining the information? []

20 Exclude liability for errors in the information, its []
completeness, currency or accuracy. Consider []
[]
excluding any commitment to proceed with further []
transaction as a result of the supply of information. []
[]
21 Include acknowledgements by the recipient that no
representations, expressions or opinions are made in []
relation to the information.

22 Provide that the discloser can decline to provide
further information and reserves the right to require
the return of all information at anytime.

23 Consider whether the rights under the agreement will
be assignable.

24 Consider:

24. restrictions on announcements;
1

24. entire agreement provision setting out that
2 document contains the whole agreement

between the parties and supersedes prior
agreements;

24. notice provision setting out manner of and
3 address for service of notices;

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24. which clause or provision will survive []
4 termination if incorporated into another []
[]
agreement; []
[]
24. further assurance provision requiring a party to []
5 sign further documents or do other things to []

further implement the agreement; []
24. governing law and jurisdiction clause; []
6 []

24. a provision relating to consent (where required,
7 can it be unreasonably withheld or delayed?);

24. waiver, variation and severance provisions.
8

25 Where forced disclosure is required by law, court or
appropriate body:

25. can the information be disclosed without further
1 reference to the discloser or will there be an

obligation on the recipient to notify the
discloser?

25. will there be an undertaking by the recipient to
2 assist the discloser (if required) to resist

disclosure?

26 Include an acknowledgement of the importance of the
information and that breach of the agreement will
cause irreparable and unquantifiable harm.

27 Include acknowledgement that the discloser may
obtain injunctive or other relief.

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28 Is a guarantee required or necessary? []
[]
29 Are there any obligations on the discloser? Is the
discloser subject to an obligation to keep the []
confidential information a secret? []

30 Seek confirmation of the authority of person signing
on behalf of the recipient or any other party.

31 Consider whether there are any applicable legal
requirements in any jurisdiction where the agreement
may need to be enforced.

6.4 LETTER OF INTENT

A letter of intent is a business document that may be used to outline an agreement between
two or more parties before the partied finalize the contract. It may be used for the
agreements like hire purchase agreement, sales agreement, joint venture agreement, asset
purchase agreement etc. Format of letter of intent will be same as that of a business letter.
6.4.1 TEMPLATE
While the structure and content will differ in accordance to the type of intent letters, the
basics will remain the same. Given below is draft template of the basic structure of a letter of
Intent.

[Your Street Address]

[Your City, ST Zip Code]

[Month Day, Year]

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[Recipient Name]

[Title]

[Company Name]

[Street Address of Company]

[City, ST Zip Code of Company]

[Salutation: Dear Mr/Ms/Mrs/Name]

This letter is written for [Introduce yourself and come straight to the point as to the purpose
of writing the letter].

In this paragraph you will write your intent for writing this letter or state what you have
decided to respond in response to etc. In this paragraph you will write your intent for writing
this letter and any additional information that you would wish to provide.

[If required add more paragraphs, but please note that the best practice is to keep the letter
as concise as possible]

[Valediction – Sincerely/Regards/Best Regards]

[Signature]

[Your Name]

6.2.2 CHECKLIST

 OBJECTIVE: When drafting your letter of intent, make sure to summarize the purpose
of your letter in one sentence at the beginning. Avoid complex statements that would
result in confusing the reader. The summarized line that is simple and captures the
intent of writing the letter would serve as a guide for the drafting of the remainder of
the letter. The key elements that you have to consider is that the letter should be is
crisp, clear and concise.

 SECTIONS: Decide on the sections you want to use to break down the terms of the
agreement into manageable pieces. The sections will differ depending on your
agreement, but may include conditions, financial information, and confidentiality,

36

consequences for failure to fulfill any requirements on behalf of both party and a
timeline.
 OUTLINE: Create an outline before writing your letter to help organize your thoughts.
Begin by listing your sections in the order that flows most logically, then adding more
information as necessary. When you are ready to write the letter, use your outline as
a reference, expanding each section into its own paragraph.
 LANGUAGE: Letters of intent must be succinct and formal in tone and language.
Examine each sentence and clear up any points that are vague, and avoid using jargon
or speaking with hyperbole. When numbers or percentages are involved, always use
exact figures rather than rounding up or down or summarizing.
 OFFER TO DRAFT: If possible, offer to draft the letter of intent. This provides an
immediate advantage and leveraging ability. Clearly specify that all purchase prices be
paid upon closing the agreement, rather than allowing a portion of the price to be paid
at a later date after other conditions are met. Also, consider including a confidentiality
agreement or non-solicitation agreement that goes beyond the expiration date of the
letter of intent. Review the draft to make sure that all terms are as specific as possible
and detail each step of the transaction.
 DISCUSS FUTURE NEGOTIATIONS: Decide up front how much information will be
contained in the letter of intent and what information will be withheld and negotiated
for the final agreement. Importantly, lay out the conditions to finalizing the end
agreement. For example, will the letter of intent be binding, nonbinding, or partially
binding, and when will the final negotiations take place? Consider including a clause
in the letter of intent allowing for its termination should final negotiations fail to
produce an agreement.

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