Deal Building Tools
February 2, 2008
The documents discussed below are the basic tools required to build any deal. They are used to establish the parameters of any confidentiality undertakings, to set down the proposed deal’s terms and to clarify any undertakings given in relation to performing or refraining from doing certain tasks.
Sometimes documents with the same effect or purpose are given different names due to individual habit.
Don’t let the jargon throw you and always remember that the contents are far more relevant than the title.
Deed of Non-Disclosure or a Deed of Confidentiality
Discussions are usually protected by a Deed of Non-Disclosure or a Deed of Confidentiality - same animal, different names. Such a document identifies and protects confidential information (ideas, concepts and proposals) from disclosure - except when disclosure is required by law or by stock exchange rules.
Deal Memo or Term Sheet
Headline terms are often recorded in a Deal Memo or Term Sheet. The idea is to record the basic commercial terms and let the lawyers subsequently fill in the more intricate detail in the final Agreement.
This can be a useful process as there is a human element to any transaction and it’s important to strengthen the perception you’re moving the deal along. Working through the issues when compiling a Term Sheet may also help you evaluate the merits of the deal while there is still time to withdraw if the deal doesn’t stack up.
Memorandum of Understanding or Heads of Agreement
A Memorandum of Understanding or Heads of Agreement is a more developed Term Sheet with some legal clauses added to ensure each party is ‘locked into’ the deal while more detailed terms are negotiated. This type of document may also be used to establish a due diligence process or set up a working party who will work through the finer details.
Letter of Intent
A Letter of Intent is essentially the same document that may have an added emphasis on one party undertaking to do a certain task or to enter into the transaction before a certain date. Legally, nothing particularly turns on the title, but the mention of ‘intention’ may yield some benefit – again, the human element.
Also, nothing turns on the terminology of whether the document is called a contract or an agreement. If it is called a Deed though, there is a legal difference in how the document should be executed.
The final document should, of course, contain all the precise details. For example: not only how much will be paid, but by what date each month, whether there will be an annual CPI increase or whether interest will apply to late payments. In short, the myriad details crucial to full protection of your rights.
Get a lawyer involved as soon as possible if you don’t intend to fly solo in negotiating and documenting the entire deal. It’s very difficult to change a hastily agreed Term Sheet without damaging the trust and goodwill that must be cultivated to ensure a deal eventuates. So, get advice before the foundations are laid.
| Photo by powerbooktrance |
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