Letter of Intent

Presently, clients of DMCs are hesitant to enter into event service agreements, because of the ongoing pandemic and potential financial risks they may be exposing themselves to by entering into such an agreement. In an effort to ease clients’ concerns and arrive at a mutually beneficial arrangement, a letter of intent may be used. In doing so, minimal terms are contemplated by the parties to the agreement that will mostly offset the DMC’s risk of planning the event without being compensated, while also limiting the clients’ liability and overall obligation to that of only the negotiated non-refundable amount.

 

A letter of intent (LOI), also referred to as a term sheet, memorandum of understanding, or heads of agreement, is a letter agreement that sets out the principal terms of a transaction. It forms the basis for negotiations toward a definitive agreement (i.e., an event service agreement or, less often, a master service agreement). A letter of intent, once fully executed, shows the serious intent of the parties, but typically does not require parties to conclude a proposed deal on the terms set out in the letter. In this letter of intent, the client outlines its intention to purchase services from the DMC. This letter aims to be reasonable to reduce the time and expense it takes to get to the final version.

 

A letter of intent can be useful in a transaction because it can:

  • Identify deal breakers early in the negotiating process.

  • Focus negotiations and help avoid misunderstandings as the parties negotiate a definitive agreement.

  • Most importantly, and for the purposes of this LOI, mitigate financial risk under current pricing models typically utilized by DMCs.

 

However, letters of intent are not always beneficial. Some disadvantages to using a letter of intent include:

  • Costs of negotiating and preparing the letter.

  • Possibly creating disclosure obligations if a party is a public company.

  • Potentially creating unexpected binding obligations on a party if not drafted carefully.

  • The possibility that a party may make premature investments or commitments on the assumption that the letter of intent will inevitably lead to a definitive agreement.

 

In some cases, the parties should skip the letter of intent and go directly to negotiating the event service agreement. This will depend, however, on the particular business process/practices used by the DMC.

 

This LOI assumes that:

  • There are two parties to the transaction. The LOI should be adjusted as necessary if additional parties, such as third-party suppliers or service providers, also have rights or obligations under the proposed agreement.

  • The parties to the agreement are US entities and the transaction takes place in the US. If any party is organized or operates in, or any part of the transaction takes place in a foreign jurisdiction, these terms may need to be modified to comply with applicable laws in the relevant foreign jurisdiction.

  • These terms are being used in a business-to-business transaction. This LOI may not be suitable for a consumer contract or a government contract, which may involve legal and regulatory requirements and practical considerations that are beyond the scope of this resource.

  • This letter of intent is generally non-binding. It does include standard legally binding provisions relating to confidentiality, governing law, no third-party beneficiaries, and expenses. If the parties want other provisions to be binding, adjustments must be made to the relevant section(s). This is extremely important because presenting a client with a non-binding letter of intent offers assurances that there is no obligation to enter into an event service agreement but still mitigates the DMC’s financial risk by carving out certain terms (i.e., compensation) as binding. This approach, if adopted, will need to be carefully explained to account executives and other personnel responsible for introducing the document.

© 2020 by Cataudella Law, APC

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